Keeping the world in lockdown is not a long-term solution for Covid-19. It’s time to think ahead. The lockdown will gradually have to be lifted, creating new risks of infection. We cannot really be safe, we are told, until after a vaccine becomes available, usually estimated at 10 – 24 months away.
The Race for a Covid-19 Vaccine
Scientists in many countries are racing to be the first to prove a vaccine, with some saying they are nearing success. But if one succeeds, all of the 7.5 billion people on Earth cannot be vaccinated immediately. No single producer can supply everyone quickly enough, so which countries get sufficient quantities of the vaccine, in what priority, will depend on what each country offers the inventor.
Who Gets the New Vaccine First, at What Price?
The inventor may decide as a goodwill gesture to give away its vaccine to whoever can produce it. But the inventor may instead decide to patent the vaccine and license (permit) producers in several countries to produce it. In either case there would be serious issues around pricing and availability.
What is the fair price for a vaccine to save millions of lives and prevent further shutdowns of the global economy? And how many people can afford to pay for it at that price?
Since everyone can’t get the vaccine while production is ramping up, who should get it first? The countries which are the highest bidders? And within a country, how should the scarce vaccine be distributed — to front-line workers first? the elderly? those in the food supply chain? It is too early to answer these questions but not too early to think about them and plan ahead.
Compulsory Licensing of Drug and Vaccine Patents
Patent laws are intended to give inventors the opportunity to recoup their R&D and production costs and make a profit, over the life of the patent. But there are important exceptions in many countries, particularly for a drug or vaccine.
As essential medications can mean the difference between life and death, there is a strong moral objection to “price gouging” with a patent. Patented drug pricing is a difficult issue to resolve fairly. Before the invention the social outcry is to develop the drug as soon as possible and spare no expense because our lives are at stake. After no expense has been spared the political focus shifts to minimizing the price by minimizing the inventor’s profit.
Some countries, including Canada, have imposed patent restrictions called “compulsory licensing.” Without the consent of the patent owner, the government authorizes a third party pharmaceuticals producer, often a generic competitor, to produce the drug. The government also orders this authorized producer to pay the patent owner a fee (in Canada, 4% of net sales). The patent owner loses control of its intellectual property, which has effectively been nationalized or expropriated.
When supply of a hot new product like a COVID-19 vaccine can’t keep up with global demand the patent holder will first supply the countries that will provide the highest profits.
For Covid-19 Will Canada’s New Compulsory Licensing Law be a Blessing or a Curse?
Canada’s COVID-19 Emergency Response Act [S.C. 2020, c. 5, Assented to 2020-03-25, Part 12, s. 51] created a new compulsory licensing law for COVID-19 patents. The new law states: “The Government of Canada … shall pay the patentee any amount that the Commissioner [of Patents] considers to be adequate remuneration in the circumstances…”. What might be “adequate remuneration” for a pandemic vaccine is difficult to determine.
I now digress for a funny but relevant personal anecdote. When I joined a law firm in 1989 I asked a member of its executive committee how to set my hourly billing rate:
Keith: Charge the going rate.
Andrew: What’s the going rate?
Keith (laughing): That’s the rate that if you make it any higher they’ll be gone.
A profit-making inventor of COVID-19 vaccine will want to charge the going rate.
The new law’s goal of only “adequate remuneration” in the opinion of a federal official is to pay than less than the “going rate”. Yet at this early stage, even merely adequate remuneration will probably result in a very expensive vaccine. The political temptation will be to minimize or eliminate the patent owner’s profit to bring the price of the vaccine down as much as possible. Inventors know this. Their incentive is to avoid selling to countries with laws like Canada’s, at least initially, unless their governments make them an attractive offer, close to the going rate.
Canada’s compulsory licensing experience has been limited to generic drug manufacturers entering the market years after the patent holder will have set a price. If there is to be compulsory licensing from the very beginning of the Covid-19 vaccine’s life, one or more governments will set the price. How will they balance the competing interests of the patent owner’s shareholders with the world’s need for an affordable vaccine? We have almost no experience in doing this.
