Profits Before Saving Lives Is Policy for Both Big Pharma and Politicians
From the way our policy types talk about patents — or refuse to talk about them — they must think that our Constitution guarantees life, liberty and people getting incredibly rich from patents.
Patent restrictions needlessly prolong the Covid pandemic. They block or slow the spread of technology for vaccines, rests, and treatments, resulting in millions of preventable deaths. Yet we still aren’t seeing any real debate about better mechanisms for financing future medical innovation.
The mRNA vaccines cost less than $1.00 each to manufacture, if we double that to cover the cost of distribution, the companies are still charging markups greater than 1,000% above their costs or about $20 per dose.
At the most basic level, we need an explicit recognition that patent monopolies are just one possible mechanism for financing research.
This should have always been obvious. This pandemic should have hit us over the head with this simple but important fact.
The bulk of the research developing mRNA technology was done on the government’s dime. When it came to developing the Moderna vaccine, the government put up almost a billion dollars for the research and clinical testing. It also provided the company with insurance against failure, with an advance purchase agreement that would have required it to buy hundreds of millions of doses even if it was not the best available vaccine.
Bizarre View About Scientists
Many people in policy circles somehow maintain a bizarre view that scientists would lack incentives to innovate without patent monopolies. This view is bizarre since there is considerable evidence that money can also provide incentives. The overwhelming majority of people in this country and around the world work for money, not patent monopolies, so it really should not be too hard to understand that we can just pay people to do the work and skip the government-granted patent monopoly.
This is especially important in terms of preparing for future pandemics because we are likely to see a large amount of public money put forward to develop vaccines, as well as tests and treatments.
While most people understand that vaccines are needed to contain a pandemic, tests and treatments are also essential. We need people to be tested, so that infected people will take steps to avoid spreading the disease. But people will be less likely to get tested if there is no affordable treatment available. Therefore, if we want to contain a pandemic it is important to make all three — vaccines, tests, and treatments — freely available.
Our practice in the case of Operation Warp Speed (OWS) was to both pay for research and development costs upfront, and leave the companies with ownership rights for intellectual property, both in the form of patent and copyright monopolies and also with protection of industrial secrets.
This has created the absurd situation where we have limited the availability of vaccines, and other items needed to control the pandemic, and we made the price far higher than what would exist in a free market. The mRNA vaccines cost less than $1.00 each to manufacture, if we double that to cover the cost of distribution, the companies are still charging markups greater than 1,000 percent above their costs or about $20 per dose.
There is a similar story for tests and treatments. In almost all cases, these would be available at very low prices in a market without patent or related monopolies.
Since our government paid upfront for the research, with a guaranteed profit even if the vaccines were not the most effective, the traditional rationale for patents doesn’t apply. The theory is that the prospect of years of outsized profits will spur risky investment inventions.
If we had gone the open route at the beginning of the pandemic with research freely shared throughout the world, there could have been many more manufacturers of all the vaccines. Anyone with the expertise, anywhere in the world, could have manufactured the vaccines. We could have had large stockpiles waiting to be distributed as soon as they were approved by the Food and Drug Administration as well as regulatory agencies in other countries.
Of course, this might have meant accumulating hundreds of millions of doses of a vaccine that proved ineffective, but so what? The benefit from getting hundreds of millions of people vaccinated a few months earlier dwarfs the money involved in manufacturing vaccines that may go to waste.
Stop the Next Pandemic Rather than Make Billionaires
If the Biden administration follows through with its current plans, it will put up funding to develop prototype mRNA vaccines that can be quickly modified to deal with whatever specific virus causes a future pandemic. This is a great plan which can potentially save millions of lives and prevent trillions of dollars in economic losses. But, we need to avoid making the same mistakes as with Operation Warp Speed.
First and foremost, this means that everything is fully open. All results should be posted on the web as soon as practical. Any patents stemming from the research should be in the public domain. If a company already has patents that are related to the work, then the government should buy them out when it arranges the contract. If they don’t want to sell, then they aren’t eligible for a government contract for their vaccines. It’s pretty simple.
There also cannot be any industrial secrets related to this work. This is again a very simple provision. Industrial secrets are protected through non-disclosure agreements. Any non-disclosure agreements that employees might sign for work related to the government-funded project are simply non-enforceable. That means that any employee of a future Moderna equivalent can make themselves a nice chunk of money, and help to save a large number of lives, by sharing any engineering information that this Moderna equivalent wants to keep secret.
I have outlined in chapter 5 of Rigged (it’s free) how a system of contracting like this could work. Briefly, I see military contracting as a useful model. While there is lots of waste in military contracting, the United States does get good weapons systems.
Also, there would be an enormous advantage in this system since everything would be fully open. Work done on military contracts is typically enmeshed in secrecy. This is partly for the valid reason that we don’t want potential enemies to get access to our latest weapons systems. If other countries use technology funded under this system to help protect their own populations, and possibly improve on it to provide better health technologies for the world, that is a great outcome, not something to be feared.
Earlier this year I debated a representative of the pharmaceutical industry about the proposal before the World Trade Organization to suspend intellectual property rights for the duration of the pandemic. He warned that if information about the mRNA vaccines was made freely available, then countries like China could use it to jump ahead of U.S. pharmaceutical companies, and possibly do things like develop a vaccine against cancer. I told him that I would not be scared of the possibility that China might develop a vaccine against cancer.
