Bill Gates is a pretty respected figure in EA circles. His commitment to helping people living in extreme poverty and to using evidence to inform his Foundation's work preceded EA but seems very well-aligned with EA's belief and efforts in global health and poverty reduction. I believe that the Gates Foundation has saved millions of lives.
This made it all the more surprising to hear that the Gates Foundation urged Oxford to abandon its plans to donate the rights to their COVID vaccine to a pharma company. The idea was to provide the vaccine at a low cost or free of charge. From Kaiser Health News:
"A few weeks later, Oxford—urged on by the Bill & Melinda Gates Foundation—reversed course. It signed an exclusive vaccine deal with AstraZeneca that gave the pharmaceutical giant sole rights and no guarantee of low prices—with the less-publicized potential for Oxford to eventually make millions from the deal and win plenty of prestige."
This struck me as a catastrophic move, turning a vaccine developed by a nonprofit institution into a way to make a company lots of money, with no clear upside. (I think if Oxford stuck to their original plan, they could control the IP and require that their manufacturing partner sell the vaccines at cost).
The article quotes James Love, director of Knowledge Ecology International, a nonprofit that works to expand access to medical technology:
"'[Bill] Gates has staked out this outsized role in the vaccine world,' Love said. 'He has an ideological belief that the intellectual property system is a wonderful mechanism that is necessary for innovation and prosperity.'"
A long-form article in the New Republic goes into much greater detail on what motivates Gates and the role he plays in global health. It describes how there was initial movement towards open collaboration on COVID research and efforts to ensure that knowledge was shared. Gates argued that IP restrictions like patents and trade secrets, wouldn't impede efforts to develop and distribute vaccines. His status as a global health heavyweight helped ensure that the response to COVID would respect existing international commitments to IP.
The article argues (persuasively in my opinion) that the global IP paradigm significantly impedes vaccine production. Companies that own rights to vaccines developed with enormous public investment and massive guaranteed government contracts are fighting any efforts to share the knowledge that could be used make more vaccines in more parts of the world.
Some objections are raised that there aren't many places that can manufacture vaccines that aren't already doing it (which strikes me as extremely unlikely, quite recently, J&J was forced by the US govt to let Merck help it manufacture its vaccine). With some projecting that poor countries won't be fully vaccinated until 2024, even if it takes a 1+ years to retrofit a plan to make the vaccine, it would be worth doing so.
The argument for companies being allowed legally enshrined monopoly rights to produce and sell vaccines is that developing a new drug is extremely expensive and risky, and companies won't do it if a competitor can copy their formula and undercut their sales. But in the cases of COVID vaccines, much of the cost of researching the drugs was publicly funded and risks were eliminated through government purchase guarantees. From a NYT Op-Ed:
"In fact, the novel technology at the heart of the Moderna vaccine, for example, was developed partly by the National Institutes of Health using U.S. federal funds. Moderna then received a total of some $2.5 billion in taxpayer money for research support and as preorders for vaccines; by the company’s own admission, the $1 billion contribution it received for research covered 100 percent of those costs."
In theory, companies use their profits to invest in further research, creating a dynamic and innovative industry that routinely churns out wonder drugs. In practice, pharma companies are far more focused on boosting their share price than on developing new drugs. For example, in 2018, "the 10 biggest pharmaceutical companies spent nearly 170 percent of their net income (tapping cash reserves and borrowing) on payments to shareholders and executives through stock buybacks and dividends".
Vaccines are a classic example of a global public good. It is in the interest of every individual and government to ensure that everyone gets vaccinated as quickly as possible, but it is in the interest of an extremely powerful industry (pharma) to ensure that the existing IP paradigm and for-profit vaccine production model are preserved, even if that comes at the expense of getting everyone vaccinated as quickly as possible.
A better system for vaccine development would be to have a prize system. The government decides that a cure for X is worth $5B. A pharmaceutical company believes they can develop the cure for X for $4B. The govt buys the rights to the cure for the prize price and open-sources it, allowing companies to make generic version of it and sell them at cost.
I would go further and return to a fully public vaccine development and distribution model, similar to what we had in the mid 20th century.
