Thursday, March 4, 2021

Are patents the cause of—or solution to—COVID-19 vaccine innovation problems? (No!)

By Jacob S. Sherkow, Lisa Larrimore Ouellette, Nicholson Price, and Rachel Sachs

Are patents the cause of—or solution to—COVID-19 vaccine innovation problems? A number of recent commentaries have suggested as much, and have advocated for either weakening or strengthening patents covering various aspects of COVID-19 vaccines. Turning to patent law to address innovation problems may seem natural, as legal scholars conventionally view patent law as “our primary policy tool to promote innovation.” But there is a reason we have written over thirty posts on COVID-19 innovation issues without a single post focused on patent law (until now): many other legal institutions have turned out to be far more important. This is particularly true for vaccines. In this post, we explain why either eliminating or strengthening patents would have little effect on the rollout of vaccines for this pandemic, and why non-patent institutions will play a far more important role than patent law in incentivizing innovation for the next pandemic.

Are patents hindering the COVID-19 vaccine scale-up?

As we discussed in an earlier post, relative to the number of people needing (and wanting) to get vaccinated, there’s a vaccine shortage. The shortage has exacerbated structural inequalities: distribution of the existing vaccine supply has reflected stark racial disparities within the United States and even more pronounced global disparities. This shortage is not a surprise: it was clear from the earliest stages of COVID-19 vaccine development that short-term demand would far outstrip supply for any successful vaccine, which is why the federal government should have invested more—and earlier—in building at-risk manufacturing capacity for all the leading vaccine candidates. But now, the scale of the problem has become widely apparent. For some, weakening patent rights may look like a solution.

Under the conventional account, the patent system reflects a fundamental tradeoff between innovation incentives and access: patents incentivize innovation by allowing patent owners to charge supra-competitive prices, and for a static demand curve, this means that fewer consumers will purchase the patented product. Thus, as Ken Shadlen explains, “[i]t’s become common wisdom in the ‘access to medicines’ community that the way to increase access to pharmaceutical products is to reduce the legal barriers to market entry that patents impose, thereby increasing competition among multiple suppliers.” This strategy was among the tools used to increase global access to HIV/AIDS treatments. But there are many ways to avoid the incentives/access tradeoff without eliminating patents, and removing patents doesn’t make sense as a near-term access strategy for COVID-19 vaccines. If all relevant vaccine patents were suddenly invalidated, it would not lead to more firms manufacturing these vaccines anytime soon, for at least five reasons.

First, the less-patents-more-access theory is based on a simplistic model of patent owners artificially restricting supply in order to raise prices. But given the enormous global demand for any available supply, profit-maximizing COVID-19 vaccine producers currently have an incentive to expand supply, not artificially restrict it. The typical economic model of patents doesn’t capture even more standard pharmaceutical markets, and it is an even worse fit for COVID-19 vaccines. 

Second, even without patents, new firms can’t enter the market because there is currently no regulatory pathway for generic vaccines. Vaccines aren’t like small-molecule drugs with a healthy generic industry—they are complex biologics that are more difficult to replicate. After the Affordable Care Act paved the way for the generic version of biologics, known as biosimilars, the first biosimilar versions of therapeutic drugs have begun coming on the U.S. market. But there have been no biosimilar vaccines (in the U.S. or elsewhere), and the FDA and its counterparts abroad haven’t even issued guidelines on the regulatory steps that would be needed for biosimilar vaccine approval. These agencies need to determine how a new manufacturer could scientifically demonstrate that its vaccine is similar enough to one of the existing vaccines to rely on its clinical trial data.

Third, even if the scientific barriers to regulation were resolved, removing patents would not be enough: other forms of intellectual property would also need to be overcome before the FDA could approve a biosimilar vaccine application. Biologics typically receive a period of data exclusivity before a biosimilar applicant may rely on their clinical trial data, including twelve years in the United States and ten years in Europe. Additionally, biologics are heavily protected by trade secrets, making them difficult to reproduce without knowledge transfer from the original manufacturer.

Fourth, even if other firms knew how to manufacture these vaccines, it would take time for any new manufacturer to build up the relevant facilities. As Derek Lowe explained, the Moderna and BioNTech-Pfizer vaccines are created through a new process that’s technically sensitive and requires custom reagents that can’t be scaled quickly. Because of these hurdles, a claim that “[t]he vaccine shortage doesn’t need to exist” because “dozens of other pharma companies … stand ready to produce” the vaccines was rated Mostly False by Politifact.

Finally, removing patents (and other IP) would decrease the incentives for the original manufacturers to cooperate in expanding production and transferring knowledge. As noted above, vaccine producers currently have an incentive to expand supply, and each of the vaccine manufacturers has entered deals with other firms to scale up production. When speed is critical, facilitating these kinds of licenses is more effective for expanding access than having each new supplier figure out how to start from scratch.

Is strengthening patent incentives the solution?

