Moderna drops, Arbutus pops after patent ruling means vaccine maker could owe royalties on billions in COVID shot revenue

• Moderna stock fell 11% on Wednesday after the vaccine maker lost a patent fight against Arbutus Biopharma.
• Arbutus jumped 103% following the ruling as it could lead to royalty payments from Moderna.
• Moderna's COVID-19 vaccine is expected to generate about $20 billion in revenue this year and next.

Moderna stock tanked as much as 11% on Wednesday after the drugmaker lost a patent fight against Arbutus Biopharma, a small-cap biotech company that patented a technology essential to the success of mRNA COVID-19 vaccines.

A federal appeals court upheld a ruling by the US Patent and Trademark Office to not invalidate patents held by Arbutus, arguing that Moderna had no standing to appeal the decision. Moderna had preemptively appealed.

Shares of Arbutus soared as much as 103% after Wednesday's ruling, as investors bet it could lead to Moderna paying the company royalties for its mRNA COVID-19 vaccines. Moderna's vaccine is expected to generate about $20 billion in revenue this year and next, according to analyst estimates.

The patents subject to the court's ruling cover a novel lipid formulation for nucleic acid delivery. These lipids help protect mRNA therapies as they travel through the body to target cells. Moderna has argued in the past that claims in Arbutus' patents were obvious and that upholding them would subject the company to patent infringement lawsuits.

While an infringement lawsuit is possible, it could drag on for years with Arbutus likely settling for a small royalty, Jefferies analyst Dennis Ding said.

"When you're thinking about the revenue opportunity from the vaccine, $10 billion to $20 billion annually, a small low-single-digit royalty is immaterial to Moderna," Ding said, according to Reuters.

But those royalty streams would be material for Arbutus and a big boost to its financials. The company sports a market capitalization of less than $1 billion and is on track to generate annual revenue of just $10 million.