How is the Covid-19 pandemic reshaping health innovation?
This blog is a follow up to the recent event ‘Are we paying twice for health innovation?’ The event is part of IIPP’s ‘Who owns what and why’ series. The recording of the event can be watched here.
The Covid-19 pandemic has cost more than three million lives and left many more incapacitated. But with multiple vaccines now being rolled out across the world, many hope the end of the pandemic is within sight.
However, the development of Covid vaccines has also shone a spotlight on some of the key dilemmas at the heart of health innovation. Who should get access to vaccines, and on what terms? Who should bear the costs of vaccine development, and how should the rewards be shared?
At the centre of all of these questions lies one crucial issue: ownership.
Paying twice?
The pharmaceutical industry is one of the largest and most profitable sectors in the world. In Europe and North America, pharmaceutical companies are typically private, profit seeking firms owned by external shareholders. Like businesses in many other sectors, they invest in research and development, undertake product testing, and, eventually, bring products to market.
But the pharmaceutical sector also has a number of distinct characteristics, as many of the panellists at IIPP’s recent event on health innovation pointed out. The most valuable input to pharmaceutical production is scientific knowledge. Unlike other sectors, most funding for scientific knowledge comes not from private investors, but from the public purse. Globally it has been estimated that the public pays for two-thirds of all upfront costs for pharmaceutical research and development.
Pharmaceutical companies also invest their own money, but because breakthrough scientific research is highly risky and uncertain, they typically invest much later in the process. In practice, companies frequently piggyback on the technological advances that have been funded and de-risked by the public purse.
Because knowledge is non-rival, once it exists it can be reproduced at zero marginal cost. As a result, intellectual property rights — and in particular patents — play a vital role upholding the profitability of the industry. Patents grant exclusive ownership and control over the underlying knowledge and technology, and enable companies to extract monopoly rents through high prices.
Although patents are intended to incentivise innovation, critics argue that this system means that the public ends up paying twice: firstly by funding the initial basic research, and then secondly by purchasing drugs on the market at monopoly prices.
Covid-19: socialising risks and privatising rewards
The rapid development of Covid-19 vaccines provides a case study of how the system works in practice. In a recent call with Conservative MPs, the UK prime minister Boris Johnson attributed the success of the Oxford/AstraZeneca vaccine to “capitalism and greed”. But the reality couldn’t be more different: 97% of the funding came from the state or charitable trusts, while less than 2% came from private industry. The central finding of an independent report examining lessons from the UK’s vaccine experience was that “government played a key role in expediting every stage of the vaccine development process.”
The same is true for most of the other successful vaccines. In America alone, six vaccine companies have received an estimated $12bn of public money. Governments haven’t just funded basic research — they have been involved throughout the entire process.
As Suerie Moon explained during the event, the development of Covid vaccines was not driven by private enterprise but by a “hybrid public private partnership”.
Despite this unprecedented level of government support, most companies have managed to retain exclusive ownership and control of the underlying knowledge and technologies through patents.
This means that while the risks of vaccine development have been socialised, the rewards have stayed in private hands — for the time being at least.
Artificial scarcity
The question of who benefits from health innovation is not just limited to who captures the financial rewards. Who benefits from the impact of the innovation also matters. If a new invention delivers benefits to billions of people, then a skewed balance of risks and rewards could potentially be justified.
To date more than 1 billion vaccine doses have been administered, but 80% of these have been in ten rich countries. While one in four citizens of rich nations have had a vaccine, just one in 500 people in poorer countries have. Els Torreele described this system as “vaccine apartheid” during the event, and for many this unequal distribution is proof that the prevailing system is not fit for purpose.
Why is it that the vast public investment into vaccine innovation hasn’t translated into equitable access globally? Some blame ‘vaccine nationalism’ — the hoarding of vaccines by rich countries. For others however, the real culprit is a broken intellectual property regime which puts the protection monopoly profits above everything else, even in the middle of a global pandemic.
“By refusing to share their technology and waive their intellectual property, companies are artificially rationing the supply of successful vaccines with the hopes of reaping huge financial rewards” a spokesperson for the charity Oxfam recently said.
But artificial scarcity is a feature of the current system, not a bug. After all, patents are designed to stop the market being flooded with cheap copycats. But during a pandemic, this is exactly what is needed.
A peoples’ vaccine?
With the situation in countries such as India and Brazil becoming increasingly desperate in recent weeks, support for temporarily waiving intellectual property rights for Covid-19 vaccines has been growing. The initiative received a gigantic boost this week after the US unexpectedly threw its weight behind the move, following a bold u-turn from the Joe Biden administration.
Proponents argue that this would remove barriers to scaling up production and enable countries to manufacture vaccines affordably, without facing legal challenges from pharmaceutical companies. But others caution that production won’t shift gear up until other problems, such as local technological constraints and manufacturing bottlenecks, are also addressed.
Many in the pharmaceutical industry also worry that waiving intellectual property rights would undermine future innovation. However, as Amy Kapczynski pointed out during the event, patent monopolies are only one way to reward innovation. Prizes, royalties and other compensatory mechanisms can also be used to stimulate private investment while avoiding many of the drawbacks of granting monopolies.
If the intellectual property rights for vaccines do end up getting waived this year, this could create opportunities to experiment with new approaches, and potentially offer a glimpse of a brave new world beyond patents.
Public health or private profit?
Although reforming intellectual property rights may help tackle problems of artificial scarcity, some believe the problems of the sector run much deeper.
As Victor Roy put it in his opening remarks, “the primary duty of pharmaceutical companies is to their shareholders, not to public health”. This means that research and development priorities end up being decided on the basis of how profitable they are rather than how they respond to public health needs. A range of perverse outcomes have been attributed to this, including a lack of interest in fighting diseases that are most prevalent in developing countries.
As a result, some believe there is a need to reform the ownership and governance of pharmaceutical companies themselves, not just the intellectual property they own, and align their mission and purpose with public need rather than private profit.
One obvious option is to have the state manufacture pharmaceuticals directly on a non-profit basis. Nationalising the entire pharmaceutical sector would be an enormous undertaking, and few view this as a realistic prospect. However, Professor Mariana Mazzucato and Henri Li have argued that there is a strong case for establishing a ‘public option’ in pharmaceuticals i.e. “government provided, quality assured medicines that are universally available at a reasonable and fixed price, which coexist with products from the private sector.”
This approach has some unlikely supporters. Lord Jim O’Neil, the ex-chief economist of Goldman Sachs, recently called for parts of the drugs industry to be taken over and run as a “public utility” to help solve the crisis in antibiotics innovation.
Whether or not there is an appetite for this kind of bold action remains to be seen. But twelve months ago the idea that the US would support waiving intellectual property rights was absurd.
It’s clear that Covid-19 is reshaping the world around us. It may end up reshaping health innovation too.
