In March, Pascal Soriot, the CEO of AstraZeneca, wrote an article in the Guardian promoting his company’s work providing vaccines for developing nations through the WHO’s Covax programme. “The fight against Covid-19 has shown how governments, industry, international institutions and academia can come together to achieve something remarkable.” He promised the industry was “doing all we can to make sure people around the world have access to safe, effective Covid-19 vaccines, wherever they live and regardless of income level.”
Fine words, you might think. And yet the very same week, the Pharmaceutical Research and Manufacturers of America—a lobbying firm that represents AstraZeneca, Pfizer and other drug giants—urged the US government to pursue legal action against any country that suspends drug patents to make coronavirus vaccines without the industry’s express approval. South Africa and India have petitioned the World Trade Organisation (WTO) to allow such generic vaccines to protect their populations and the WHO supports similar measures. But their requests have been blocked by rich nations heavily lobbied by Big Pharma.
True, AstraZeneca, a British-Swedish firm, has performed as close to selflessly as a multinational corporation is capable of doing during the pandemic: partnering with Oxford University to scale up production of its coronavirus vaccine, while promising to take only a small markup, and selling the licence to firms in India and Brazil. Yet even for AstraZeneca, sharing the recipe freely—although it would be in combination with the envisaged accompanying schemes to compensate the industry—remains a step too far. Amid a global disaster, every major drug company is fighting tooth and nail to avoid opening up its patents.
The pharmaceutical industry’s hand in leading the world out of a deadly pandemic has, on its own, been enough to reverse decades of negative attention. In the UK, shielded from patients by the NHS and assorted price controls and regulations, the industry tends to fly under the radar. But in the United States, Big Pharma is a byword for corporate evil. After years of rising drug costs, countless price-fixing scandals plus a scandalous role in the opioid crisis, the industry is consistently ranked the most hated—and least trusted—in America. Becoming the world’s saviour is a much-needed PR coup.
For decades, critics have maintained that Big Pharma is an oligopoly (a market controlled by a few giant firms) which colludes—along with compliant governments and regulators—to maintain a fierce grip on the intellectual property behind lifesaving drugs. Supply is arbitrarily rationed to extract enormous profits. The indictment is that this is both inefficient and immoral. In response, the industry has always maintained that their way is the only way to create new medicines in the first place—that only the profit motive can spur the vast R&D required for drugs that often don’t work. It is our best choice, they argue, in an imperfect world.
The argument is as stale as it is familiar. But when there is an emergency involving an infectious disease, the safety of all patients becomes interconnected, and the case for “pharmanomics as normal” crumbles: the surest way to keep anyone safe is for everyone to get the vaccine. Even the industry understands that the question that will make or break its reputation in these circumstances is whether it can deliver drugs faster, cheaper and more fairly. This is precisely the opposite of its normal impetus and, despite appearances, it has not mislaid all its usual instincts during the crisis.
Less is more
“Oligopoly” is not merely a term of abuse levied at the industry by activists. The label has been used by analysts and economists, and is hard to dispute: between 1995 and 2015, 60 large pharmaceutical firms were merged into about 10 big players. With one or two new arrivals, Big Pharma is essentially formed of the winners who emerged from this scrum. The top 12 firms worldwide—mostly American—account for over 60 per cent of global sales.
The point of an oligopoly is to extract profits—one might call it a rent—by barricading its own market from the competition that might lower prices. In the US, the industry’s anti-competitive practices have been the subject of Federal Trade Commission reports and congressional hearings. The giants’ profits are also considerably higher than those of comparable firms in other industries. In 2017, a Government Accountability Office report in the US found that Big Pharma profit margins had ranged from 15 to 20 per cent over the previous decade, while most companies of the same size ran at 4 to 9 per cent.
The industry argues these profits are a just reward for all that risk-taking R&D. It insists price controls or increased regulation would “discourage innovation.” Numbers are difficult to come by—their accounting practices are notoriously opaque. While the industry claims it costs over $1bn to develop a single drug, independent experts put the figure at around $200m, and critics like the consumer advocacy group Public Citizen insist it’s actually closer to $70m. Regardless, the investment is considerable: research and testing can take years, and only about 14 per cent of drugs that enter clinical trials are eventually approved for usage.