At first the vaccine will be extremely scarce, hence almost infinitely valuable. In the 1950s Jonas Salk and Albert Sabin, both academic researchers, discovered polio vaccines but declined to patent them, and simply gave them away. Today, the teams of researchers funded by government agencies and charitable foundations could do the same, if they are the first inventors.
But what if the first proven vaccine comes from a profit-maximizing business? With the eyes of the world on it, the inventing firm cannot appear shameless in exploiting the realistic fear of death. But the company will decide which country to supply first, second, third, etc.. If some countries are offering serious money, and Canada is offering compulsory licensing at 4% of net sales, the inventor will be better off supplying countries with no compulsory licensing law (like the US) or countries willing to waive the application of their compulsory licensing law. Meet the law of unintended consequences: Canada’s COVID-19 compulsory licensing law could deter the inventor from supplying Canada early in the distribution of the vaccine.
What can Canada do about this? Will our government have to repeal or not use the new compulsory licensing law? Will our politicians fake it by granting compulsory licenses at the price demanded by the inventor?
Which Consumers Will Be Able to Afford the New Vaccine
Canada will have to provide the vaccine to everyone who needs it regardless of personal income, not just to the very rich who can afford it. Therefore, our government will probably have to pay the producer considerably more than it can charge consumers, if it can charge consumers at all.
Initially, the global demand for a vaccine will far exceed supply. Given the current global political climate, a nation’s right to control how the vaccine it produces is distributed may be influenced by nationalism. For example, Australia was the first to develop a successful swine flu vaccine in 2009. Its government ordered that Australians should have the vaccine before any exports were allowed. The US has recently tried to prohibit exports of personal protective equipment (PPE) to Canada. Would it not do the same, at least temporarily, if a US company develops the first approved vaccine? And after domestic requirements are met, will the presence or absence of free-trade agreements between countries make any difference to the national sequence with which the vaccine is distributed?
Are “We” Really All in This Together?
Our Prime Minister has repeatedly said in his briefings on COVID-19 that “we are all in this together.” But who is this “we”? All Canadians? All Americans? All Chinese? Everyone on the planet? Just as countries are competing to obtain supplies of PPE, countries will compete for early supply of the new vaccine.
In view of the widespread harm the virus has already done, and will continue to do, we can all hope humanitarian concerns will win out over profit maximizing and nationalistic politics in the distribution of the vaccine. It remains to be seen whether our new compulsory licensing law will be a blessing or a curse.
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Categories: coronavirus, COVID-19, Deaths, Emergency, Government, Law, Pandemic
Great article. One typo alert: “But if one succeeds, all of the 7.5 billion people on Earth cannot vaccinated immediately.” – cannot be vaccinated
Thanks for catching this. Correction made.
Many thanks for an interesting analysis. The law of unintended consequences, indeed.
What ‘matters to you’ can easily matter to everyone. Thank you for this piece.
As a Canadian expat living in America, I am concerned
with the profound question you present:
“What is the fair price for a vaccine to save millions of lives and prevent further shutdowns of the global economy?”
I didn’t know details of the patents & recent Canadian laws… But the story of the polio vaccine inventors sounds like the halcyon days in comparison to big pharma and governmental greed in healthcare now.
Thanks Tova, good questions.
There is no single “fair price”. It will have to be negotiated country by country. The faster a country wants the vaccine the more it will have to pay for it, with one possible exception. If the vaccine is invented in the US, or manufactured in the US (wherever invented), a US president may be able to get away with an Executive Order prohibiting export of the vaccine until US demand has been met.Whether the President could also set the price, or whether Congress could do so would probably result in litigation up to the Supreme Court.
The cost of producing the vaccine will have to be paid regardless. The initial R&D and testing costs less clearly so, because some research teams have been funded by a government agency and others by, e.g., the Belinda and Bill Gates Foundation.
And then the big question will be profits, if any. Some university teams may be willing to forego a profit, but big pharma companies will want some profit. How much will probably depend on whether a country wants it the first week or the first month or the 6th month.