President Biden’s administration is making a major mistake by its top trade advisor, Katherine Tai, advocating a waiver of patent rights for Covid-19 vaccines.
While all who are involved, or would like to be, should move
heaven and earth to increase Covid-19 vaccine supply until everybody worldwide who
wants to be vaccinated has been vaccinated, undermining patent rights will not
help but only hinder achieving that objective.
Patents are not recipes and do not provide the knowledge
and expertise needed for production
All evidence is that the limiting factor is in vaccine supply—not
in patent-licensing costs. The pressing need is to remove constraints—such as
export bans that block ingredient supply chains— and to increase manufacturing
capacity. Production supervision and training from those with the expert knowledge
in operating such facilities who can ensure high-quality output reliably and on
a massive scale are also required.
Instead of stripping Covid-19 patent owners of their core
assets and rights, incentives to license patents and owners’ wider range of intellectual
property—also including vital trade secrets such as how to make the vaccines
with manufacturing process know-how—should be retained.
Vaccine demand remains immense. Many highly populated
nations still have very
low vaccination rates in the single digit percentages, for example, in India
where the pandemic is currently raging with hospital facilities being
overwhelmed. Satisfying demand will benefit us all when most of the world’s
entire population is vaccinated because none of us will be safe from the virus
and the threat of new variants until then. This is also a major incentive to vaccine
patent owners—for example, BioNTech whose business model is in technology
transfer, licensing and collaboration with downstream partners—to scale up that
further. Fair reward for such efforts will enable licensors to justify up-front
commitments and investments required in providing that support.
Patents encourage R&D investment and licensing-based horizontal
business models
While the debate about whether patents stimulate or impede R&D
investment and innovation continues among those with strong vested interests on
either side, research including empirical data over many decades indicates that
strong patent rights are particularly important to small, non-vertically integrated
firms like BioNTech. A recently recorded LeadershIP seminar publicly
available online illustrates this by featuring academic Jonathan Barnett’s
new book on the subject entitled Innovators,
Firms and Markets: The Organizational Logic of Intellectual Property. The
session also includes remarks from others including entrepreneur and venture
capitalist Greg Raleigh on the importance of patents to small companies such as
BioNTech in biotechnology being able to raise investment capital to fund R&D.
The first-to-market and highly efficacious BioNTech/Pfizer
vaccine is a stellar example of how the patent system works. In absence of
strong patent protection companies like BioNTech would not exist. Not only did patents
incentivise venture
capitalists to make large and risky investments ahead of BioNTech’s technology commercialisation
prospects, patents also enabled the firm to partner Pfizer, with its wide gamut
of complementary resources required to collaboratively complete R&D and bring
the vaccine through clinical trials to production and distribution. The
partnership’s rapid delivery of Covid-19 vaccine is a huge technical,
commercial and humanitarian success story.
Vaccine costs including patent fees are small versus economic
costs of pandemics
The Covid-19 epidemic has cost several trillion dollars in
the $88
trillion global economy—given a projected economic decline of 5.2 percent
in 2020 versus growth of 2.3 percent in 2019. Patent licensing fees pale in
comparison to this given that the entire cost of doses
has averaged approximately $20 each. In comparison, I recently spent more
than $100 on a Covid-19 PCR test and anticipate having to do that several more
times in coming months. With competition
among many different clinically approved vaccine technologies and suppliers
including the highly effective, safe and easy to distribute Oxford/AstraZeneca vaccine
priced at around $5 per dose already, existing free market commercial pressures
on licensing charges—including patent royalties and for transfers of other
intellectual property—are substantial. With around 1.3 billion total doses of
Covid-19 vaccines administered worldwide so far, at that price, vaccinating the
rest of the world’s entire 7.8 million population with two doses would cost
around $70
billion.
Other people’s money and redistribution of wealth
While, as Tai said recently, "This is a global health crisis, and the extraordinary circumstances of the COVID-19 pandemic call for extraordinary measures", this is not the first and it will not be the last global health crisis. President
Biden plans to spend $3 trillion in government borrowings and tax receipts
with various programmes including construction in response to the economic harm
from the pandemic. An opportunistic raid on patent owners would also redistribute
wealth to intermediaries such as manufacturers, but the world needs
ongoing technical developments from large and small, young and old companies in
the biotechnology and pharmaceutical industry to deal with new variants of
Covid-19 and other new pathogens that will surely emerge. There is abundant
economic justification not to undermine the valuable long-term gains the patenting
and licensing system is providing. As well as rewarding existing patent
holders, availability of such potential returns in “a global health crisis” will
reassure and attract others to invest in additional R&D. While this
pandemic is terrible with around 3.3 million deaths worldwide already, the next
one could be even worse given that the 1918 Spanish flu epidemic killed 50
million people. We need to be as well prepared as we possibly can for whatever
might ensue.
