April 16, 2024
It is much more acceptable in policy circles to talk about ways to make tax and transfer policy more progressive than ways to structure the market to prevent the distribution of income from being so unequal in the first place. I always harp on this failure, since it seems much easier to keep rich people from getting so rich in the first place than to try to tax away their money once they have it.
Unfortunately, there is little place in policy circles for this sort of discussion. We can speculate on the reason for the lack of interest but there can be little doubt that we could structure the market in ways that generate much less inequality.
There would be far fewer great fortunes in a financial sector that is subject to financial transactions tax similar to the sales taxes that people pay when they buy clothes and food in most states. We would have many fewer top executives earning millions and tens of millions a year if our corporate governance structure was not so corrupt.
Our doctors and other high-end professionals would earn paychecks much more like their counterparts in Europe and Canada if the free traders applied the same logic to their services as they do to trade in manufactured goods. And Mark Zuckerberg and Elon Musk’s stakes in Meta and Twitter would be worth much less if they didn’t enjoy the special protection against defamation suits that we give social media platforms with Section 230.
Then there is my favorite: government-granted patent and copyright monopolies. Large segments of the economy, most importantly prescription drugs and computer software, are almost completely dependent on this form of government intervention. Many of the country’s great fortunes, most notably centibillionaire Bill Gates, depend on these monopolies. More recently we created at least five Moderna billionaires by allowing the company to have control of a vaccine that the government paid to develop.
The proponents of these government-granted monopolies always argue that they provide incentives to innovate and do creative work. That is true, but also not the issue. The question is whether these monopolies are the best way to provide incentives. They are not the only way.
This is most clear in the case of prescription drugs. The U.S. government already spends well over $50 billion a year supporting biomedical research through the National Institutes of Health (NIH) and other government agencies. Few question the value of this research, and in fact the pharmaceutical industry is its biggest proponent. Obviously, valuable research can be supported by direct public funding, outside of the patent system.
However, most of NIH’s funding goes to support basic research, with the instances where it funds the development and testing of a new drug being exceptions. That is by design, NIH deliberately leaves the downstream work to be done by the industry. This does not have to be the case. There is no intrinsic reason that later stage development and testing cannot also be supported by public funding, instead of government-granted patent monopolies, as was the case with the Moderna vaccine.
We are not about to switch from patent monopoly supported system to a publicly funded system overnight, but we can try to find situations where we can experiment with alternative funding mechanisms and compare the outcomes side by side.[1] We actually have a very good opportunity for such a test with Covid boosters.
Drs. Peter Hotez and Maria Elena Bottazzi, along with their colleagues at Baylor College of Medicine and Texas Children Hospital, developed a Covid vaccine, Corbevax. This vaccine has now been administered to well over 100 million people in India and Indonesia, protecting them against serious illness and death from Covid.
Corbevax was developed on an open-source model. This means that the process for producing the vaccine, as well as the data on safety and effectiveness, is entirely open and available to anyone. That means anyone in the world with the necessary manufacturing facilities can produce the vaccine. As a result, the vaccine is cheap, selling for around $2.50 a dose in India and Indonesia.
It would be desirable to have the Corbevax vaccine available in the United States. While it would likely cost somewhat more here, due to higher costs for labor and other items, we’re probably talking around $5 a shot. That compares to over $100 a shot for boosters of Moderna and Pfizer, by far the dominant vaccines in the U.S. (Most people don’t see this price tag, since insurers or the government are picking up much or all of the tab for the boosters, but we do ultimately pay this cost through one pocket or another.)
In addition to the far lower price tag, Corbevax also has the benefit of not being an mRNA vaccine. Instead, it uses a much older protein-based technology. Many of the people that still have not gotten a Covid vaccine are distrustful of mRNA technology. Whether or not these fears are well-grounded, they are keeping people from getting a vaccine which could protect them against Covid. At least some of these people may take advantage of the opportunity to get a vaccine that is not based on mRNA technology.
The FDA Obstacle
The reason that Corbevax is not available to people in the United States is that the Food and Drug Administration (FDA) will not allow it to be distributed here. The FDA is demanding that to get approved, the vaccine go through a full clinical trial to demonstrate its safety and effectiveness.
As it well knows, a full clinical trial at this point would be extremely difficult and expensive.[2] Since the overwhelming majority of people in the country have either already been vaccinated and/or been infected, it would be necessary to have an extremely large sample, likely hundreds of thousands of people, to demonstrate the effectiveness of Corbevax at this point. Note, this is entirely an issue of establishing effectiveness. At this point, there is little question that the vaccine is safe, with over a hundred million doses given and very few instances of adverse effects.
The alternative to a full clinical trial is a bridging study. This is designed to show that the Corbevax boosters give patients target levels of antibodies against the latest strain of Covid. This is the same process that Moderna and Pfizer go through when they have gotten their boosters approved. The FDA has resisted allowing Corbevax to be approved through this channel claiming that it is a fundamentally different technology.
That is true if the comparison is with the mRNA vaccines, but the FDA has given approval to a Novavax Covid vaccine, which uses a similar protein-based technology. (The Novavax vaccine is not widely available due to manufacturing problems.) There seems little downside in approving the Corbevax vaccine, if it can meet the FDA’s standards for determining effectiveness in a bridging study.
