LNP lawsuits could trigger a land grab for novel drug delivery systems

On Friday, August 26th, 2022, Moderna announced they were suing Pfizezr and BioNTech.

Moderna is claiming that Pfizer and BioNTech copied two “key features” of their mRNA Covid-19 vaccine. The first feature is the "exact mRNA chemical modification" as Spikevax.

The second complaint is that they copied the method of encoding a full-length spike protein in a lipid nanoparticle (LNP) formulation for the targeting of coronaviruses.

What Moderna is alleging is not only did Pfizer and BioNTech steal their Amazon package, but they stole the cardboard box too.

Interestingly, back in March, Alnylam sued both Pfizer and Moderna on the issue of lipid nanoparticles (the drug delivery system.) Alnylam claim they invented it more than a decade ago and are seeking damages from both parties.

The ramifications of theses lawsuits are significant. In the end it will be the courts that decide who owns LNP for delivering mRNA. If BioNTech loses, they would have to pay damages to Moderna, as well as future royalties on sales. (It’s important to note that Moderna isn’t seeking to halt the sale of Pfizer’s Covid-19 vaccine. Although this is just likely due to the PR mess it would create.)

But you don’t launch a multi-year lawsuit against a big pharma juggernaut just to snag a bit of cash on patent violations. There’s something more sinister at work here. Moderna wants to be the only company that can deliver mRNA products via specific formulations of lipid nanoparticles.

This is the big danger for Pfizer and BioNTech. It’s not having to shell out royalties on vaccine sales. It’s having to shell out royalties, and then being denied an LNP license for future mRNA products.

Look at BioNTech’s mRNA pipeline. They’re going after everything from cancer to HIV. They have big plans for mRNA. This lawsuit threatens every product in their pipeline that uses LNPs to delivery mRNA into humans.

For the next few years, lipid nanoparticles will be a controversial subject. Put yourself in the shoes of a biotech executive. You’re about to start a massive pre-clinical project targeting a lucrative cancer indication.

The plan was to deliver your new drug using lipid nanoparticles. This is because you understand LNPs and there’s decades of data showing that they work.

But now you have to deal with patent issues. Are you really going to commit to years of clinical trials not knowing whether big pharma will sue you out of existence? Given that other drug delivery systems exist, and there are several new ones in development, the risk of going with lipid nanoparticles just shot into the stratosphere.

If your drug is successful, you could be on the hook for 5-15% royalties. Or you might even straight up be denied a license to use LNPs.

Moderna has shown they’re ready to do legal battle with the likes of Pfizer. Going after small cap biotech would be child’s play. Pre-revenue biotech companies do not have the funds to fight a patent war with big pharma.

LNPs are radioactive now. They’re too dangerous to work with unless you’re 300% sure you’re not violating anyone’s patents.

The good news is lipid nanoparticles are the delivery system of the past. Several companies are working on new delivery systems. Like Matinas BioPharma. My favorite microcap biotech company.

They’ve developed a drug delivery system called lipid nano-crystals, or LNCs. LNCs have several advantages over LNPs.

1. They’re shelf stable so they don’t need expensive refrigeration.

2. They provoke less of an immune response, which means you can administer highly toxic drugs like amphotericin B for longer than the classic IV formulations.

3. They can survive in the GI tract which means they can be administered orally.

While everyone is fighting over the cardboard box, Matinas has quietly been developing the indestructible super box which flies directly from the warehouse, phases through your front door, and lands safely on your kitchen table.

Back in April, Matinas and BioNTech signed a research agreement. For the last five months they’ve been working on delivering mRNA with lipid nano-crystals. This preclinical work is now even more important.

If one company can control the rights to a superior delivery system for the entire spectrum of mRNA products, then that is the company that will win in the long run.

If Moderna sticks with LNPs, then they will never have an oral vaccine. Oral vaccines are better for numerous reasons. Less syringes needed. Less nurses needed. Higher uptake from people afraid of needles. Etc.

I wrote an article a few months ago saying BioNTech should just buy out Matinas instead of doing a licensing deal. Some investors agreed, some didn’t. But given the LNP lawsuits flying around, it’s more obvious than ever.

When people think of moves in board games they think of good moves, bad moves, risky moves, safe moves, etc. This is the wrong way of thinking. There is no such thing as a good move or a bad move. There is the correct move, the move that gives you the highest chance of winning the game, and then there are all other moves.

