Beyond its own hefty orbit, Big Pharma doesn’t have a lot of friends. Consumers bemoan the high cost of prescription drugs and politicians routinely try to score easy populist points by beating up on the greedy pill purveyors.
But drugmakers benefiting from the Covid vaccines they’ve created are entitled to reap the rewards, despite political pressure to the contrary. President Biden and other political leaders are considering rare waivers to patent protection for Covid vaccines, as a way, in theory, to speed the development of generics for use in poorer countries, such as India, that are struggling with the cost of existing vaccines. That’s a dicey approach. It would be better to leave existing rules in place and find other ways to innocculate the world.
Drug firms that developed Covid vaccines are clearly benefiting. Pfizer’s (PFE) first-quarter earnings included $3.5 billion in new revenue from its Covid vaccine, which might translate into about $900 million in profit. Moderna (MRNA) says it doesn’t intend to profit from its Covid vaccine, yet Capital IQ estimates its 2021 revenue will be $17.7 billion, 22 times higher than its 2020 sales. Moderna’s stock is up 230% during the last year. Johnson & Johnson (JNJ) is earning less from its vaccine but is still likely to profit.
If you’re outraged, answer this question: Why? A year ago, the pandemic outlook was bleak, with Dr. Anthony Fauci and other public health experts saying the best hope for vaccine availability was mid- to late 2021. Instead, vaccines arrived in roughly half the most optimistic timeframe. They're now available to all adult Americans and generally free. The government helped with vaccine development, but this was mostly a private-sector miracle giving the nation and the world a pathway back to normal, despite the persistence of a deadly new disease.
Punishing companies
The best element of capitalism is rapid problem-solving, usually driven by the profit motive. There’s crassness to it, but if the problem gets solved, it’s better than if the problem doesn’t get solved. Concerns about unfairness and wealth inequality are legitimate, and we need solutions that bring way more people into prosperity. But punishing companies that solve huge problems is a dumb way to do it.
Drug industry supporters argue that waiving vaccine patents so that more companies can make the drugs, as with generics, would have terrible unintended consequences. Quality standards would dive, endangering patients with shoddy and possibly counterfeit concoctions. Demand for vaccine components would soar, wrecking supply lines and vaccine availability. Torpedoing profits after the fact would make drugmakers more reluctant to develop vaccines for the next pandemic, and the one after that.
Companies always bellyache about any adverse change, so let’s discount those objections by half. If governments waived patents, there might be more bogus vaccines and supply chain disruptions, but multinational companies excel at ironing out supply chain issues and they’d adapt. More people would get vaccinated. Governments could find new ways to incentivize vaccine development if needed in the future.
Better ways to ramp up vaccine distribution
There are better reasons to leave patents in place and find other ways to get vaccines rapidly to everywhere in the world they’re needed. First, the worst type of government is one that changes the rules in the middle of the game. That trashes trust in government, for good reason. If the government basically told drugmakers they were free to profit off a vaccine at the beginning of a pandemic, to trigger fast investment, it should stick to that pledge.
There are other tools the government can use, however. With production nearly fully ramped, governments should offer whatever help they can to break logjams. The United States seems to be performing better at that than Europe, for now. Shortfalls should ease, and if any manufacturers are thinking of slowing production, so they don't end up with excess inventory, governments can offer purchase guarantees or indemnify manufacturers against overproduction.
The United States should partner with other advanced nations and pay for vaccines wherever in the world they are needed. If some taxpayers think it’s too expensive, make the political case: The United States is going to save the world. We have the capability to do this, and we will. Every US-donated vaccine administered in India or Vietnam or wherever will bear a label saying “proudly donated by the United States of America.” Let everybody know we’re doing this.
It doesn’t need to be that expensive, anyway. The United States has signed contracts with vaccine makers for prices of $15 to $20 per dose. If the US administers 500 million doses, that’s a total cost of no more than $10 billion. That’s not nothing, but it’s a mighty bargain as the cost of ending a pandemic. As a comparison, the US Congress has appropriated roughly $4 trillion—400 times as much—to address the effects of the pandemic.
Europe and most other nations are paying lower prices for the vaccines they’re distributing. As vaccination efforts mature and more vaccines hit the market, the US and other governments can demand even lower prices from drugmakers, flexing their muscle as any huge customer would: Guaranteed high volume normally begets lower prices. Governments have added leverage, including the ability to embarrass companies they regulate if excessive greed begins to undermine the public interest.
Governments also need to prepare for better ways to assure vaccine fairness in future pandemics. It’s probably not wise for any government to get into the business of manufacturing pharmaceuticals. But there are many kinds of public-private partnerships that pair government heft with private-sector innovation as a pathway to best-case outcomes. The Trump Administration, for instance, worked on vaccine research with Moderna and other drugmakers as part of “Operation Warp Speed.” There may be better ways to do that in the future that are more mindful of global need. The private sector might even have some ideas on that the government should tap into.
Rick Newman is the author of four books, including "Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. You can also send confidential tips, and click here to get Rick’s stories by email.
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