The FDA’s Stubborness Is a Big Deal
It would be great if a cheap non-mRNA booster were widely available. As noted before, some people resist getting the vaccine out of fear of the mRNA technology. This will give people a non-mRNA option. There are also people who have bad reactions to the mRNA vaccines (I am definitely in that category – knocks me out for at least a day), who would definitely prefer a non-mRNA option.
But the biggest issue here is the prevention of a serious test of alternatives to the patent monopoly system of financing drug and vaccine development. We pursue this route for developing drugs and vaccines because the pharmaceutical industry works hard to stifle any consideration of alternatives. This is a huge issue not only for public health but also as an economic matter.
As a public health matter, it is entirely this system of government-granted patent monopolies that creates the problem of expensive drugs. It is rare that a drug is actually expensive to produce and manufacture. Drugs are expensive because we give drug companies monopolies over an item that is essential for people’s health, or even their life.
To take a couple of recent examples, the retail price for Imatinib, a leukemia drug, is over $2,500 per prescription. The generic version sells for $13.40, less than one percent of the patent-protected price. The patent protected price for the prostate cancer drug Xtandi is $125 a capsule. A generic version is available at $7.50 a capsule or 6 percent of the patent-protected price.
The most dramatic case of patent monopolies being an obstacle to saving lives was in AIDS pandemic. Initially, the only treatment for AIDS was AZT, which slowed the advance of the disease, but did not cure it and generally lost effectiveness over time. In the early 1990s, the drug companies developed a triple cocktail of drugs that proved effective in keeping AIDS under control and allowing patients to live normal lives. They were selling it for around $15,000 a year.
That was expensive even in the United States, but it was a tab that insurers or the government could afford, even if most patients would have trouble paying it out of pocket. However, this sum was totally out of reach in Sub-Saharan Africa, where the per capita income for many countries was less than $1,000 a year. While the drug companies clearly incurred substantial expenses in developing the drugs, once they were developed, they were relatively cheap to produce.
This was proven when Cipla, a huge Indian generic manufacturer, agreed to make the drugs available at a cost of $1 a day. As a result, millions of lives were saved since this was a price that even low-income countries and international aid organizations could afford to pay.
Patent Monopolies on Prescription Drugs are a Huge Economic Issue
Even beyond their enormous health consequences, patent monopolies on drugs have enormous economic consequences. We will spend close to $650 billion this year on prescription drugs. We would likely be paying less than $100 billion if these drugs were sold in a free market without patent monopolies or related protections. The difference of more than $500 billion a year comes to almost $4,000 a year for an average family. It is more than half the size of the military budget. It is real money by almost any standard.
And, it goes into the pockets of the drug companies, making their top executives, their shareholders, and some highly employees very wealthy. This redistribution of income from the rest of us to a relatively small clique of people in the pharmaceutical industry has nothing to do with the free market. It is the result of a government policy on granting monopolies and related protections.
This massive upward redistribution could perhaps be justified if it were the only way to finance the sort of breakthroughs we have seen in recent decades that have radically and improved people’s lives. But as I have argued, there is good reason to think that we could pay for the development of new drugs and vaccines through alternative mechanisms.
That is why the FDA’s role in blocking Corbevax is such a big deal. This would be a very clear way to demonstrate to the public that we don’t need patent monopolies to provide incentives for developing new drugs and vaccines.
We could look to have direct funding to support the development of drugs and vaccines for other diseases, where the final product was also available on an open-source basis and sold as a cheap generic. The industry could continue with its patent-monopoly supported research, they would just have the risk that whatever they ended up developing may be competing with a generic that is every bit as good and selling for less than one percent of the price they want to charge.
This mechanism for funding would also remove the enormous incentive to lie that patent monopolies create. When drug companies can sell drugs at markups of many thousand percent, they have a powerful incentive to push their drugs as widely as possible, as was the case with the opioid crisis.
Also, we could finance research that is is not dependent on finding a patentable product. In many cases, nutrition or environmental factors may play an important role in health. As it is now structured, the pharmaceutical industry has no incentive to research this possibility, since they won’t stand to earn back their research costs by finding treatments along these lines.
Corbevax: A Foot in the Door
There is a huge amount at stake in a move away from the patent monopoly system of financing the development of prescription drugs. With all the problems of the current system, it has led to many important breakthroughs. If we are to go a different route, we need evidence that it can be equally effective.
The Corbevax vaccine provides one such example. If it were widely distributed and people could see the benefits, then we might be able to build the case for more support and experimentation in this direction. That sounds like a great path if the goal is to improve public health and reduce inequality. However, this likely sounds very bad from the perspective of the pharmaceutical industry, and apparently also the FDA.
[1] Two decades ago, Doctors Without Borders launched its Drugs for Neglected Diseases Initiative. Working on an open-source model, this project has developed thirteen treatments that have benefitted hundreds of millions of people, spending less than what the pharmaceutical industry claims it costs them to develop a single drug.
[2] There were clinical trials done in India to demonstrate the safety and effectiveness of Corbevax.
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