A growing chorus of lawmakers and activists is calling on the Biden administration to invalidate patent protections for Covid-19 vaccines. As they see it, the federal government invested in the research that led to today’s vaccines so the private companies behind them shouldn’t benefit from intellectual property protections.
That argument is as misinformed as it is dangerous.
I’ll use the Moderna vaccine as an example. Though the National Institutes of Health and academics helped lay a scientific foundation for our understanding of messenger RNA — the relevant technology at the heart of Moderna’s shot — the vaccine itself is the result of years of privately backed research and development. That life-saving work wouldn’t have been possible without a predictable system of intellectual property protection.
It’s easy to come away with the misimpression that the recent crop of Covid-19 vaccines is mainly the product of an aggressive federally backed research effort. Operation Warp Speed, after all, was an $18 billion initiative aimed at fostering vaccine production. There’s no doubt it helped accelerate the testing and manufacturing of successful vaccines.
But the technologies behind the leading Covid-19 vaccines long predate Operation Warp Speed. They are, in fact, the product of extraordinary private sector investment.
Moderna, for example, had been working on its mRNA technology for a decade before Covid-19 emerged as a global health threat. During that period, investors risked tens of millions, year after year, in the hopes that a breakthrough method for generating stem cells from messenger RNA might be used to create a host of powerful new treatments.
This gamble ultimately paid off. The years of work on mRNA enabled Moderna to design a successful Covid-19 vaccine just 42 days after the virus was genetically sequenced.
But there was no guarantee, federal or otherwise, that Moderna’s new technology would be a success. What made investors willing to risk so much money was a system of intellectual property protection that would allow them, if successful, to recoup and profit from their investment.
Without such protection, biotech firms would have no way of preventing copycats from stealing their technology, undercutting them on price, and removing any chance for innovator firms to earn back their upfront costs. In such a no-holds-barred environment, there would be little reason to invest in medical technology at all, and breakthroughs like Moderna’s vaccine would be all but impossible. This is precisely the scenario that anti-patent crusaders risk creating.
The same can be said of those pushing for government price controls. By removing the ability of private investors to profit from successful medical advances, such policies would destroy the incentive structure that enabled Moderna and other firms to deliver vaccines at record speed.
Some misleadingly claim that a government takeover of the fruits of U.S. medical innovation is justified because the government funds basic research through the National Institutes for Health. But federally supported basic research is more akin to public infrastructure spending than to private-sector research and development efforts.
When the government invests in roads and bridges, it creates the conditions for increased economic activity, employment, and other positive outcomes — including higher tax revenue for government. It would be absurd for the government to claim ownership of a company because trucks transport its products on publicly-funded roads and bridges.
The same is true of the basic research funded by the NIH. The federal government invests in the scientific community’s understanding of cancer or heart disease or Covid-19. But it relies on the private sector to do the risky and expensive work of turning promising discoveries into practical medical treatments.
For real-world context of this dynamic, look at remdesivir, an antiviral drug, which was the first drug approved by the FDA to treat Covid-19. It is the culmination of a nearly $1.8 billion effort on the part of Gilead Sciences. Over the course of 20 years, the company synthesized, patented, and manufactured the compound to treat a range of coronaviruses.
Questions have been raised about the government’s role in the drug’s discovery and its entitlement to patent rights. But the truth is, federal agencies centered their efforts on standard testing of the drug’s existing antiviral properties. Their work did not involve modifications to remdesivir or its parent compounds, according to a new report from the Government Accountability Office. And, all told, federal contributions amounted to $162 million, which pales in comparison to Gilead’s investment.
That critical — but often misunderstood — division of labor is reflected in the research budgets of private-sector drug firms writ large. In 2019, America’s largest pharmaceutical firms spent $83 billion on R&D. That number is more than double the entire NIH budget for that year — and doesn’t include the billions spent by small startups at the forefront of innovation.
The Covid-19 vaccines and therapies that are helping to end this pandemic are proof of the enormous power of private drug innovation. Whether they realize it or not, those calling for patent waivers and price controls are jeopardizing the system that made these vaccines possible.
John Stanford is executive director of Incubate, a Washington-based coalition of life-science venture capitalists.
