Reward pharma but protect public health

The rapid spread of the coronavirus has revived a decades-old debate over pharmaceutical policy, with both sides doubling down on long-held views.

Advocates for broader drug accessinsist that pharmaceutical companies must not be allowed to reap large profits from COVID- 19 vaccines and treatments. Free-market true believers — including officials in the Trump administration — argue that pharmaceutical businesses must be allowed to set prices beyond some patients’ reach. This either-or choice was always a false framing.

And as the COVID-19 crisis tragically illustrates, it’s a dangerous one too. Patient advocates need to acknowledge that pharmaceutical companies aren’t the enemy — the virus is. But it’s equally urgent for free-marketeers to recognise that with government help, we can reward businesses for innovations without sacrificing poorer patients along the way.

The latest flare-up in this battle began even before the first recorded COVID-19 death in the US. At a Feb 26 hearing, Representative Jan Schakowsky, Democrat of Illinois, pressed Health and Human Services Secretary Alex Azar to pledge that any COVID-19 vaccine or treatment would “be affordable for anyone who needs it.” Azar refused, saying “we can’t control that price because we need the private sector to invest.” Predictably, Azar’s statement set off fireworks on Capitol Hill. Congressional Democrats called on him to reverse his stance. Representative Schakowsky demanded that Azar “not allow any pharmaceutical manufacturer to set a price” for a COVID-19 vaccine that “would cause private insurers to raise premiums or further exacerbate the federal deficit.” As the death toll from COVID-19 began to mount, the push to limit returns to pharmaceutical companies at the cutting edge of coronavirus research only intensified. Gilead Sciences, a California-based biotechnology company whose antiviral drug remdesivir has emerged as a potential COVID-19 treatment, soon became a target.

On March 23, FDA granted Gilead’s request to designate remdesivir as an “orphan” drug. A drug qualifies as an orphan if it treats a disease affecting fewer than 200,000 people in the US at the time of the application, even if the disease becomes more widespread. The number of COVID-19 diagnoses in the United States fell well below that threshold at the time Gilead applied and when the FDA designated the drug an orphan. An orphan designation would have kept generic remdesivir off the market until 2027 unless the FDA determined Gilead couldn’t meet demand for the drug. But remdesivir is covered by Gilead patents that do not expire until at least 2035, so this benefit is largely duplicative of what Gilead already enjoys under patent law.

More immediately, an orphan designation would have allowed Gilead to claim tax credits for 25 per cent of clinical trial expenses — a benefit potentially in the range of $40 million.

Although $40 million is a drop in the bucket compared with COVID-19’s social costs, politicians balked. Senator Bernie Sanders called Gilead’s application for orphan status “truly outrageous” — a day before he voted for a stimulus package with more than $50 bn in grants and low-interest loans to airlines. The consumerrights advocacy group Public Citizen and 50 other organizations denounced Gilead’s use of “a loophole in the law to profiteer off a deadly pandemic.” The backlash quickly led Gilead to withdraw its request. Ours is not the only country where COVID-19 has unleashed efforts to stamp out pharma profits. Last month, the Geneva-based Doctors Without Borders broadly called for “no patents or profiteering on drugs, tests or vaccines” for COVID-19.

That campaign followed efforts by Canada, Israel, Germany and 33 members of the European Parliament to limit or override patents for drugs directed at the virus. These drives to scale back patent protection for COVID-19 vaccines and treatments are motivated by a noble objective: to ensure that lifesaving drugs will be broadly affordable. But the unintended consequences are worrisome. The smaller the rewards for coronavirus drugs, the less that pharmaceutical businesses are likely to invest in R&D. Not only will that extend the current crisis, but it also will deter drug-makers from pursuing research directed at potential pandemic-causing virus strains. This doesn’t mean that governments must make a choice between ensuring patient access and encouraging drug development. With creative policy-making and political will, we can — and ought to have — both.

Governments can offer strong incentives to drug-makers while ensuring affordability by committing to patent buyouts for effective treatments. In a buyout, the government purchases the patents on a new drug — typically at a price that matches or exceeds what the patent holder otherwise would have earned — and then allows makers of generics to produce and sell low-cost versions. If, for example, clinical trials establish the efficacy of remdesivir in treating COVID-19, then the federal government should buy the US rights to the drug from Gilead and give generic manufacturers free rein to ramp up production.

How much should the government pay? If remdesivir saves 10,000 American lives, then its value to our society — using traditional tools of cost-benefit analysis — would be as much as $100 billion. For a fraction of that sum, HHS could buy the drug rights from Gilead and still leave the company with an eye-popping profit. Unfortunately, the $2 trillion COVID-19 stimulus package passed last month included only $11 bn that HHS can use for patent buyouts, and the department will most likely need to draw down some of those funds for other purposes, like procuring diagnostic tests and purchasing other medical equipment. Mr Azar’s department needs more money for patent buyouts.

But to contain COVID-19 now and sustain a pipeline of drugs directed at other infections with pandemic potential, we will almost certainly need to enlist the capital and creativity of the private sector. We don’t need to compromise patient access, but we will need to promise profits to businesses that develop effective vaccines and treatments. Among all the costs that we as a society will bear because of this virus and later ones, the payout to pharmaceutical companies will be a rounding error.