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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.
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.
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.
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.
It's not too surprising that the top comment is a rehashing of market fundamentalism. Going through point by point.
If Oxford had required that their partner sell the vaccines for say 10% over the cost of production and distribution for the lifecycle of the patent, there would be no incentive to slow-roll production until the pandemic is deemed to be "over" so they can really start cashing in. The problem here is the cliff, not the price cap. Generic drugs are widely available even though the companies that make them don't have a legal monopoly. Better yet, a public sector pharma sector could just pursue research and production that has the highest social impact, with no concern for whether it's profitable (cures and vaccines will be less profitable than treatments and drugs that require indefinite prescriptions).
The paragraph after my quote from the NYT op-ed addresses this directly:
"Moderna has pledged not to enforce its “Covid-19 related patents against those making vaccines intended to combat the pandemic.” But as Doctors Without Borders has pointed out, that offer is less generous than it seems since other types of intellectual property, such as know-how or trade secrets, typically are needed to develop and produce vaccines."
I agree that some of the rhetoric around how easy it would be to spin up new manufacturing capacity, especially that which is related to novel tech, is probably inaccurate. But these problems were foreseen a year ago. Licensing and coordinating new production takes time, deals have to be negotiated and struck. If the IP were public, every company and govt with the capacity to manufacture vaccines could be working on it (or have begun retrofitting plants to build that capacity) . The fact that no companies contributed to knowledge sharing efforts is mentioned in many of the articles I linked.
The article you linked also doesn't say that other plants couldn't make the vaccines on a timeline that could impact the course of the pandemic, it just says that it's a myth that dozens of facilities stand ready to make more vaccine right now (which may actually be true of vaccines that aren't using mRNA approaches).
No, I understand this. Net income could be reinvested in R&D if a company chose to do so. The point is that vaccine development isn't as profitable as other, less socially useful drugs (like things to treat male pattern baldness). This article goes into a lot of detail on how market forces have diminished our research and production capacities over time:
"The AIDS pandemic focused attention on America’s own disappearing base of vaccine R&D, even as Washington accelerated the trend worldwide. In 1985, the nonprofit Institute of Medicine warned that America’s “reliance on market incentives to ensure vaccine availability may lead to a failure to meet public health needs [and] may not result in optimal levels of vaccine innovation.” Douglas MacMaster, the president of Merck, delivered a similar message before Congress a year later, warning that his company, one of the last to maintain a vaccine research program, might not be able to fund it much longer, given the “profitability of such products.”
Merck ended up keeping its vaccine department. But despite claims by the industry, U.S. drug companies have not produced a “renaissance” of infectious disease research on par with the achievements of the last century. Hoyt made a study of pharma’s post-1970 vaccine record and published her findings in her 2012 book, Long Shot: Vaccines for National Defense, revealing that vaccine innovation had in fact been in a decades-long slide—one tracking precisely to the rise of monopoly science and the related financialization of the drug business. "
If you think this is true, how do you expect the world to get vaccinated? It's already cost prohibitive for poor countries to secure enough vaccine for their citizens. Almost no one in the global South has been vaccinated and COVAX is underfunded and only promises to vaccinated 20% of the population of the countries it covers. How would these companies making even more money off of the vaccines improve this situation?
Although I think it’s unfortunate this comment is so downvoted, I’m not surprised to be honest. As a rhetorical matter more generally, I would recommend two major things: