July 28, 2020
Moderna, a relatively new biotech company, has generally been seen as the leading U.S. contender to develop a coronavirus vaccine, although it trails several Chinese companies. Whether or not its vaccine pans out, it should certainly get an award for milking the government.
It was the big winner in initial contracts, getting $483 million back in April for developing a vaccine. While that may have seemed adequate to get it through both the development and testing process, the company decided to go back to the trough and have the government pay $472 million for the Phase 3 testing of the vaccine.
Together these payments virtually guarantee that the company will make a substantial profit on its development and testing of the vaccine. Yet, Moderna will still get a patent monopoly on the vaccine, which will allow it to charge people in the United States and elsewhere in the world as much as it wants for the vaccine.
Some simple arithmetic shows that Moderna almost certainly has made a profit already. The company reported having 892 employees at the end of 2019. Let’s suppose that they paid each one $20,000 a month for the three months between signing the contract and when they had their first round of clinical tests. (It was actually more like two months.) That would come to $53,520,000. If we double this for equipment and other inputs, we get $107,040,000.
The Phase 3 trials are projected to involve 30,000 people. Recent research indicates that the average per-person cost in a Phase 3 trial for vaccines is $10,000. That would come to $300 million. Let’s raise this by 50 percent because Moderna is in a hurry, that gets us $450 million.
Since the government paid $483 million for the pre-clinical research and $472 million for the Phase 3 trials, it looks like Moderna is making a healthy profit on both. Yet, the government is still giving Moderna a patent monopoly, which means that it will arrest anyone who tries to produce the vaccine without Moderna’s permission.[1]
If we go back to Econ 101, the rationale for the government granting patent monopolies to drug companies or anyone else is to give them incentives for doing research and developing new products. The monopoly will allow them to both recoup research costs and compensate them for the risk that they won’t have a successful product.
The Moderna story won’t fit here. It was already compensated for its research costs by the government. Furthermore, it has zero risks. If its vaccine turns out to be ineffective or have harmful side effects, the company has already been paid for its work.
The patent monopoly means that we are paying Moderna twice. We first picked up the tab for the research and the testing and now we are giving the company a patent monopoly so that it can charge people around the world as much as it wants for the vaccine.
This should be a huge scandal, but I guess everyone knows that drug companies rip us off. Besides, economists and media types are too busy worrying about unemployed workers getting too much money.
[1] To save literalists some trouble, people don’t actually get arrested for patent violations. They get served with an injunction telling them to stop violating the patent. They would then get arrested for defying the injunction if they continued to produce the vaccine without Moderna’s permission.
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