The correct move for BioNTech now is to buy out Matinas. It’s cheaper in the long run and eliminates the possibility of competitors using the LNC platform against them. (Even if BioNTech gets a license for all of mRNA, a new technology could emerge that uses LNC better than mRNA. If they buy out Matinas, then BioNTech controls all future licenses.)

At this point, Matinas should resist a takeover and license their technology to anyone who doesn’t want to get involved in the legally-murky world of lipid nanoparticles. Although really it just comes down to money. Matinas BioPharma only has a market cap of 157 million, which is frankly ridiculous given their potential and the data they dropped last September for their LNC oral amphotericin B.

While Matinas has signed an agreement with BioNTech not to work with anyone else in the mRNA space, it doesn’t prohibit them from selling the company to a competitor like Moderna.

If Moderna thinks they will 100% win this lawsuit and prevent BioNTech from using LNPs in their future mRNA vaccines, then Moderna could dominate the mRNA sphere by buying out Matinas. This would prevent BioNTech from using both LNPs and LNCs.

Creating a superior Covid-19 vaccine would be great, but the real money is in the rest of the mRNA space.

Since both Moderna and BioNTech/Pfizer built similar and highly effective Covid-19 vaccines, we can assume future products will be similar in quality as well.

Like how both Samsung and LG have made similar quality TVs for the past 20 years.

Both companies ship their products in cardboard boxes. Imagine a judge said Samsung wasn’t allowed to use cardboard, foam, or plastic to ship their televisions. They’d be in deep trouble.

Whoever has the best drug delivery system is going to be the winner.

In the next few months, I expect we’ll see some action in the drug delivery space. Buying out a novel drug delivery company can be seen as an insurance policy against future LNP lawsuits.

What would the best drug delivery system be worth?

Well, let’s say Moderna wins their lawsuit and Pfizer has to pay 10% royalties on their vaccine sales. This lawsuit won’t be resolved until 2024 at the earliest unless they settle. So let’s say by then Pfizer will have total vaccine sales of $150 billion.

10% back royalties would be $15 billion.

5% back royalties would be $7.5 billion.

That’s how much Pfizer would have saved if they used a different drug delivery system than lipid nanoparticles.

But it doesn’t stop there. That’s just the Covid-19 vaccine money. Now Moderna can prevent them from using LNPs in other products. This would torpedo three years of research. Pfizer and BioNTech would have reformulate everything that used Moderna’s LNP specifications.

If Moderna manages to create a successful HIV vaccine, sales on that would be astronomical. If Pfizer and BioNTech have the start over due to LNP issues, the entire world could be vaccinated with Moderna’s HIV shot before Pfizer’s candidate even gets to Phase 3 trials.

Locking down a drug delivery system is now more important than ever.

Everyone in this space is a target for a buyout. Will Matinas’ LNC technology reign supreme? Maybe. Maybe not. But the market cap on these drug delivery companies is so small, that if I were sitting on $35 billion in cash, I would just buy them all. What’s the downside, that most of them turn out to be flops? Big whoop.

A best-in-class drug delivery system that’s shelf-stable and allows oral administration is worth billions. Maybe even hundreds of billions.

Imagine the US government prohibited Amazon from using cardboard boxes. How much do you think they would pay to get around that?

Answer: They would pay everything, everywhere, all at once.

If your goal is to maximize profit, then preventing your competitor from owning or using the next generation of drug delivery systems is as important as owning them yourself. Whoever owns the best drug delivery system will have a borderline monopoly in the mRNA space.

Companies with drastically superior products or services compared to their competition always win in the long run.

If LNC is proven vastly superior to LNP, then whoever buys Matinas will be giving their competitors cement shoes and throwing them into a swimming pool of hungry sharks. Yes, they could escape, but no, they probably won’t.

I’m generally disappointed in the slow response that the market gives to important news, but these LNP lawsuits are something else. Drug delivery companies should be flying. I think we’ll see some M&A in this space pretty soon. Or some monster licensing deals. With the patents to LNP being hotly contested, it’s only natural for companies to absorb intellectual property that’s clearly owned and controlled by a single entity.

Given how cheap some of these drug delivery companies are, it makes sense to throw large premiums at them and roll the milestone payments into a CVR.

If BioNTech floated a deal like $1B for Matinas, and it came with multi-billion milestone payments and royalty fees, I think most investors would vote yes on that.

Multi-billion dollar offers for tiny companies sounds excessive because their market cap is so low. But this is not a good way of thinking. Look at the product and not at who owns it. Like if a homeless person wanders into a pawn shop with a brick of gold. You would focus on the gold, not the scruffy dude. Current ownership is irrelevant. It’s the thing that matters.

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