From another article by the Gates-article author:
"A public pharma sector would operate according to the norms and laws that have governed science for most of history. Because the system would not be based on the maximum pricing of drugs artificially protected from competition, there would be no incentive to erect barriers to science. Instead of licensing breakthroughs to private companies, U.S. labs could make contributions to global patent pools, not just when pandemics threaten, but as a matter of permanent policy. While private industry might not survive government competition in, say, the insulin market, companies could focus on lifestyle drugs, or perform niche roles in the public production of essential medicines. "
I think either system would be a massive improvement from the status quo, where companies under-invest in unprofitable drugs like vaccines and hoard useful research.
Gates, whose fortune is the result of the intellectual property system, is standing in the way of changes to that system which would increase the availability and decrease the cost of vaccines. I think the harms of this opposition could easily outweigh the positive contributions Gates and his foundation have made to fighting COVID.
The enormous global inequality in vaccine access is the most important story in the world, in my view, but I've seen very little EA writing on the topic. What do you think?
Both AstraZeneca and J&J have agreed that they will sell the vaccines at cost during the pandemic; this is mentioned in one of the articles you linked.
Unfortunately, this agreement has had major downsides. By preventing AstraZeneca from making a profit, it has undermined their ability to invest in capacity, and is one of the causes of the numerous production setbacks we have seen. I think it would have been much better if AstraZeneca was allowed to charge higher prices to incentivise them to produce more! If there is a shortage, that suggests that prices are too low, not too high.
AstraZeneca signed a voluntary licensing agreement with various Indian manufacturers to allow them to produce its vaccine. This fact was pointed out to you when you wrote about this subject on facebook.
Given you highlight Moderna, why did you not mention that they have in fact agreed not to enforce their vaccine IP rights during the pandemic?
As it happens, I doubt this will be that important a move. Manufacturing mRNA vaccines is a very advanced business that requires a lot of expertise; these are not small molecule drugs! Even with the IP waiver I suspect most others would struggle to do what Moderna and Pfizer have achieved. There just is not a huge amount of currently idle capacity in this supply chain. For more detail on the manufacturing details, I recommend reading this article.
Developing new drugs and 'boosting the share price' are not in opposition. If a company develops a promising new drug, the expectation of future profits will cause the share price to increase. This is why biotech companies can see their share prices go up even if they are not doing any cash return at all.
I also think you have misunderstood how accounting works. Net Income is after R&D expense. The more a company spends on R&D, the lower Net Income will be. The fact that Net Income is low compared to cash return doesn't mean that the company isn't doing R&D.
As an example, take a look at Pfizer. In 2020 they spent about $9.4bn on R&D vs Net Income of around $9.6bn. This exceeded their dividends and buybacks, which were around $8.4bn. And we should probably also included M&A, which is basically indirect R&D. This is lumpy but large - e.g. over $10bn for 2019 for example.
I actually think that it is a major problem how low the prices for the vaccines have been. These drug companies have provided us with a way out of the pandemic that many people thought was impossible - and very few expected as quickly as this. For this they should have been richly rewarded - we want to incentivise companies to work on the world's biggest problems for the future! Unfortunately, if you look at the share prices of Pfizer or AstraZeneca and compare them to the broader market, you can see this was not the case. Given the amount these companies have been attacked by politicians, I think it is plausible that AstraZeneca leadership might regard this entire endeavour as a mistake.
(Thanks, I thought that was a really useful comment for me to read. I had suspected that the OP was off in various ways - e.g. the "shortages suggest prices are too low" point seemed clear - but haven't followed the situation closely enough to know for sure what to think about some of the details, and this comment helped with that.)
Agree with your concern that waiving IP rights is disincentive for pharmaceutical industry to R&D future medicines and vaccines, but it does not negate the fact that vaccines in a pandemic are a global public good. It is about human rights.
Regarding the financial status of the vaccine companies, half of Pfizer's record-setting revenue in 2021 were from their vaccine.
Although I agree fundamentally with the OP's suggestion for a fully public vaccine development, a concession might be a one year limit on TRIPs patents for vaccine, allowing profit before sharing the tech.
Also this report that big pharma R&D costs are vastly overblown; it is what I had suspected, now upheld by research.
Vaccines are excludable (it is easy to largely prevent people from accessing them) and rivalrous (most of the benefit of the vaccine goes to the person being vaccinated, as transmission is reduced but still significant) and hence while they may have positive externalities they are not public goods.
True, my mistake. Herd immunity is the public good. I would still suggest vaccines are the cheapest, safest, fastest, most equitable route to herd immunity.
