Questions and answers about coronavirus and the UK economy
Questions and answers about coronavirus and the UK economy

Should patents on Covid-19 vaccines be waived?

There is much debate about whether the patents on Covid-19 vaccines should be waived to allow low-income countries to produce doses for themselves. In current circumstances, such a course of action is likely to have little effect for good or ill.

There is a global debate right now about whether vaccine patents should be waived to allow low-income countries to produce doses for themselves. This discussion has come to the fore particularly in the light of the growing crisis in India and across South Asia. As case numbers in the region surge, vaccination rates remain low. In India, just 9.9% of the population have received at least one dose of the vaccine and the proportion is far lower in other countries, down to just 1.15% in Afghanistan. This compares with around half of the population in the UK and the United States.

Figure 1: Share of population who received at least one dose of Covid-19 vaccine

Source: Our World in Data

While the patent system has its own challenges, which have been highlighted by the pandemic, it is important to question the effects of waiving patents in the current circumstances – in particular, whether doing so would have any significant impact on lower-income countries that lack adequate doses.

At the heart of this debate, like most discussions of patents, lies the view that the blueprint for a vaccine is expensive to create and cheap to use. This leads to two conclusions: first, that patents are necessary for innovation, as otherwise no one would incur the expense of creation; and second, that if the patents could be unlocked, then everyone would be able to manufacture vaccines.

In reality, it is this second element – not the ‘recipe’ for the vaccine but the know-how for using it – that is more expensive and harder to imitate. When this is taken into account, it may be that patents are not necessary for innovation because the creator of an idea has an inherent advantage in having the know-how to make use of it. In addition, even if patents are unlocked, it will have little effect on vaccine availability.

What is the role of patents?

Patents give the organisation or individual that invents something new exclusive legal rights over it for a period of time before others are given access. They are considered an incentive for innovation, in that firms will be prepared to fund the necessary research and development (R&D) if they can reap the rewards. It is for this same reason that companies may be reluctant to suspend or waive patents as it is seen that others would be able to make the vaccine and profit from it.

In the case of the Covid-19 vaccine, it is first worth considering how expensive it was to invent these vaccines, Arguably, their development was not particularly expensive. For example, the AstraZeneca vaccine was invented by a handful of people over roughly two weeks. The invention was rapid, mostly because of decades of prior investment in biochemical research, mRNA technology (which is the basis of the Covid-19 vaccines) and the technology for rapidly analysing the structure of viruses.

The funding for the vaccines has varied – from £8.19 billion for AstraZeneca to £2.25 billion for Pfizer/BioNTech and £1.9 billion for Moderna – and it comes from a mix of government, not-for-profit and private sources. Since much of the earlier fundamental research was government-financed, the idea of patent profits as incentives for innovation is not applicable. In addition, those who rapidly decoded the viral structure have not benefited from the vaccine patents.

What would be the effects of a patent waiver?

Let us delve further into the role that pharmaceutical patents play in the industry. In general, the big expenses borne by the pharmaceutical companies are stage three clinical trials and production facilities. Production facilities need no special protection, as anyone who wants to produce the vaccine has to bear the cost of factories, workers, supplies and so on. But under the current system, generic manufacturers do not have to bear the cost of clinical trials: they have only to show that their product is chemically equivalent to an approved product.

This difference is the rationale for patent protection in the pharmaceutical industry. Specifically, the patent keeps generic manufacturers out for a period of time so that the cost of clinical trials can be recouped.

What would the effect of a patent waiver be on competition?As far as Moderna is concerned, a patent waiver is irrelevant. On 8 October 2020, the company announced that ‘while the pandemic continues, Moderna will not enforce our COVID-19 related patents against those making vaccines intended to combat the pandemic.’

As has become clear, non-enforcement of the patent has not led to a surge of generic Moderna vaccines into the market. Why not? According to Stephane Bancel, Moderna’s chief executive, ‘There is no mRNA in manufacturing capacity in the world. […] This is a new technology. You cannot go hire people who know how to make the mRNA. Those people don't exist.’

In addition to the issues of manufacturing capacity and scientific know-how, it is notable that it is not easy to make vaccines. For example, according to one expert:

‘If you’re point one of a pH unit out, that can be enough to massively disrupt your productivity. Other factors can be cell culture medium, process timing, pH, carbon dioxide concentration, oxygen control and mixing time to name a few. […] I worked with one process – if there was a slight overshoot on temperature because the PID loops [proportional–integral–derivative – a feedback control mechanism] weren’t correctly tuned, the cells would stop producing.’

The results of these difficulties are plain to see in reports like this: ‘A production problem at a contract manufacturing facility used by AstraZeneca in Belgium has left the EU [European Union] facing a shortfall of 60% fewer doses than it was expecting this quarter’.

As AstraZeneca is being sued by the EU over this shortfall, the company would arguably have compelling reasons to seek out unused capacity to help to honour its commitments. If, for example, there were a factory in South Africa or Canada that could produce more AstraZeneca vaccines, the company would be rushing to make a deal to get themselves off the hook. In fact, South Africa has very little capacity for producing vaccines.

Similarly, we see that a plant providing key ingredients for the Johnson & Johnson vaccine had to be shut down because of contamination and other problems. This same plant had to destroy several million doses of AstraZeneca. There is also evidence that Russia has had problems in producing the Sputnik vaccine. And the Novavax vaccine has been held up because of production problems, especially shortages of raw materials.