Ideally, we would share research costs internationally. Presumably, we would expect countries to contribute in proportion to their GDP, with rich countries paying a higher percentage than poor countries while the poorest presumably pay little or nothing. The exact formulas would have to be negotiated, and there could be major differences in views across countries. But anyone who thinks the current system of enforcing intellectual property rules internationally is simple has not been paying attention to trade negotiations over the last quarter-century.
I have been told that no companies would agree to contracts where they have to surrender their intellectual property. That seems like a proposition worth testing. If a Pfizer or a Moderna finds these conditions unacceptable then perhaps some of their employees would be willing to make lots of money with a new start-up. And, it’s at least possible that some of the people doing this research give a damn about human life.
It’s also important to remember that this is an international market. If U.S.-based scientists find themselves unable to work for money rather than patent monopolies, then we can look to pay scientists from Europe, India, China, or elsewhere. If our scientists don’t want the government’s money, it’s likely that scientists elsewhere in the world would be happy to take it.
It’s also worth mentioning in this context that the refusers will likely find themselves competing with vaccines and other products that are being sold as cheap generics. That probably will not be very good for their sales.
From Pandemics to Climate
Just as the world has an enormous shared interest in containing pandemics, we also have a common and urgent interest in limiting climate change. Here too, the approach of shared and open research makes an enormous amount of sense.
No one should be scared by the possibility that the Chinese might take advantage of a breakthrough in solar power or energy storage to aggressively install new capacity across China. We desperately want clean technologies to be adopted as quickly as possible. This should mean paying for the research upfront and making it fully open.
There is plenty of room in this story for good old-fashioned capitalist competition in the production and installation of clean energy products and electric cars. There also should be plenty of competition for research contracts.
But the products of this research, in the form of technical information, would be available at its marginal cost – zero. Any producer anywhere in the world would be free to incorporate the latest advances in solar technology in producing solar panels. This process would not only mean technology spreads more quickly, it will also reduce the price of solar panels and other forms of clean energy.
If all the research costs are paid upfront from public funds, and the price is not inflated due to patent monopolies, we can expect the price of many of these items to be 20 to 30 percent less. That should considerably hasten the rate at which the technology is adopted.
Cooperating with China
China now has the largest economy in the world when measured on a Purchasing Power Parity basis, which adjusts for local costs. It will likely be more than fifty percent larger than the U.S. economy by the end of the decade. This is worth mentioning because if anyone has the idea that we can spend China into the ground with a Cold War arms race, they are not thinking very clearly.
The Soviet economy at its peak was roughly half the size of the U.S. economy. Matching our spending was a huge economic burden for them. Today Russia’s economy is only a 14th of ours.
In an arms race with China, we will be the ones facing a huge burden.
China’s government is not a democracy. It does not respect human rights and in fact, is committing atrocities against its Uyghur population, but we lack the ability to change this reality. We have to live with China as it is.
Rather than looking for costly, and potentially deadly, confrontations, we should look to areas of cooperation where we share a clear common interest. Containing pandemics and combatting global warming certainly fit this bill. We should want China to be as successful as possible in preventing, or at least limiting, the spread of pandemics within its borders. And, China has the same interest in terms of preventing spread in the United States.
In the same vein, we both should want to see greenhouse gas emissions reduced as quickly as possible everywhere in the world. If our technology can help China reduce emissions, that is a victory for us, and vice versa. There is no reason we should not be as cooperative as possible in these efforts.
I will also add the possibility that more extensive cooperation could change China’s internal politics. A quarter-century ago, when the standard wisdom in political and academic circles was that we had to open up trade with China as quickly as possible, it was common to claim that this would help to democratize the country. The idea was that somehow having tens of millions of workers producing cheap clothes and shoes for consumers in the United States would make the country a democracy.
That didn’t quite pan out. I would not be so brazen as to claim that greater cooperation with China’s scientists in key areas, like public health and climate technology, will make the country a democracy. However, it does seem plausible that increased contact with a group of people who have children, siblings, and parents among China’s political rulers, is likely to have more impact on China’s politics than having millions of low-paid workers producing clothes for U.S. consumers.
The Great Choice
Back in April, Forbes identified 40 people who had become billionaires from the pandemic. Moderna alone was responsible for three of these newly minted billionaires. With the continued spread of the pandemic, and the increased sales of vaccines and other pandemic-related items, the numbers would surely be larger today.
Structuring our response to the pandemic in a way that created billionaires was clearly a policy choice. The Trump administration decided at the start of the pandemic, that even in cases where the government was picking up most of the development costs, it will still allow private companies to benefit from patent monopolies and other forms of intellectual property.
The decision to go this route made the pandemic worse and cost millions of lives. In a fully open-sourced system, the whole world could have been vaccinated months ago. Tests and treatments would be readily available and cheap.
We can avoid this mistake in preparing for future pandemics, but we face an important choice: is our priority combatting a pandemic or is it allowing a small number of people to get incredibly rich from a pandemic. Unfortunately, in our political system, this is a tough call.