I stumbled on a related IGM poll (a survey of many of the top economists from the US) the other day, and they seem to believe that economic incentives through IP rights are important:
Then we should massively invest in alternative models for developing and producing vaccines. The reality is that monopoly prices and IP protections are making vaccines inaccessible to the majority of the world. If you just remove IP protections but don't put something else in place, I could see that leading to bad outcomes, but that's not what advocates are calling for. Decades of market fundamentalism has thoroughly limited our ideas of what is possible. Public sector drug development was the norm for many countries around the world, until the pharma industry captured rich country govts.
Are economists the right people to ask?
NO ... this group of economists is very limited and not representative. It holds only economists from the rich west, and does not include a single voice (from the many excellent economists specialised on the subject) from the South or from poor countries. Public Health is so much more than financial
Rather than impeding vaccine distribution, could this not ensure profit motive to incentivize further vaccine distribution? A company motivated by profit and distributing vaccines at a loss might not be too excited about doing that very quickly, and try to spend some of their efforts on more profitable things. At a good enough profit, they'll put in 100%.
Did they guarantee lower prices for developing countries, though? Developed countries can pay extra without too much harm, but I'd worry about developing ones.
I think open-sourcing any IP (either by govt's buying it and putting it out for free, or by developing it with that intention from the beginning like Oxford had planned) would largely solve this problem. You wouldn't need to have contracts or govts mandate that companies don't profit during the pandemic. There would just be an actually competitive market for generic vaccines.
Vaccine availability in poor countries is abysmal. Which is the main issue I see with the IP-protecting approach to vaccine development. If you just let companies set monopoly prices, as other commenters have suggested, poor countries will be priced out.
I think this post unhelpfully mixes general, systemic criticisms around innovation, public goods and IP (which I'm very interested in and sympathetic to) with the "news hook"—COVID vaccines. It strikes me as incredibly unlikely that we'll determine and shift to a better solution in the current crisis. I think the most likely outcome of action here would be to shift us out of the local maximum but not into the global maximum. I think a proposal of an alternative system, an analysis of its cost and benefits relative to the status quo , and a plan for how to get there from here would receive a very different reception.
For quite some time now (even predating Covid), I've suspected that in many situations patents are just an inferior/stopgap market tool, but that a more-nuanced prize system such as you link to would require a trustworthy, competent, and (re)trained bureaucracy. It's outside of my wheelhouse so I haven't really actively pursued it, but I personally would be interested to see more research/discussion on the subject.
That being said, I do take some issue with the title of this post, which appears to beg/load the question: one could make an argument that the decision by Bill Gates could aid vaccine distribution by providing more market incentives for production and fast distribution. I'm definitely not familiar with this, but I do suspect that it's not like the vaccine information is going to be withheld from the world while at the same time pharma companies just price gouge their way through the Global South; I think it's more likely the vaccines will be provided to developing countries via foreign aid and/or other mechanisms at far lower cost relative to what was charged among wealthy countries. In the end, there are going to be unavoidable costs associated with production and distribution; the question is whether that is covered via foreign aid directly or if it will be funded more-indirectly by the profits gained in developing countries.
I believe that governments can be competent in highly technical endeavors (e.g. Manhattan Project and Apollo Programs), operate large distribution networks (USPS), and run businesses (many states have a legal monopoly on alcohol sales). It's a matter of investment. This article goes into a lot more detail on how a public pharma sector could work.
Vaccine distribution in poor countries has been almost nonexistent so far. This is already a massive problem, and it's astonishing to me that EA isn't yelling from the rooftops about it!
The KHN article lays it out well:
"High-income countries, representing just a fifth of the global adult population, have purchased more than half of all vaccine doses, resulting in disparities between adult population share and doses purchased for all other country income groups."
Maybe rich countries will donate their extra doses once they vaccinate every one of their citizens, but that may not happen for months or years. All the while, people in poor countries are dying from COVID and mutations are more likely to crop up that may bypass vaccines. Of course, this would be good for vaccine makers, who can then make a booster and sell that.
The Manhattan Project, Apollo Program, and USPS all illustrate that the government can sometimes fill a role when given enough money/resources to solve a problem, but they aren’t widely-acknowledged examples of efficiency—in fact, the USPS is often criticized as a prime example of government inefficiency. As to the first two, these could be outliers given their nature as technical endeavors during wartime/security environment pressures. I’ll leave the latter half of your comment to the other comments that have already been made by others.