“Amid a global disaster, every major drug company is fighting tooth and nail to avoid opening up its patents”
But once a treatment is approved and production lines are set up, most drugs are relatively cheap to produce. When competition—usually by a generic manufacturer making the same drug with a different name—arrives, the price of branded drugs falls by about 60 per cent within a year. The recipe for success in Big Pharma, then, is both hitting on a successful treatment and then monopolising production for as long as possible. This is done by creating what the University of California’s Robin Feldman calls “competition-free zones.” One way of doing this is by ensconcing drugs in a complex “thicket” of patents—an average of 71 on the big-selling American drugs—and using this to extend exclusive production rights far beyond the standard 20 years. Another way is by colluding with other manufacturers. In many such cases, companies have been fined or sanctioned for outright paying a rival to stop developing a competing product, an anti-competitive strategy known as pay-for-delay.
As recently as the 1980s, wealthy nations such as Canada and Italy would regularly compel firms to license out their drugs, paying them a royalty to allow generic production. But as detailed in Peter Drahos and John Braithwaite’s 2002 book, Intellectual Feudalism, this was at the same time as Big Pharma began an intense lobbying push against what it famously called “stealing from the mind.” Eventually they secured strict, US-style, big-business friendly, intellectual property laws within the regime of the new WTO, founded in 1995. Their litigation could now reach across the world, and anything considered a violation of the rights of such property was backed by sanctions.
The whole system is about artificially restricting supply—and it can work wonders. But patients can miss out on sometimes lifesaving treatments, as the price of a drug becomes unmoored from either the frequently trivial “marginal” cost of producing an extra dose, or its societal benefits. (This defies the general marketopian economic theory, which asserts that the magic of competition lies precisely in equating these two things.) Examples of this disconnect abound: despite costing just a few dollars to produce, and being available in various forms since 1923, the price of insulin has increased 1,200 per cent in the past 25 years; Pfizer’s popular analgesic Lyrica has increased in price by 160 per cent since 2012, despite already being on the market for nearly 20 years. Martin Shkreli, nicknamed “pharma-bro,” made headlines when he bought the rights to the anti-parasitic drug Daraprim and jacked the price up by 5,000 per cent. What Shkreli did was unethical, but it wasn’t illegal. Indeed, his pushing of the boundaries was not that different from the industry’s regular practice.
A miracle of subsidy
Here, then, we have the peculiar system that the world has entrusted with ending the pandemic. For all the buzz early in the crisis about the renewed power of governments, there has been neither a rebirth of state-directed manufacturing for Covid-19 medicines, nor global collaboration via existing international institutions like the WHO. The task of developing and manufacturing vaccines was virtually handed over to an unreconstructed pharmaceutical industry.
And that industry succeeded in developing vaccines faster than anyone previously thought possible. As recently as last summer, most reasonable scientists were still predicting the first successful vaccine sometime in mid-2021. The BioNTech-Pfizer, Moderna and Oxford-AstraZeneca vaccines returning positive trial results by November 2020 was as close as science gets to a miracle. This was all achieved without significantly changing the industry’s normal development model, seemingly a remarkable vindication.
“The WHO attempted to start a smallpox-style technology pool for coronavirus, but hasn’t yet received a single contribution”
But it did have an awful lot of help. The first successful vaccine candidates were delivered with great swells of government money and scientific support. The Trump administration’s Operation Warp Speed (OWS) gave $18bn to the industry to fund various vaccine candidates; governments in Germany and the UK also funded successful projects. The US’s National Institute for Health (NIH) made both patents and research materials available, and provided logistical support for clinical trials. Every reasonable regulatory stop in clinical trials and approval was expedited or loosened, and federal workers were made available.
