On Wednesday, the Biden Administration announced its intention to waive intellectual property rights on Covid-19 vaccines. The news is a shock in multiple ways. First it goes against what America has stood for when it comes to protecting enterprising entrepreneurs. On the other hand, while some pharmaceutical companies vowed not to pursue profits, others did not make that vow and they stand to lose billions. We'll clarify who the different players are next.
Biden's Mounting Pressure:
To say this recent move was an an original policy without outside influence would be false. The World Trade Organization along with 100+ other countries as well as democratic lawmakers have been pushing Biden to make vaccine supply and distribution more equitable for poorer countries. In the wake of the devastation in India where almost 50% of new worldwide cases originated from last week, pressure on Biden significantly escalated.
“This is a global health crisis, and the extraordinary circumstances of the COVID-19 pandemic call for extraordinary measures. The US supports the waiver of IP protections on COVID-19 vaccines to help end the pandemic and we’ll actively participate in @WTO negotiations to make that happen."
Ambassador Katherine Tai, trade negotiator for Biden at the WTO.
In a twitter post supporting her previous statement, Katherine Tai framed the shift in American policy as serving American interests to try and eradicate the vaccine before the rise of resistant strains could come back stateside. This of course is different from earlier negotiations at the WTO where the US did not support waiving patent rights in response to proposals by India and South Africa.
Whether serving American interests or promoting vaccine equity now, both messages serve their purpose to resonate with larger audiences.
The Pharmaceutical Lobby:
To say this was met with agreement by the major pharmaceutical companies and their shareholders would be false as well. Share price of major companies like Moderna, Novavax, and Pfizer fell after the announcement--that's because these are the companies with substantial upside to patent protection. The pharmaceutical lobby would rather license their patents (otherwise known as technology transfer) to countries where they don't have the capacity to supply. Proponents of this point to more than 200 such technology transfers having already occurred. Note however, Pfizer has not transferred its technology compared to its peers citing that control over the manufacturing process ensures the safety of its product.
“Moderna retains worldwide rights to develop and commercialize mRNA-1273. Without a corporate partner, Moderna will realize all the profits from our COVID-19 vaccine.... We should have a unique cash position at the end of 2021.”
Moderna Chief Executive Stephane Bancel on October 29, 2020.
As far as we can tell, Pfizer and Moderna knew what a tremendous windfall in terms of profit this would turn out to be. I mean if you need to vaccinate 3-7 billion people and do that every 12-36 months, it pays to be one of four major players in this space. In fact, Moderna and Pfizer have the lion's share of the market making them a duopoly on Covid-19 vaccines--however rightly owned through the patent system and FDA approval process so one shouldn't take away something earned. The aftermath in terms of brand equity is a different story.
The Impact to Big Pharma:
Now that sales have rolled in and projections can be made, we find out that Pfizer estimates almost 1/3 of its entire revenue will come just from Covid-19 sales totalling $26 Billion in 2021 for delivery of 1.6 Billion vaccines. Expansion for Pfizer includes vaccines for those ages 2 years old to 18 years old as well as contracts with multiple international countries which would essentially double the total vaccines manufactured in 2022 compared to 2021.
Similarly Moderna projected about $19 Billion from vaccine sales in 2021 based on existing purchase agreements to deliver vaccine in 2021. We need to pause here for a second just to realize the impact of Covid sales on Moderna. Moderna (NASDAQ:MRNA) ended 2020 with about $800 million in total annual revenue and a share price of about $20.
Fast forward to today, its share price has been fluctuating between $150-180. That is a 7-8X multiple increase. It's projected annual revenue for 2021 is $19 billion just from vaccine sales which itself is about a 24x multiple in revenue in one year!! While Vaccine sales account for 1/3 of Pfizer's total revenue, we can easily see that it accounts for the majority of revenue of Moderna's revenue.
One thing to note, the US government granted Moderna almost $1 Billion in the beginning of the pandemic to accelerate vaccine development. One not so crazy opinion is given this ridiculous commercial success, it would be a nice gesture to return that $1 Billion of grant funding back to the American taxpayer.
These mRNA vaccine manufacturers are profiting BIG from this pandemic, and all this is just starting to make its way into actual quarterly financials we can point to.
On the other hand, the manufacturers of the less effective viral vaccine, namely Johnson & Johnson as well as Astrazeneca have vowed not to make a profit at least until the pandemic is over with. Johnson & Johnson made about $100 million last quarter annualized to $400 million which is a drop in the bucket--about 0.4% of total revenue compared to Pfizer or Moderna for example. Astrazeneca faired better with about $275 million from vaccine in the last quarter mostly from sales in Europe. This represents about 4% of their total revenue. Astrazeneca is selling its vaccine at 1/5 to 1/10 the price of other manufacturers. However its biggest potential market, the US, is closed to them because of concerns of a blood clot side effect which we covered in detail in a previous story.
For now, it seems that the patent waiver will take a few months to clear the different processes for it to be ratified into law. What this story interestingly helped us discover is exactly how lucrative developing a vaccine for a pandemic can really be. The ethics behind profit in the face of a global crisis is assumed to be clearly in support of humanitarian aid but it is not as simple because at the same time--we don't know of any non-profits that developed a vaccine for Covid 19. I actually would like to see a non-profit pharmaceutical company in the US for vaccines, generics, and gene therapies. It just has to be managed well.