Patents and the Covid-19 vaccines

DiMasi J.A., Grabowski H.G., Hansen R.W., Inno- vation in the pharmaceutical industry: New estimates of R&D costs, J Health Econ, 2016, May; 47:20-33. DOI: 10.1016/j.jhea- leco.2016.01.012.

See Vaccine Manufacturing, Launch and Scale Speed- ometer [available at https://launchandscalefaster.org/cov- id-19/vaccinemanufacturing; latest access 14/11/2121].

In return, the inventor must disclose the innova- tion fully. In pharmaceuticals, the effective life of patents is typically shorter than the statutory term of 20 years because of the time needed to pass the pre-clinical and clinical tests that are necessary to get regulatory ap- proval. As noted, the development of a new drug takes on average more than 10 years. For this reason, in most countries there exist special provisions that extend the duration of pharmaceutical patents for some time. Even accounting for these extensions, however, the average effective patent life in pharmaceuticals is around 12 years: see, e.g., Grabowski H., Long G., Mortimer R. (2014), Recent trends in brand-name and generic drug com- petition, Journal of medical economics, 17(3), 207-214. This issue however is largely irrelevant for the Covid-19 vaccines. Given their extraordinarily fast approval, their effective patent life will be close to 20 years.

See the 2015 Report of the Committee on Finance of the US Senate, The Price of Sovaldi and Its Impact on the U.S. Health Care System [available at https://www.finance. senate.gov/imo/media/doc/1%20The%20Price%20of%20 Sovaldi%20and%20Its%20Impact%20on%20the%20U.S.%20 Health%20Care%20System%20(Full%20Report).pdf; latest access 30/11/2021].

See Hill A., Khoo S., Fortunak J., Simmons B., Ford N. (2014), Minimum costs for producing hepatitis C direct-act- ing antivirals for use in large-scale treatment access programs in developing countries. Clinical Infectious Diseases, 58(7), 928- 936. Their estimate of the unit production cost of sofosbu- vir is in the range of $68-136.

See Light D.W., Lexchin J., The costs of coronavirus vaccines and their pricing, J R Soc Med., 2021, November; 114(11):502-504; DOI: 10.1177/01410768211053006, which actual- ly places the cost at less than $1 but probably underestimates the true cost. Note that this is the unit production cost, which does not include the costs of developing the vaccine.

For a more systematic attempt at quantifying the economic value of the vaccines for the US, see Padula W.V., Malaviya S., Reid N.M., Cohen B.G., Chingcuanco F., Ball- reich J., Alexander G.C. (2021), Economic value of vaccines to address the Covid-19 pandemic: a US cost-effectiveness and budget impact analysis. Journal of Medical Economics, 24(1), 1060-1069.

For example, the price of the hepatitis-C drugs fell substantially as new competing drugs were brought to the market: see, for instance, Barber M.J., Gotham D., Khwairakpam G., Hill A. (2020), Price of a hepatitis C cure: Cost of production and current prices for direct-acting antivirals in 50 countries, Journal of Virus Eradication, 6(3), 100001.

In fact, a single vaccine may be protected by a num- ber of different patents, each of which covers a specific innovative component of the vaccine. For example, Mod- erna claims that it holds at least seven patents that protect its vaccine. On the other hand, other patents may read on more than one vaccine. For example, all mRNA vaccines exploit a technology patented by the University of Pennsyl- vania, which modifies the mRNA so that it does not trigger a response by the immune system. Both Moderna and BioN- Tech have sub-licensed the patents that protect this tech- nology from a licensee of the University of Pennsylvania. See Gaviria M., Kilic B. (2021), A network analysis of Covid-19 mRNA vaccine patents, Nature Biotechnology, 39, 546-548.

This explanation is sometimes referred to as the “regulatory pre-emption theory”.