This is only a partial departure from the normal relationship between the state and Big Pharma. Usually, the state provides support, while the drug companies keep the rights to any profitable products. The industry already relies heavily on publicly funded research to develop drugs. A recent paper from the Institute for New Economic Thinking found that every commercial drug approved in the past decade incorporated NIH research, accounting for some $230bn in research costs. Direct grants from governments served to further “de-risk” the candidate Covid-19 vaccines, as former Trump secretary of health Alex Azar put it—in effect covering much of the development costs for industry. This allowed giants like Pfizer to begin building factories and producing vaccine doses before clinical trials were complete. (Pfizer declined OWS funding, but took a $2bn pre-order from the US government; the German government also partially funded their vaccine candidates’ research costs.)
None of the first few approved vaccines emerged from Big Pharma’s vaunted in-house research programmes. Pfizer partnered with the small German firm BioNTech, AstraZeneca took on Oxford’s near-complete ChadOx vaccine, and Moderna is a medium-sized biotech company. The core material contribution of Big Pharma was logistics—taking the initial discoveries through clinical trials and into production in just a few months. I spoke to many research scientists who were awed at the speed and scale of Pfizer’s operation, especially completing a 43,000-person clinical trial and equipping a factory capable of turning out tens of millions of doses of a brand-new vaccine in just a handful of months.
These vaccines were the work of many hands: it is, as then-president Trump put it, a “great national project” between scientists, government and industry. And yet it is a lopsided partnership, where the massive state investment of money and support is not matched by significant state power over the resulting vaccines. OWS was initially codenamed “Manhattan Project 2,” but the federal government emerged from the atomic weapons programme with a virtual monopoly on nuclear technology and know-how. Here, it is the industry that has retained the rights and infrastructure. Governments simply received the opportunity to purchase the resulting vaccines at slightly below market rates.
There is no overarching plan to organise the production of coronavirus vaccines. There are only individual pharmaceutical companies producing individual vaccines, and national governments desperate to buy. And the descent into the sort of vaccine nationalism on show in the spat between Brexit Britain and the EU could further tilt the power balance in favour of the corporates. Bickering states will struggle to co-ordinate on production and purchase collectively, and individually may become increasingly dependent on “national champions” and regulate them with kid gloves.
All told, the crisis response fits within the same basic logic that has served Big Pharma so well, and may reinforce it.
Expensive secrets
Fortunately, pharmaceutical companies are very good at producing vaccines. In fact, since the 1980s, when countries with nationalised vaccine factories sold them, they have been virtually the only ones producing them. Some nations are now scrambling to rebuild their future capacity, but it will take years. For the moment, any path to full vaccination requires Big Pharma.
But while the industry is good at producing vaccines, it will only do so according to its normal incentives—jostling for contracts while jealousy guarding its intellectual property and manufacturing process. There are currently over 200 coronavirus vaccines in development. This is often seen as a good thing—suggesting industriousness, and providing insurance. But each is being developed essentially in isolation from the others. Knowledge is not being shared as it might, which cannot be efficient.
Although many vaccines spread the risk of failure—drug company Merck had to abandon its vaccine trials in January after disappointing results—the problem is that any technical improvement made by one vaccine-maker can’t readily spread across the system. In the very different world of the 1940s, the US War Production Board (WPB) chemist Albert Elders wrote that “it is entirely possible that some one producer may make such a drastic improvement in the process that total needs for penicillin could be met very quickly by applying this information to all of the production facilities.” He was correct. The WPB compelled drug companies to share trade secrets, including Pfizer’s hyper-efficient fermentation method for producing penicillin, and production increased more than ten-fold in the next two years.
When the WHO embarked on its campaign to eradicate smallpox over 50 years ago, it pooled vaccine know-how submitted by manufacturers and academics around the world. The vital freeze-drying technique that allowed the vaccine to be transported was invented by the British microbiologist Leslie Collier, and later refined for the WHO by the publicly funded Connaught Laboratories in Toronto, and then shared freely.
