Why Joe Biden’s Big Pharma patent grab is a terrible idea

The US president has proposed waiving patents on Covid-19 vaccines in a bid to boost global supply. But it won’t work on its own terms and holds dangers for the future.

What’s happened?

Earlier this month the US surprised the global community – and stunned investors in drugs companies – by backing the temporary suspension of some globally agreed rules covering intellectual-property (IP) protections for Covid-19 vaccines. A waiver of World Trade Organisation (WTO) rules to help tackle the Covid-19-emergency was first proposed by India and South Africa last October, covering patents not just for vaccines, but also diagnostic tools and therapeutic treatments. Both countries have a large manufacturing sector making generic (off-patent) pharmaceuticals. The US is not signed up to a broader waiver of that kin, but its support for a narrower waiver on vaccine patents is a surprise.

Why’s that?

Because the US has a vast and powerful pharmaceutical sector and Washington has a long history of opposition to public-health measures that affect intellectual property rights. In 1996, it even threatened sanctions against Brazil for weakening patent laws to improve access to life-saving Aids drugs. Still, there’s no guarantee that a patent waiver – that is, a temporary suspension of certain rules set out in the WTO’s Trade-Related Aspects of Intellectual Property Rights (Trips) agreement – will actually happen. Until earlier this month, the idea had gained little traction, with the US, EU (notably Germany), UK and Japan all opposed. But US support makes it far more likely that some kind of waiver will be agreed.

What’s the case for a waiver?

The hope is that the waiver will encourage a  wider and more geographically diverse production base, as well as encouraging international co-operation. And also that the prospect of a waiver will encourage pharmaceutical companies to enter into more voluntary arrangements and non-exclusive licensing to enable the transfer of technology in a controlled and transparent way. The lesson of the Aids pandemic is that patents “stymie accessible treatment, cost lives, and offer little bona fide enhancement of innovation”, says Laurie Garrett in Foreign Policy. 

What’s the case against?

First, that waiving patents on Covid-19 vaccines would not actually speed up global production or get more shots into arms. Second, that doing so would have damaging long-term effects on future innovation. To take the first, it’s not IP issues that lie behind vaccine supply issues, it’s a range of factors including shortages of critical raw materials, a lack of production facilities and the technology and expertise to manufacture them. We know vaccine patents are not the bottleneck to making more vaccines because “there are no factories capable of producing Covid-19 vaccines sitting idle because they don’t have a patent”, says Matthew Lesh on CapX. Moderna announced last October that it would not be enforcing its own patents – yet there is no generic non-Moderna production.

Why not?

Because it’s too hard to copy given the obstacles. Pfizer’s vaccine, for example, requires 280 components from 86 suppliers in 19 countries, from glass vials to lipids to special plastics. And AstraZeneca, having established a global supply network with more than 20 partners across 15 countries, ran out of engineers qualified to transfer its technology. Moreover, waiving patents will increase competition for scarce ingredients, with the risk that less efficient and less expert manufacturers would hinder the ability of existing producers to ramp up capacity. And there’s an obvious issue with safety – and the knock-on effects on global confidence in Covid-vaccines as a whole.

And the long-term consequences?

Security of property rights underpins the whole pharmaceutical sector, which is driven by massive – and massively high-risk – upfront investment in research and development. Weakening or waiving those rights would inevitably discourage companies from investing in future innovation. That would make the world less safe and more vulnerable to the next pandemic threat – and could conceivably even disincentivise investment  in pharmaceuticals more broadly. Biden’s “bewildering” support for this is “the single worst presidential economic decision since Nixon’s wage-and-price controls”, says The Wall Street Journal – destroying tens of billions of dollars in US intellectual property and surrendering America’s advantage in biotech, a key growth industry. Certainly, when the next pandemic hits, the world will want the pharmaceutical industry to once again “drop everything and work like hell to make vaccines”, says Tom Chivers on Unherd. “Maybe waiving IP rights will have no impact on their willingness to do that next time, but if there’s even a small chance that it will, it seems a bad bet.”

Will it happen?

Any agreement will need the backing of all 164 WTO members, and will take weeks or months to secure. Meanwhile, many poor countries have jabbed less than 1% of their populations, 44% of vaccine doses have gone to Europe and North America, and Covid-19 is raging in south Asia and Latin America – and all the while new variants are raising the risk-level globally. Investors are worried about a fall in pharma profits, says The Economist, but the danger – in terms of both health and economy – is far broader than that. If protracted negotiations at the WTO “suck energy away from other initiatives to transfer technology and increase vaccine supplies, that would really be something to fear”. Far more useful than waiving patents, says The Washington Post, would be a concerted effort by Western governments to share their vaccine surpluses, and by Western pharma firms to strike more licensing deals and “share manufacturing know-how, experienced personnel, quality control methods, oversight and raw materials”. 

Recommended

Bitcoin is down more than 50% since its all-time high. What is going on?
Bitcoin & crypto

Bitcoin is down more than 50% since its all-time high. What is going on?

Bitcoin, the world's most popular cryptocurrency, is trading more than 50% below its all-time high in November. Saloni Sardana explains why the digita…
24 Jan 2022
Tech stock carnage: do you think Apple, Amazon and Alphabet will save you? Think again
Tech stocks

Tech stock carnage: do you think Apple, Amazon and Alphabet will save you? Think again

As tech stocks continued to slide, there is a view that you can escape all the carnage by holding really high quality profitable stocks. That view is …
24 Jan 2022
Which assets will benefit as the “jam tomorrow” bubble pops?
Investment strategy

Which assets will benefit as the “jam tomorrow” bubble pops?

With tech stocks, cryptocurrencies and many other “long duration” investments crashing hard, the “jam tomorrow” bubble looks to be bursting. John Step…
24 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022

Most Popular

Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Ask for a pay rise – everyone else is
Inflation

Ask for a pay rise – everyone else is

As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why yo…
17 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022