Attempting to demonstrate their benevolence, politicians sometimes make decisions that are completely, utterly wrongheaded. An example of this was the Biden administration's May 5 announcement that the United States would support a World Health Organization initiative (under TRIPS, the Agreement on Trade-Related Aspects of Intellectual Property Rights) to waive patents on COVID-19 vaccines.
"This is a global health crisis, and the extraordinary circumstances of the COVID-19 pandemic call for extraordinary measures," U.S. Trade Representative Katherine Tai said on Wednesday.
Well, that extraordinarily bad decision has created a perfect lose-lose situation.
Patents are widely misunderstood. They do not so much as permit the holder to do something as they prohibit others from copying the patented "invention." A waiver would allow any pharmaceutical manufacturer in the world to make copies of the vaccines without fear of being sued for infringing intellectual property rights.
Thus, patents can be very valuable. They are an incentive to undertake high-risk, expensive research and development that might be uneconomic if there weren't a period of exclusive rights to sell the fruits of that work and thus repay the investment. Otherwise, imagine telling a drug company that has just spent, on average, 10 to 12 years and billions of dollars to bring a new, innovative cancer drug to market that, upon its regulatory approval, every other company could start making and selling the drug.
Patent protection may be more essential for pharmaceuticals than in any other commercial sector. This is because the failure rate – from pre-clinical research to regulatory approval – is enormous, typically well over 90%; only about 12% of drugs that enter clinical trials are ultimately approved for marketing. The small fraction of successful efforts subsidizes the many failures. The costs underlying the rare ultimate successes are astronomical because they require basic research, lab development, animal testing, multiple phases of human studies (sometimes in tens of thousands of subjects), and post-market follow-up. A widely cited number, including both out-of-pocket expenses and opportunity costs is that it costs, on average, $2.55 billion to bring a new drug to market. And that doesn't even include the expense involved in building a manufacturing plant(s) and marketing the product.
Many small pharmaceutical and biotech companies choose to license their patents to other companies that perform post-approval functions – production, marketing, and sales – in exchange for a patent license once they analyze the associated costs. For them, the patent is the entire justification for their existence. While a big company might invest in a project with less certain returns, as Pfizer did in expending upfront almost $2 billion to develop its COVID-19 vaccine, the small players have too narrow a portfolio of products to do the same. They are, however, highly successful: In 2018, small pharma companies accounted for 64% of all new molecular entity approvals!
Capitulating to the supposed "ethics" of drug development by waiving patent rights and turning drug companies into charitable institutions could both wreck America's robust pharmaceutical industry and compromise public health. The ultimate irony is that with all the damage that patent waivers for COVID-19 vaccines will do, they will fail to bring the needed vaccines in a timely way to countries desperate for them. The nature of vaccine production is such that there would be interminable delays.
Unlike for "small-molecule" drugs, there's no such thing as a "generic" vaccine. Vaccines are complex biologics, often produced in living cells, that are more difficult to replicate than small-molecule drugs, so a new manufacturer unhindered by patent considerations that wanted to create its own version of a COVID-19 vaccine would need to perform its own clinical trials to show that its vaccine is safe and effective. In other words, that there are no clinically meaningful differences between the original and the follow-on product, that they are highly similar in molecular structure, and that they share the same mechanism(s) of action. Quality assurance is especially critical for a pharmaceutical that is intended to be administered to huge numbers of healthy people to prevent an illness.
And even if there were cooperation from the original developer, building or obtaining new manufacturing capacity takes time – time that India and other countries with surging COVID-19 don't have. The main obstacle to expanding vaccine manufacturing isn't patents; it's the trade secrets, know-how, and components needed to get a new manufacturing plant up and running. The WHO waivers would not address these hurdles.
Patents being waived, or invalidated, by government fiat is essentially a tax on innovation, and the more you tax something, the less you get of it. Moreover, politicians are typically oblivious to the concept of limiting principles: Once a precedent is established, they want to repeat it, without regard to where diminishing (or negative) returns set in, especially if it "sounds good" and has virtue-signaling value. We could see patent waivers on COVID-19 vaccines today; HIV and universal flu vaccines tomorrow; and eventually, patent protection could cease to be valuable across other industries. For anyone who thinks that politicians surely are smarter than that, enter, right on cue, one of the nation's most clueless politicians:
After Joe Biden's administration threw its weight behind the World Trade Organization (WTO) proposal of waiving intellectual property protections for COVID-19 vaccines, left-leaning politicians such as Alexandria Ocasio-Cortez demanded a similar approach for other life-saving drugs such as Insulin.
"Let's do insulin next," tweeted Ms. Ocasio-Cortez, democratic representative from New York.
The Biden administration's misguided approach to a compassionate goal could be the proverbial "canary in the coal mine" as it applies to suppressing and harming American innovation. That core of American leadership is already under siege by the terrible triad of Diversity, Equity, and Inclusion, because in the woke era, merit and excellence, the lifeblood of innovation, are being subjugated to identity politics and quotas.
Innovation is crucial to America's economic progress, and intellectual property protection is a critical stimulus of innovation. Not only is this vaccine patent waiver initiative counterproductive and futile, it is also a sign that our politicians place virtue signaling above the nation's economic well-being and public health.
Henry I. Miller, a physician and molecular biologist, is a senior fellow at the Pacific Research Institute. He was the founding director of the FDA's Office of Biotechnology. Andrew I. Fillat spent his career in technology venture capital and information technology companies. He is also the co-inventor of relational databases. They were undergraduates together at M.I.T.