Because the idea of sharing private intellectual property is now anathema, a chance to refine vaccines co-operatively is being missed. The WHO attempted to start a smallpox-style technology pool for coronavirus treatments but it hasn’t received a single contribution so far. The Moderna and Pfizer vaccines, for instance, use near-identical starting materials, but Moderna’s is stable at higher temperatures, greatly simplifying storage and transport, while Pfizer’s uses 70 per cent less RNA in its shots, making more doses of vaccine with fewer materials. Both sides, you might think, would have things to teach each other in a free exchange—if it were happening. Further advances may be locked away within companies whose vaccines haven’t cleared clinical trials yet.
The other issue is whether the industry is manufacturing as much vaccine as it can. Naturally, the companies insist they are, but their capacity is notoriously opaque. Among existing manufacturers, it’s clear some collaboration could help. There are diminishing social and commercial returns for keeping spare capacity ready to produce alternative vaccines that are failing, or progressing too slowly: they will have to drop out of the race. Pharma giant Sanofi recently announced it would take a contract to help manufacture the Pfizer and Johnson&Johnson vaccines at a facility in Germany, after its own vaccine candidate fared poorly in trials. But this was, reportedly, after pressure from the French government. More capacity will soon be freed up in other firms. But whether that is used to help rival firms produce more vaccine, or simply to return to their regular (highly profitable) businesses, is up to them.
This setup, with Big Pharma hoovering up collaborative funding and intellectual property in the development phase, and then retreating to manufacture in near-isolation—resisting efforts to organise or join up production—would have shocked the architects of previous public health campaigns. The WHO was able to bring the US and Soviet Union together to collaborate on smallpox. In 1955, the recipe for the first polio vaccine was shared globally for anyone to use. Pharma had a proud and prominent place here. In the US, Wyeth laboratories was the sole producer of a smallpox vaccine—but its monopoly power didn’t extend beyond US borders. The polio vaccine was manufactured by multiple firms including Eli Lilly and others that would later be acquired by Pfizer and Sanofi. They made handsome profits, but were simply paid for their services, not given power over the vaccine itself.
Planet-sized problem
Even if Big Pharma companies converged on a collaborative recipe and joined up their production, making enough vaccine for the entire world would still be a challenge. The failures of the existing—more fractured—system are starkest in developing countries. As it stands, of the 400m vaccine doses administered so far, fewer than eight million have been in Africa, and the Economist Intelligence Unit recently predicted it would take until 2023 for some regions of Africa and Asia to reach full vaccination. But of course, given the way viruses evolve and spread, this delay is against the interests of everybody everywhere.
But put to one side the PR considerations, which could have some bearing, and the fundamental incentives for Big Pharma are unchanged. The most profitable course is to delay worldwide production for as long as possible, and sell their own vaccines for as long as they can—the opposite of what the world needs, morally, economically and epidemiologically. There are hundreds of generics manufacturers worldwide—many have already stepped forward to offer to make coronavirus treatments if patents and technology transfer become available. And the next class of coronavirus vaccines entering approval after Pfizer, Moderna and AstraZeneca is more conventional. They are the type that the generics industries already make billions of every year.
But the many schemes to open up licensing are unlikely to succeed: their enemies are too powerful. At a WTO meeting in February, proposals to suspend parts of the TRIPS agreement on international property—efforts supported by over 100 developing nations—were stonewalled for a third time by rich nations. The opposition went well beyond the pharma world; powerful business lobby groups, like the American Chamber of Commerce, stood stoutly against the “misguided” measures.
A few major firms may follow the AstraZeneca lead and voluntarily license their vaccine out to select manufacturers, but there won’t be any broad suspension of intellectual property rights nor true worldwide collaboration. There will be no “People’s Vaccine” emerging from any of these firms. It isn’t that the coronavirus vaccines are especially valuable. They are a big bump for a few firms: Pfizer predicts it will take in an extra $15bn this year, but its 2019 revenue was already a healthy $52bn. It’s that the system itself is too valuable. The principle of locking out low-cost competition is just too precious to compromise. Even for coronavirus.
