Waiving patents means waving goodbye to innovation
By Henry Miller, M.S., M.D. and Andrew I. Fillat
Sometimes the sheer stupidity, posturing, and lack of insight by policymakers are breathtaking. As a form of virtue signaling, the Biden administration has just announced U.S. support at the World Health Organization (under TRIPS, the Agreement on Trade-Related Aspects of Intellectual Property Rights) for waivers of patents on COVID-19 vaccines.
Patents are widely misunderstood. They do not so much permit the holder to do something; rather, they prohibit others from copying the patented “invention,” and, thereby, can be very valuable. Patents are an incentive to undertake high-risk, expensive research and development that might be uneconomic if there weren’t a period of exclusive rights to sell the fruits of that work and thus repay the investment. Otherwise, imagine telling a drug company that has just spent, on average, 10 to 12 years and more than billions of dollars to bring a new, innovative cancer drug to market that, upon its regulatory approval, every other company could start making and selling the drug.
The concept of patent protection may serve its purpose more for pharmaceuticals than any other field. This is because the failure rate, from pre-clinical research to regulatory approval, is enormous, typically well over 90%. The small fraction of successful efforts subsidize the many failures. The costs underlying the rare successes are astronomical because they require basic research, lab development, animal testing, multiple phases of human studies (sometimes in tens of thousands of subjects), and post-market follow-up. A widely cited number, including both out-of-pocket expenses and opportunity costs, is that it costs, on average, $2.55 billion to bring a new drug to market. And that doesn’t even include the expense involved in building a manufacturing plant (or plants) and marketing the product.
Many small pharmaceutical and biotech companies choose to outsource post-approval functions, production, marketing, and sales, in exchange for a patent license once they analyze the associated costs. For them, the patent is the entire justification for their existence. While a big company might invest in a project with less certain returns, as Pfizer did in expending upfront almost $2 billion to develop its COVID-19 vaccine, the small players have too narrow a portfolio of products to do the same. However, they are highly successful: In 2018, small pharma companies accounted for 64% of all new molecular entity approvals.
Capitulating to the supposed “ethics” of drug development by waiving patent rights and turning drug companies into charitable institutions could both wreck America’s robust pharmaceutical industry and compromise public health. The ultimate irony is that with all the damage that patent waivers for COVID-19 vaccines will do, they will also fail to bring needed vaccines in a timely way to countries desperate for them.
Even if there were cooperation from the original developer, building or obtaining new manufacturing capacity takes time — time that India and other countries with surging COVID-19 cases don’t have. The main obstacle to expanding vaccine manufacturing isn’t patents; it’s the trade secrets, know-how, and components needed to get a new manufacturing plant up and running. The WHO waivers would not address these hurdles.
There’s another, even more imposing obstacle. These new vaccines, which regulators consider to be “biological drugs,” or “biologics,” complex formulations often derived from living cells, are so complicated to make that the “same” product from a new manufacturer, and sometimes even from a new facility of an established manufacturer, is considered by regulators to be a new drug, a “biosimilar” that needs comprehensive testing before it can be sold. This is not like transferring the recipe for your grandma’s Irish stew, or even the rights to make a small-molecule drug.
Patent infringement by government fiat is essentially a tax on innovation, and the more you tax something, the less you get of it. Moreover, politicians are typically oblivious to the concept of limiting principles. Once a precedent is established, they want to repeat it without regard to where diminishing (or negative) returns set in, especially if it “sounds good” and has virtue-signaling value. We could see patent waivers on COVID-19 vaccines today, HIV and universal flu vaccines tomorrow, and, eventually, patent protection could cease to be valuable across other industries.
This microcosm of how to expand access to these vaccines could be the proverbial “canary in the coal mine” as it applies to suppressing and harming American innovation. Innovation is crucial to the country’s economic progress, and intellectual property protection is a critical stimulus of innovation. Not only is this vaccine patent waiver initiative counterproductive and futile, but it is also a sign that policymakers place virtue signaling above the longer-term interests of the United States.
Andrew I. Fillat spent his career in technology venture capital and information technology companies. He is also the co-inventor of relational databases. Henry I. Miller, a physician and molecular biologist, is a senior fellow at the Pacific Research Institute. They were undergraduates together at M.I.T.