At the same time, others have argued that strengthening patent rights is needed to solve various innovation-related problems in the vaccine area. With respect to scaling up vaccine manufacturing during the COVID-19 pandemic, strengthening patent rights is unlikely to be helpful. In part, this is true for the reasons already noted above: patents are both redundant with and less important than other barriers to entry in the manufacturing space. Existing efforts to scale-up manufacturing were motivated strongly by factors other than patents, including (as we have previously discussed on this blog) Operation Warp Speed manufacturing investments and advance purchase commitments. More generally, given the long-term timescale of patent incentives, strengthening patent rights would do little to alleviate the short-term, technical nature of the COVID-19 vaccine manufacturing scale-up issues. 

The role patents may play in advance of the next pandemic is more nuanced. Due to the importance of regulatory exclusivity and trade secrecy in the vaccine manufacturing process, as noted above, strengthening patents as they currently exist may have little role to play in future vaccine development. Timing issues surrounding the onset and length of any future pandemic may create significant uncertainty around patent terms, as well. A case study of the development of the Ebola vaccine by Professor Matthew Herder and colleagues concluded that, even though the candidate was patented and licensed to industry, the company largely failed to make progress on the vaccine’s development until a sufficiently large outbreak occurred, at which point both public and private funding supported the clinical trials. 

More generally, scholars have explored the inefficiencies in our current intellectual property and patent law systems that make them a poor fit for epidemic illnesses. Professor Ana Santos Rutschman lists “outbreak unpredictability, pathogen mutation, and disease complexity”—“coupled with the fact that outbreak markets have historically emerged in economically challenged areas”—as contributing factors to the lack of private-sector investment in vaccine preparedness for epidemic illnesses. Outbreak unpredictability may be particularly problematic, given a fixed patent term.

This doesn't mean that ex post rewards are unimportant for spurring private R&D funding—as we have previously explained, a robust literature demonstrates that expected market size affects innovation in the pharmaceutical industry. But patents will play less of a role than their other IP counterparts in mediating these ex post rewards, which will largely be government-set due to the governmental role in responding to such diseases and governments’ price-setting power. The Department of Health and Human Services and other actors involved in negotiating procurement contracts have a larger role to play here than does the U.S. Patent and Trademark Office, or the U.S. Court of Appeals for the Federal Circuit. In addition, as discussed further below, ex ante public funding will play a crucial role in improving vaccine innovation for the next pandemic.

What should policymakers do about vaccine patents—if anything?

The most important thing policymakers can do with respect to vaccine patents is straightforward: recognize that patents aren’t the most important innovation tool for vaccines. As we have noted above, many want to cast patents as either savior or villain in the COVID-19 vaccine context, especially around scale-up. But patents don’t seem to be the dominant factor here. They’re not even the dominant exclusivity-based factor, since FDA-enforced regulatory exclusivity and trade secrecy are tremendously powerful, largely independent factors. Patents are instead—surprisingly—something of a sideshow. To the extent that innovation policymakers are trying to figure out where to focus their efforts in improving vaccine development and distribution, they shouldn’t focus on patents.

That’s not to say that there’s nothing to be done to improve the patent landscape for vaccines. The USPTO has created a pilot program to speed the patent prosecution process for certain patent applications related to COVID-19, although it is not clear that prosecution time plays an important role in speeding innovation. A more important change would be to more vigorously enforce the current disclosure requirements for patents. If patents were better at disclosing necessary technical information than they are now, they might be more effective vehicles for knowledge sharing, decreasing the double protection of patents and trade secrecy and improving cumulative innovation

But the big innovation policy interventions shouldn’t be about patents. Direct investments in manufacturing capacity (including developing capacity at-risk) have been a boon in scaling up manufacturing faster, but more could and should have been done—and should still be done. Other government actions to boost manufacturing will also help, such as facilitating technology transfer and helping surmount logistical challenges. To be sure, since we argued for increasing such investments back in September, there have been additional efforts by the government to improve manufacturing, including use of the Defense Production Act and government involvement in brokering manufacturing partnerships

Longer term, as we have mentioned above, the government is deeply involved in setting the ex post rewards for vaccines: where the government pays for doses and negotiates prices directly with vaccine manufacturers, the whole jumbled mess looks a lot like a prize system, and the size of the prize is under more direct government control. Credible commitments to substantial rewards, whether structured as a single prize or a per-patient reward—perhaps mediated by reimbursement—may boost private innovative effort. Precommitments like these could be made not only nationally, but also globally, in an effort to preempt the significant global disparities in vaccine availability that are occurring today. Other longer-term levers include reimbursement more generally and government investment in the basic research underlying innovations. Such investments have benefited mRNA vaccine research in particular, and DARPA is already looking to increase investments in mRNA vaccine platforms for easier scaling up.

There are lots of interventions the government can try to help get vaccines developed, manufactured, and into arms. Tinkering with patents isn’t the most important task on that list—not by a long shot.

This post is part of a series on COVID-19 innovation law and policy. Author order is rotated with each post.

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