It is well-known that COVID-19 disproportionately impacts people with cardiovascular/renal/metabolic disease, collectively comprising the #1 cause of global morbidity and mortality. Recently, President Biden backed a proposed waiver for COVID-19 vaccine intellectual property (IP) rights. This would allow generic manufacturing of the vaccines and increase vaccine accessibility globally. In theory, it sounds amazing: everyone vaccinated at cheap, generic pricing. In reality, waiving IP rights does not change anything about the current COVID situation.
The vaccine companies ($MRNA, $CVAC, $NVAX, $BNTX) are all trading down on the news. This presents a potential buying opportunity (“buy when others are fearful” may be applicable here). Here’s the rationale:
Is This IP Waiver Move a Political Stunt?
The next step is for the World Trade Organization to hammer out a deal — a process that could take many months. At minimum 2-3 months and more realistically by December 2021 (read negotiation details here). During these 6 months, vaccine producers will further boost global supplies and ease pressure for the waiver.
Additionally, getting the consent of 164 WTO members is no easy task. The WTO has not agreed on a substantive new trade policy, such as this IP waiver, since its inception in 1995. 25+ years of history do not support any action being passed.
IP Is Nothing Without Process & Supply Chain
Okay, so lower income countries and generic manufacturers have the intellectual property. Now what? They will need the processes, infrastructure, and the supply chain know-how of specialized vaccine producers like Pfizer, Novavax, Moderna and so on. GMP manufacturing capabilities for vectors and RNA is no easy task.
Moderna has already announced that it would not enforce IP rights on its vaccine. To this day, only Moderna is manufacturing its vaccine. No one took the offer.
Additionally, Brazil’s regulatory agency rejected Russia’s Sputnik V vaccine, citing that the samples they received were different from what was shown in publications (details here). In other words, manufacturing quality control issues.
If Biden’s goal was to increase vaccine accessibility around the world, he would likely have released the raw materials (bags, vials, etc.) that are being blocked from being exported to other countries. India, for example, has said that these raw materials are the reason they are falling behind in vaccine production.
Therefore, taken together, this IP waiver may be a PR stunt more than anything.
Moderna Margins Hint at Novavax Margins
Yesterday, Moderna ($MRNA) released Q1 2021 earnings. The company sold approximately $1.73B of vaccines. Cost of these sales were $377M. Gross margin of 78%. Operating margin for Moderna’s vaccine was 61%.
It is believed that mRNA vaccines are more expensive to produce than spike protein vaccines like NVAX. This would indicate that NVAX margins should be at least 78% gross. At least 60% operating margin also is a safe assumption.
Additionally, Novavax is starting to convert MoU into purchase agreements (350M doses with COVAX), will likely report higher margins than originally anticipated and receive imminent regulatory approvals. The first generation of vaccines is not a problem, it’s a second run that may present potential issues, mostly due to misaligned incentives associated with risk/reward (e.g., see this tweet). All in all, the IP waiver news is an improbable event that will likely not impact business and may present a strong buying opportunity for $NVAX.
P.S. Not investment advice. Read the Liability/Disclaimer subsection to learn more.