November 19, 2020
Last week, we got the very good news that preliminary results from its Phase 3 trial showed that Pfizer’s vaccine had an effectiveness rate of 92 percent. (We now have final results that put it at 95 percent.) This week, Moderna released results showing that its vaccine also has a 95 percent effectiveness rate. In both cases, the companies reported a relatively small number of instances of adverse effects, which were in almost all cases minor (e.g. headaches or sore arms).
It was great to hear the news about Pfizer last week. It is even better to get the news about Moderna. That is not only because it is good to have a second vaccine available to the United States and the world, and not just because the Moderna vaccine will be easier to distribute, but also because of the mode of funding.
Assuming that the vaccines are equally effective (any difference in effectiveness reported from the Phase 3 trials will be far too small to be statistically significant), the Moderna vaccine will be far easier to distribute and store. To remain stable, the Moderna vaccine must be kept at a temperature just below zero Fahrenheit. By contrast the Pfizer vaccine must be kept at a temperature of almost -100 degrees Fahrenheit. This means that, while the Moderna vaccine can be kept in a normal freezer, the Pfizer vaccine requires special storage facilities. That will create a problem for distribution even in the United States and other rich countries. For developing countries, maintaining this super-cold temperature will be a very serious burden.
The other important point about the Moderna vaccine is that U.S. government essentially paid for the full development costs upfront. While both the Moderna and Pfizer vaccines benefitted enormously from a key NIH funded breakthrough, in the case of the Moderna vaccine, we also picked up both its research costs and the cost of its clinical trials. The federal government initially paid Moderna $483 million for its research and Phase 1 and 2 trials. It then coughed up another $472 million for its phase 3 trial. This would cover any expenses that Moderna incurred in the development and testing of the vaccine.
On the one hand, this makes for a strong moral claim that the U.S. government should own any rights to the vaccine. After all, Moderna took no risk. If the vaccine proved to be a dud, it was already paid for its work, it would not be out any money, the taxpayers would have then thrown almost $ 1 billion in the toilet paying for the research. Ideally, we would then be able to buy the vaccine for its cost of production and distribution. We would also make it available to the rest of the world at this price and allow anyone else in the world to produce the vaccine as well, in order to get it distributed as widely as possible as quickly as possible.
But apart from the moral claim, Moderna’s success also demonstrates an important economic point. Having the government pay a company to develop a vaccine is not the same thing as throwing money in the toilet.
If that point sounds strange to people, then you haven’t paid attention to our policy on developing drugs. We spend over $40 billion annually on biomedical research each year through the National Institutes of Health and other government agencies. Most of this is for basic research, but some of it does actually go for developing drugs and clinical trials.
This spending enjoys enormous bipartisan support, including from the pharmaceutical industry. But, the argument against moving downstream and having the government pick up the tab for developing and testing drugs, and bringing them through the FDA approval process, is that we would just be throwing money in the toilet. The idea is that somehow the government is able to very effectively fund basic research, but our health agencies become incompetent morons when we move to later-stage development.
Note, this is not a question of the government actually doing the research. The vast majority of NIH spending is paid out on private contracts, not work done by NIH staff. The argument is that even if the government contracts out for research, the money will just be wasted because the government has touched it. (I describe a system of financing research through long-term contracts in chapter 5 of Rigged [it’s free].)
While it was always hard to treat this argument seriously, it should be even harder now that we have the very visible example of Moderna. The government coughed up a bit less than $1 billion and it looks like less than nine months later, we will have a highly effective vaccine. That certainly would seem to indicate that the government can productively spend money to support the development of vaccines and presumably drugs as well.
Needless to say, the industry will have all sorts of creative arguments as to why we should not think the government can usefully fund the development of drugs, in spite of the Moderna success story. They might tell us that this success was special because it was a crisis, or because vaccines are simple (they aren’t), or a thousand other reasons, but the facts on the ground are hard to deny. The government put up the money and quickly got an effective vaccine.
Weighing Direct Funding versus Patent Monopolies
If we can get direct funding on the table as a feasible alternative to patent monopoly financing, then we can have a serious debate on the relative merits of the two methods. Many of the advantages of direct funding are obvious. First and foremost, nearly all drugs would be cheap if they were sold in a free market without patent monopolies or related protections. Drugs are rarely expensive to manufacture and deliver, they are expensive because the government has granted a company a monopoly on a drug that is essential for people’s lives or health. In many cases, the free market price is less than one percent of the patent monopoly price.
Having drugs sold as generics in the free market would mean that paying for drugs would no longer be a major hurdle for most people. We would not see people cutting drugs in half or skipping doses because they couldn’t afford refills and wanted to stretch their supply further. We also would not see doctors prescribing inferior drugs because they wanted to save their patients money, or the insurer would not pay for a more expensive drug. Doctors could prescribe the drug they considered best for a particular patient.
We would also take away the incentive for drug companies to lie about the safety and effectiveness of their drugs. This is a common problem, which comes up all the time. The most dramatic recent case is with the opioid crisis, where drug manufacturers have already paid billions of dollars in settlements based on the allegation that they deliberately misled physicians about the addictiveness of the new generation of opioids. If opioids sold at generic prices, there would have been far less incentive to conceal evidence about their addictiveness.
