Moderna v. Pfizer: What the Patent Infringement Suit Means for Biotech

Moderna, the maker of one of the Covid-19 vaccines, once was the underdog, the startup that rose to the occasion during the 2020 pandemic. It might be hard to remember that given all that’s happened since. The company has enjoyed massive growth and recognition. Its name is plastered on the walls at Fenway Park and Arthur Ashe stadium, home to the U.S. Open. In size and public profile, Moderna is more Goliath than David these days, a point underscored by its recent filing of a patent infringement lawsuit against Pfizer.

The news generated some surprise outside the industry. It came after a sort of patent lawsuit cease-fire during the worst of the pandemic when Moderna said it would not file suits while developing and distributing Covid vaccines.

Industry insiders, though, see it more as a return to business as usual. Wall Street Journal reporter Peter Loftus, author of the recently released HBR Press book The Messenger: Moderna, the Vaccine, and the Business Gamble That Changed the World, notes that Moderna modified its pledge not to sue just last March to say that it may enforce patents in higher-income countries. “This lawsuit is no surprise to people who’ve followed the Covid-19 patent situation,” he said.

The Messenger leaves off right about the time Moderna amended its pledge, and much has happened since. HBR senior editor Scott Berinato caught up with Loftus to see what has happened to Moderna since. This conversation is lightly edited for clarity and length.

HBR: You’re not surprised by this lawsuit?

Loftus: This lawsuit is not a surprise to people who have followed the Covid-19 patent situation. As far back as 2020, patent lawyers and Wall Street analysts saw that Moderna had taken out patents covering its mRNA technology and the use of mRNA in vaccines, and that Moderna could someday cite them in a patent infringement lawsuit against Pfizer, and possibly others. It’s true that Moderna in 2020 pledged not to enforce its patents during the pandemic, but it modified that pledge in March 2022 to signal that it would begin enforcing its patents in higher-income countries including the U.S. That foreshadowed the lawsuit Moderna just filed against Pfizer.

What is the value to Modern doing this at this stage, when a vaccine is widely deployed by both companies?

IP litigation is one cost of doing business in the pharmaceutical industry, but companies see it as very much worth the cost. Companies only have a limited amount of time to reap the benefit of a patent before it expires, usually around 20 years. Once the patent expires, a low-cost generic drug can wipe out billions of dollars in sales for the original maker, virtually overnight. They call this a “patent cliff.” Pfizer’s cholesterol drug Lipitor lost $5 billion in sales in the first year after generics came on the market. So, the brand-name drugmaker sees it as a worthwhile investment to defend patents against lower-cost generics, so that they can essentially extend a monopoly on sales of the original while the patent is in effect.

Still, this case is a slightly different in that Moderna is not protecting against generics, but rather a competing product that came out at virtually the exact same time. If Moderna can prove Pfizer used part of its IP to make its vaccine, suing could secure them a royalty on all sales of Pfizer’s vaccine after March 2022. Even if it’s a small percentage, Pfizer’s vaccine sales continue to be in the billions of dollars; that can add up. Also, Moderna and most other drug companies feel compelled to file patent-infringement lawsuits to defend the principle of protections for innovation, and to deter other companies from launching future products that may infringe their patents.

Pfizer’s defense is that its vaccine is based on its own proprietary research. Is that possible? Could two companies be developing products that are this similar without some sort of mixing of IP?

It is possible that it’s based on work mainly by Pfizer’s partner, BioNTech, since BioNTech also had been working on mRNA for several years. But if Moderna secured certain critical U.S. patents first, then it may have the upper hand from a legal perspective. Generally speaking, there are some cases where several drug companies are working on the same type of drug or vaccine, and then end up paying royalties to one company or university that held critical patents, either up front or later after litigation or negotiation.

What about the optics of suing to profit even more off the vaccine? Are you surprised Moderna moved forward with this lawsuit despite that?

