The Biden administration says it backs a proposal to waive intellectual property rights (IP) for COVID-19 vaccines. How could that impact future investment in biotech? Portfolio Manager Andy Acker explains.

Key Takeaways

• COVID-19 vaccines use advanced science that few countries can support, which will likely minimize the ability of IP waivers to increase supply in the near term.
• Some worry that waivers could deter biopharma companies from investing in research and development in the future.
• In our view, innovation helps create high barriers to entry, which should encourage research. But we also think the sector’s increasing complexity demands an active approach to investing in health care.

Clearly, with COVID-19 cases and deaths accelerating at an alarming rate in countries such as India, there is an urgent need to facilitate the global distribution of vaccines and to make shots affordable for all. But we believe the White House’s announcement is another example of how political headlines can obscure the realities of health care – with the potential to trip up investors.

IP Waivers vs. Industry Practice

The intention of IP waivers is to speed the production and distribution of COVID-19 vaccines, particularly in developing countries where vaccination rates lag that of developed markets. The World Health Organization supports the initiative and is encouraging other countries in the World Trade Organization (WTO) to join the U.S. (Agreement from all members of the WTO is needed for waivers to be approved.)

But the push may be more political theater than practical policy. For one, many of the vaccine makers have already been willing to forgo enforcing patents. In October, for example, Moderna issued a press release stating, “… while the pandemic continues, Moderna will not enforce our COVID-19 related patents against those making vaccines intended to combat the pandemic. Further, to eliminate any perceived IP barriers to vaccine development during the pandemic period, upon request we are also willing to license our intellectual property for COVID-19 vaccines to others for the post pandemic period.”

Meanwhile, AstraZeneca says it has established more than a dozen regional supply chains, collaborating with partners in various countries. The pharma giant also has pledged to forgo any profits from the vaccine during the pandemic in an effort to keep the price of each jab affordable.

Innovation Complicates Generics

So why hasn’t global vaccine production ramped up? The simple answer is that making the shots is not easy. Both the Pfizer/BioNTech and Moderna vaccines use mRNA technology, a new modality that has never been produced before at mass scale. Consequently, the number of facilities and people with expertise capable of churning out shots is extremely limited. As Moderna CEO Stéphane Bancel said during an investor call, “You cannot go hire people who know how to make mRNA. Those people don’t exist.” Even if such people did, companies would have to develop manufacturing processes, source raw materials and go through rigorous regulatory review, all of which would take months, if not years, to complete.

Thus, waiving IP protections is unlikely to provide immediate relief for the vaccine shortage. However, some worry waivers could raise doubts about the validity of IP law and curb biopharma’s willingness to invest in new innovation or respond to future health crises. We view that outcome with concern, especially given the high-risk, high-cost nature of drug development. But even then, we do not think it fully reflects today’s market dynamics, in which regulation has struggled to keep up with the sector’s dramatic leaps in innovation.

Consider the case of biosimilars. In 2010, Congress passed legislation that established an abbreviated pathway for biosimilar approval. (Biosimilars are generic versions of biologics, complex therapies made up of proteins, DNA or other types of living cells sourced from mammals, plants and even bacteria.) However, a decade later, only 29 biosimilars have received U.S. Food and Drug Administration approval, of which less than half are available to patients. Europe has been more aggressive, approving 76 biosimilars since 2006.² Nevertheless, the market has come with challenges. Chief among them: the difficulty of manufacturing biologics consistently and proving the drugs can be used interchangeably with branded competitors. Many biosimilars have also been tied up in patent litigation or have experienced slow adoption due to reimbursement complexities, concerns about efficacy or even cost. Looking ahead, biosimilar adoption is expected to increase, but it has taken more than a decade to get there.

Growing Market Opportunities

In short, today’s innovative medicines are often not easily replicated, forming high barriers to entry. Even then, many new drugs are breakthrough therapies addressing high, unmet medical needs, with the potential for significant market opportunities. COVID-19 vaccine revenues are expected to total U.S. $157 billion through 2025, according to estimates by IQVIA.³ Furthermore, COVID vaccines have helped to validate vaccine makers’ drug platforms, which companies could apply to other disease categories.

Thus, when news broke about Biden’s support for IP waivers, Moderna’s CEO Mr. Bancel reportedly said he wasn’t losing any sleep over the issue. We may not be quite as sanguine as Mr. Bancel. But we do believe his reaction speaks to the increasing complexity of the global pharmaceutical market and the need for investors to look past headlines to better understand the realities of today’s drug development and distribution.

The Right Side of Disruption

Learn More ¹Bloomberg, data as of 5 May 2021. The Nasdaq Biotechnology Index contains securities of Nasdaq-listed companies classified according to the Industry Classification Benchmark as either biotechnology or pharmaceuticals, which also meet other eligibility criteria.
²“How the U.S. Compares to Europe on Biosimilar Approvals and Products In the Pipeline,” Rothwell Figg’s Biosimilars Law Bulletin, 8 March 2021.
³“Just how much COVID-19 vaccine money is on the table? A whopping $157B through 2025, report says,” FiercePharma, 29 April 2021.