We would also make such deceptions far more difficult with publicly funded research. A condition of getting funding should be that, in addition to all patents being in the public domain, all research findings are fully public and posted on the web as soon as practical. This would make it very difficult to mislead physicians and other researchers about the safety and effectiveness of a drug, since they would all have access to the same information as the company that had developed the drug.
These are some of the advantages of publicly funded research, but we still have the question of how it compares on a per-dollar basis to patent monopoly financed research. Now that we know public funding is not the same thing as throwing money in the toilet, we can ask how many public dollars does it take to equal a dollar of patent monopoly supported research.
Given the enormous benefits from having drugs sold in a free market without patent monopolies, we may well be better off with publicly funded research even if we had to pay three or four dollars to replace a dollar of patent monopoly financed research. After all, we would save more than $400 billion annually (twice the size of the Trump tax cut) if drugs were sold in a free market; we would only have to replace around $90 billion in patent financed research.
However, there is reason for thinking that public funding might be more efficient on a per-dollar basis, most importantly because it is open. Open research would allow all researchers to learn quickly from breakthroughs that are done anywhere in the country, and ideally anywhere in the world if we arranged for worldwide collaboration.
As I noted before, we had seen much collaboration in the early days of the pandemic, but that largely disappeared as companies raced to develop their own treatments and vaccines. I was under the impression that several of the vaccines developed by Chinese companies, including two old-fashioned dead virus vaccines, were ahead of the U.S. vaccines in the testing process. It is difficult to know whether this is the case since we don’t have published results from the tests of these companies.
We do know that the United Arab Emirates (UAE) already granted an emergency use authorization for one of these vaccines back in mid-September, based on results from a Phase 3 trial. The Chinese government is also claiming 90 percent effectiveness for one of its vaccines, although it has not publicly released any data.
We would not expect people in the United States to take a vaccine based on the UAE’s emergency use authorization or vague claims coming from China’s researchers. However, if we had gone a collaborative route, which would have required some agreement with China and other countries, our researchers would have full access, both to China’s results and the vaccines themselves.
This means that our researchers could have performed their own tests to determine the safety and effectiveness of the vaccines developed by Chinese companies. If the UAE emergency use authorization in mid-September was based on solid evidence, it is possible that our researchers could have built on these results and obtained sufficient evidence to allow for the vaccine to be used here at a considerably earlier date than we now expect for the Pfizer and Moderna vaccines.
Needless to say, if we could have begun to distribute an effective vaccine two months or even one month sooner, the benefits in terms of lives saved, reduced infections and increased economic activity would have been enormous. Without more information, we can’t know at this point, and we may never know, whether the access to the Chinese vaccines would have allowed us to begin to immunize our population sooner, and hopefully the rest of the world as well. But, our pandemic response should have been focused on getting effective vaccines as soon as possible, rather than trying to rack up a victory for the United States in an international vaccine race.
Can We Debate Alternatives to Patent Monopoly Financing?
While we can’t change the past, we hopefully can learn from it. Moderna shows that direct public funding of the development and testing of a vaccine can be effective. This should open the door to a wider debate about this alternative mechanism for financing pharmaceutical research more generally. We don’t have to jump in with both feet and discard the current patent monopoly financing model. We can experiment by designating funds for research and development in specific areas, like cancer or heart disease.
My expectation is if the experiment were structured right, that we would see important new drugs developed in a reasonable time-frame. And, these drugs would be available as cheap generics from the day they were approved by the FDA. That should create considerable pressure for expanding financing to more areas.
But that may not prove correct, perhaps for some unknown reason, companies can’t do good work when they are only paid in cash and not patent monopolies. Even in that case, the spending is not likely to be a complete waste, since the open research should provide at least some insights to other scientists.
Anyhow, patents should not be a holy grail. The cost of patent monopolies to the economy, especially in the case of prescription drugs, has exploded over the last four decades. It should be possible to have a serious discussion about alternative mechanisms.
 Donald Trump has complained that he is not getting credit for the vaccines. The United States, like other wealthy countries, did put up money to develop vaccines and treatment, so he can share in the credit for that reason. However, there is a perverse way in which Trump may deserve credit for an earlier than expected determination of the vaccines’ effectiveness.
In a trial, the ability to determine effectiveness depends largely on the number of infections in the control group. Because the pandemic has spread so widely in the last couple of months, the companies saw a larger number of infections in their control group, which allowed them to have large and statistically significant differences with the treatment group, sooner than they otherwise would have been the case.
If U.S. policy had been more effective in controlling the pandemic, it would have taken longer to determine the vaccines’ effectiveness. China has been testing its vaccines in Brazil, Pakistan, and other developing countries because it has been so successful in controlling the pandemic within its borders. Even if a vaccine were 100 percent effective, it would take a very long time to have a control group in China that had enough infections to allow for the vaccine’s effectiveness to be determined.