I’m not surprised they moved forward. I think they certainly had to weigh the optics, and their lawsuit did trigger some criticism, but I also think Moderna feels very strongly that they made critical advances in the development of mRNA over the years, and they believe the Pfizer/BioNTech vaccine relied in some way on these advances. I do think Moderna may have nodded to the optics by stating that it isn’t seeking damages for anything before March 2022, basically saying we’re not retroactively trying to profit more off the worst of the pandemic.

Much of Moderna’s work was funded by taxpayers. How does that play in here?

I don’t think that has a direct bearing from a legal perspective in this patent lawsuit. But optically, critics of Moderna say that Moderna has benefited from billions of dollars in development grants and contracts awarded by the federal government. It has profited enormously as a direct result of that taxpayer support, and so some critics don’t view so favorably a lawsuit that is seeking money on top of the billions in profits Moderna has already earned. Moderna said this latest lawsuit against Pfizer doesn’t relate to any patent rights generated during Moderna’s collaboration with the National Institutes of Health on its vaccine. But Moderna’s work with the government has factored into other patent disputes. Moderna earlier this year asked a federal court to dismiss a patent lawsuit filed against it by another company, Arubutus, which claims Moderna’s Covid-19 vaccine infringes Arbutus patents. Moderna said the court should dismiss that lawsuit because Moderna was acting as a federal contractor in supplying Covid vaccines, and that federal patent law protects government contractors from certain patent lawsuits. That case is still pending.

Let’s talk about Moderna more broadly. Your book The Messenger chronicles the company’s unlikely journey from a waning biotech startup in 2020 to its heights today. Beyond IP lawsuits, where does Moderna go from here? Is it developing other products?

Moderna has quadrupled its work force and is booking billions of dollars in sales and profits, which is a huge transformation for a company that didn’t have a product on the market before 2020 and was seeing its stock price drop or stagnate. The company is gearing up this fall to roll out tens of millions of doses of a modified Covid booster shot that may better target the more recent circulating Omicron variants. I think there is an open question about how they follow up on the Covid-19 vaccine.

You talk in the book about the company almost feeling trapped by the Covid vaccine after some time, almost like it was afraid of being a one-hit wonder and was desperate to ramp up other projects.

Moderna’s leaders have at times felt exhausted by the pandemic, especially as new variants made it clear that the company’s work wasn’t over when it developed and made the original Covid vaccine in 2020. It had to pivot to updating its vaccine booster shots to match new variants, the first of which was just authorized. The focus on Covid meant that other projects including a personalized cancer vaccine had to be put aside or delayed. That crunch has eased up more recently, though, because the financial windfall from Covid vaccine sales has finally allowed Moderna to invest more in R&D, hiring new scientists and actually expanding its research.

They are developing a few dozen experimental drugs against other infectious diseases, cancer, and rare diseases. One of the next tests of their mRNA technology will be whether they can successfully make a better flu shot, which could potentially make it to market in the next year or two if studies are successful. They’re also advancing vaccines against cytemegalovirus, or CMV, a virus that can cause birth defects in children born to infected mothers, as well as RSV, which can be harmful to infants and the elderly.

Moderna is known for a hard-charging, sink-or-swim culture that featured heavily in the book. Has that startup culture changed with growth and success?

I think the average rank-and-file worker may be less exposed to some of the more difficult aspects of that because the company has grown and there are more layers of hierarchy. And the pride of being part of something so monumental goes a long way. But there continues to be turnover among the executives — about half of the top 10 positions have changed hands since the pandemic began.

Have the biotech and pharma industries changed because of the pandemic?

The leaders of the biopharma industry point with pride to what the industry delivered: effective vaccines and treatments on unprecedented timetables (albeit with unprecedented help from the government). That has energized the industry, and the companies that profited the most from their pandemic efforts now have more financial resources to invest in research and do deals that could yield future breakthroughs. But the industry still faces challenges — it just lost a big fight in Washington when Congress passed new legislation aimed at bringing down high drug prices. Even if the industry continues to churn out innovative new medicines, the cost of those medicines will continue to be a challenge for society — and for the industry’s reputation.

Copyright 2022 Harvard Business School Publishing Corporation. Distributed by The New York Times Syndicate.