These examples all show the barriers, in terms of knowledge, experience and money, to producing vaccines, even if the recipe is freely available.

The idea behind patents is that they are a grant of monopoly power: they enable the patent holder to prevent competition, to restrict supply and to hike up prices. But this does not work especially well if there are lots of competitors with similar products. In the case of Covid-19 vaccines, there are currently 11 different vaccines approved at least for emergency use somewhere in the world.

If additional capacity were available, each producer would have to take account of the fact that if they try to restrict supply, there are ten competitors that would be happy to fill the gap. In fact, vaccine producers do not appear to be restricting supply to increase prices: indeed, they are pricing below the market price.

Would the EU be willing to pay four times the current price if a company could actually deliver more vaccines? We do not have to guess: the EU is switching from AstraZeneca, which costs between $2.15 to $5.25 per dose, to Pfizer, which costs $19.50 per dose.

As an aside, according to the published data, the EU negotiated a very good deal with AstraZeneca at $2.15 per dose, compared with $3-4 in the United States and the UK. Perhaps it is not such a surprise that when AstraZeneca ran short and had to choose between sending $2.15 doses to the EU and $3-4 doses to the UK, the company sent them to the UK. One may wonder if the time the EU spent negotiating a very low price was ‘penny-wise but pound-foolish’, especially as it seems it is now going to pay $19.50 per dose.

The great debate

Various political activists and prominent politicians around the world claim that the global scarcity of Covid-19 vaccines, particularly in low-income countries, is due to patents and that temporarily lifting patent protection would rapidly erase the current scarcity. The basic idea is clearly expressed in a recent editorial piece by Joseph Stiglitz and Lori Wallach.

But as detailed in an article by Alex Tabarrok, throughout the world, wherever there is capacity to produce vaccines, licences have been obtained and they are being produced. Arguably, the miracle is not that so few doses are available but that there are so many in such a short period of time.

It is also said that if patents were temporarily waived, it would enable the Chinese or Russians to take over the vaccine industry. But the Moderna patents have already been waived, making the vaccine formula publicly available, including to China and Russia.

Further, as discussed above, the recipe is only half of the story and the know-how is also crucially important. This would not necessarily be transferred for free, nor is it at all obvious how this could be shared. As Morgan Stanley analysts detail in a research note, there is no mechanism ‘to force management to teach other manufacturers how to make their vaccine, suggesting no change to the status quo.’

Patents can be bad for innovation, economic growth and social welfare. They can limit productive capacity of vaccines around the world and help to maintain the shortage of skilled people that are essential to their safe production.

In other words, if patents had not existed or had been much less strict than they were, then there could be many more companies able to produce vaccines safely. In short: patent protection during the last couple of decades is likely to have restricted the growth of useful productive capacity. 

Next generation vaccines

Research has by no means stopped: new vaccines are under development, along with boosters and vaccines against new variants. How would a patent waiver affect this research?

Patents have two effects: existing patents inhibit new innovation because innovators may be wary of violating existing patents; and they provide additional incentive to innovators by granting monopoly power. There are also two types of patents: process patents, which protect a method of producing a product; and product patents, which protect the product itself, in this case the vaccine.

Process patents appear to play a limited role in the pharmaceutical industry, in part because its products are difficult to produce, but also because the methods are well understood if hard to implement. For example, in the case of the mRNA technology on which Covid-19 vaccines are based, a review of patents over the last decade shows that these are for how vaccines work, not how they are produced. 

Product patents are not very likely to inhibit R&D of new vaccines. Pharmaceutical patents tend to be narrow in scope, and each drug works somewhat differently so is unlikely to infringe an existing patent. In a context where there are many competitors and many effective vaccines, patents also do not provide much monopoly power, so they offer little additional incentive to develop a new patent.

In other words, both the negative and positive effects of patents for the development of new vaccines are weak, and so a patent waiver or non-waiver is unlikely to have a significant effect. 

Conclusion

Waiving patents on a short-term basis is likely to have little effect for good or ill. Evidence suggests that patents are unnecessary for robust and thriving innovation. Insofar as it would create pushback against the existing patent system, a waiver could be beneficial insofar as the patent system is in need of reform. 

Our own research indicates that this is the case, but the middle of a crisis does not seem the time or place. In addition, simply waiving patents is not a good blueprint for reform. To indicate the considerations, the pharmaceutical industry is subject to a complex array of government regulation of which grants of monopoly power in the form of patents is only one part.

In a context in which pharmaceutical companies pay for clinical trials and generic manufacturers do not, the removal of patent protection may tilt the balance in the wrong direction. While substantial protection is provided by the ‘first-mover advantage’ – which has played a strong a role in the Covid-19 example – simply removing patent protection without reforming the system of clinical trials may backfire. Only a careful process of reform is likely to succeed.

What then can be usefully done to expedite the vaccination process? We know that individual manufacturers are talking to each other, to their suppliers and governments to alleviate bottlenecks: ‘Aside from their own efforts to set up manufacturing capacity, Pfizer and BioNTech have partnered with at least ten other companies that are helping the company scale up, including global pharma giants Novartis and Sanofi.’

The problem of production and supply chains is a global one, and a commission of vaccine manufacturers and supply chain experts backed by governments could play an important role in finding solutions to improve production and distribution both in the current crisis and beyond.

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Authors: Michele Boldrin, David K. Levine and Flavio Toxvaerd
Photo by Julia Koblitz for Unsplash
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