Although the author probably knows the facts, he hides and misrepresents the scant facts he does present. Take the argument that Gilead invested $1.8 billion in remdesivir. Gilead has probably invested a lot of money (though the exact amount has never been fully disclosed) in its hepatitis C antiviral program, of which remdesivir was a part, but look at the tens of billion dollars earned on sofosbuvir and related HCV antivirals. To pretend that Gilead’s entire antiviral research effort was directed towards remdesivir is ridiculous – as, relatedly, is the price Gilead is charging for this largely ineffective medicine that has not even received a WHO recommendation. And let’s not forget Gilead earned $1.9 billion on remdesivir in 2020 and expects to earn another $3 billion in 2021 – pretty nice rate of return eh? Then venture capitalist author Arnold talks about tens of millions invested by Moderna, never specifying the actual amount and how it might reasonably be apportioned across Moderna’s entire R&D mRNA portfolio. Nor does he bother to mention the $17 billion invested by the NIH prior to 2020 in vaccine technologies, including mRNA, or the $13 billion invested by the US in Operation Warp Speed. For a person who focuses on the $$, this obscuration of basic R&D investment facts is strong evidence that Arnold is really just selling out-of-date Pharma talking points.
Am I the only person who thinks the fact that Stanford is executive director of “a Washington-based coalition of life-science venture capitalists” kind of taints his opinion? Of course he’s going to claim credit for COVID-19 vaccines goes to the private sector!
I think the arguments made in favor or in opposition to the role of public funding are generally too one-sided. As someone who did new product development work in the industry for a number of years, I can attest to the fact that both scientific and commercial risk are key variables in evaluating which products will advance in development. The Advanced Market Commitments made by the federal government largely eliminated the commercial risk associated with the SARS COVID-19 vaccines. This isn’t the whole story by any means—the hard work of the private sector R&D executives at all the companies was also pivotal to success, and particular kudos to Pfizer who funded all their development with internal funds. However, the fact that a scientifically successful vaccine would also have a guaranteed market was an important consideration.
Without the coordinated efforts of both the public and private sectors, this particular triumph over the worst pandemic in a century would not have happened.
A question is what funding did the NIH put into mRNA R&D before any drug companies and investors started putting money into that type of research?
In ‘The Entrepreneurial State’ Mariana Mazzucato discusses how early R&D is usually funded by the gov’t before it is de-risked enough that VCs and other investors start gambling with their own money.
I understand that Moderna, Pfizer, etc invested millions on their own, but what went in before that?
I do not claim this entitles the gov’t to negate patents, but needs to be part of the discussion.
This editorial inadvertently makes the case for a 33% tax on all pharma profits, since the NIH alone contributed almost 1/3 of biomedical funding in 2019. That sounds to me like a good starting point for political discussion, open to considerations of further tax changes in exchange for revisions to patent law to ensure the availability of crucial medicines in low income countries and neighborhoods. But as a retired astronomer, what could I know about publicly supported science?
This ‘no free lunch’ argument is as obvious to the informed as it is incomprehensible to the Left. No incentives = no new drugs. More incentives = more new drugs = competition = pricing pressure.
I completely agree that destroying incentives for innovation will result in disaster. I also agree that government spending on basic research represents a public good that is not specific enough to justify some sort of return — provided that the public has access to government-funded information. Where I diverge is when it comes to government investment that de-risks private capital: funding clinical development and commercial manufacturing, and guaranteeing a market for the final product (sometimes through pre-purchases) substantially reduces risk. Like any other directed capital investment, there needs to be a return. That return could be guaranteed lower prices, a typical free-market solution when a purchaser invests in provider technology, or a share of the value creation, which is the VC model. Finally, while we should avoid price controls, not permitting a buyer, even if it is the government, to negotiate prices handcuffs that invisible hand and is plainly anti-capitalist. The failure of the government to secure market-like returns on investments and negotiate prices makes taxpayers into dupes when they should be treated more like limited partners.
This is a rare case in which the US government actually received a massive return on investment. The purpose of the investment was to speed up testing and production of the vaccines. The risk was that the government would pay to manufacture huge supplies of vaccines that would ultimately not be approved. That gamble has paid off in spades. In fact, out of the obscene trillions spent by congress, the paltry few billion spent on these vaccines is the only government spending that will produce an actual positive return. Without the government money to produce the vaccines before approval, the production ramp up would not have started until December 2020.
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