In principle, there could be another, subtler reason for the relatively low prices, which has to do with the so-called “Coase conjecture”. Since vaccines are, at least partially, a durable good, even a monopolist faces the com- petition of its own future supply: see Coase R.H. (1972), Durability and monopoly, The Journal of Law and Econom- ics, 15(1), 143-149. Under some conditions, this implies that prices should immediately fall at the competitive level. In practice, however, given buyers’ impatience and firms’ capacity constraints, it seems unlikely that this effect may have played a significant role.

See, for instance, Kisby T., Yilmazer A., Kostarelos K. (2021), Reasons for success and lessons learnt from nanoscale vac- cines against Covid-19, Nature Nanotechnology, 16(8), 843-850.

On the importance of lead time, see Cohen W.M., Nelson R., Walsh J.P. (2000), Protecting their intellectual assets: Appropriability conditions and why US manufacturing firms patent (or not), NBER WP 7552.

See Coronavirus (Covid-19) Vaccinations, Statistics and Research, Our World in Data [available at https://our- worldindata.org/covid-vaccinations; latest access 14/11/2121].

The risk of parallel trade is often regarded as the main reason why pharmaceutical companies refrain from reducing prices in poor countries. Parallel trade is the practice of buying products in countries where they are sold at lower prices and selling them in high-price coun- tries: see Danzon P.M., (1998), The economics of parallel trade, Pharmacoeconomics, 13(3), 293-304.

The WTO is responsible for the implementation of the TRIPS agreements on intellectual property.

See e.g. Sykes A.O. (2002), TRIPS, pharmaceuticals, developing countries, and the Doha solution, Chi. J. Int’l L., 3, 47.

The proposal may be found at Documents Online Home page (wto.org) [available at https://docs.wto.org/ dol2fe/Pages/FE_Search/FE_S_S005.aspx; latest access 30/11/2021].

These profits are far from negligible. Both BioNTech and Moderna, for instance, have reported profits of around €4 billion in the first semester of 2021: see BioNTech An- nounces Second Quarter 2021 Financial Results and Cor- porate Update | BioNTech [available at https://investors.bi- ontech.de/news-releases/news-release-details/biontech-an- nounces-second-quarter-2021-financial-results-and; latest access 30/11/2021] and Moderna Reports Second Quarter Fiscal Year 2021 Financial Results and Provides Business Up- dates | Moderna, Inc. (modernatx.com) [available at https:// investors.modernatx.com/news-releases/news-release-de- tails/moderna-reports-second-quarter-fiscal-year-2021-fi- nancial; latest access 14/11/2121].

On the optimal resolution to the innovation-dif- fusion trade-off see for instance Denicolò V. (2007), Do patents over-compensate innovators?, Economic Policy, 22(52), 680-729.

See Garde D., Saltzman J., The story of mRNA: How a once-dismissed idea became a leading technology in the Covid vaccine race, Boston Globe, November 10th, 2020 available at The story of mRNA: From a loose idea to a tool that may help curb Covid (statnews.com) [available at https:// www.statnews.com/2020/11/10/the-story-of-mrna-how-a- once-dismissed-idea-became-a-leading-technology-in-the- covid-vaccine-race/; latest access 30/11/2021].

In fact, the role of big pharma is even more limit- ed if one considers also the Indian, Russian, Iranian and Chinese vaccines, most of which have been developed by public research centers.

See Gentile I., Maraolo A.E., Buonomo A.R., Zap- pulo E., Borgia G. (2015), The discovery of sofosbuvir: a rev- olution for therapy of chronic hepatitis C, Expert opinion on drug discovery, 10(12), 1363-1377.

To mention just one such distortion, pharmaceuti- cal companies’ marketing expenditure compares to their expenditure on R&D: see, e.g., Gagnon M.A., Lexchin J. (2008), The cost of pushing pills: a new estimate of pharmaceu- tical promotion expenditures in the United States, Plos medi- cine, 5(1), e1.

For an economic analysis of some of these conflicts of interests, see Henry E., Ottaviani M. (2019), Research and the approval process: The organization of persuasion, Amer- ican Economic Review, 109(3), 911-55.