Are we paying twice for COVID meds?

Published 5:32 pm Friday, December 4, 2020

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Two vaccines appear highly effective against SARS-CoV-2, and remdesivir is helping doctors treat severe COVID cases.  These products raise challenging questions regarding patents and government funding of research.  If taxpayers fund a medical breakthrough, should we then have to pay for the medicine?

Consider Gilead Science’s remdesivir, which effectively treated COVID in a clinical trial.  The National Institutes of Health (NIH) and the Defense Department funded the drug’s development.  Public Citizen estimates that public funding totals at least $70 million.  They argue that remdesivir should be priced at cost because taxpayers “should not have to pay twice” for it.

Before addressing this question, let’s consider the rationale for patents.  Patents help ensure the funding of research producing knowledge.  Medicines and vaccines are ultimately knowledge that a given combination of chemicals keeps us from getting sick or restores our health.

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Research must be performed to generate new knowledge and is highly uncertain; experiments do not always yield breakthroughs.  The prices of successful medicines and vaccines must cover the cost of all this research.

Knowledge is challenging to market.  Imagine trying to sell some new fact which nobody else knows.  The first person buying this new fact can then sell it to others, undercutting the price you need to charge to recover your research costs.  For a medicine, a chemist can analyze a sample to determine the formula, while scientists can reverse-engineer new products.

Patents provide inventors exclusive rights to their inventions for a limited number of years.  The patent prohibits copying of the invention.  Ideally the patent should be only long enough to encourage research, but calculations cannot be made with precision.

Both businesses and the Federal government fund research.  The NIH spends $40 billion a year on medical research.  Successful medical researchers typically must win NIH grants.

The public-private division of research is in principle along the line between basic and applied research.  Business funding typically becomes available when knowledge is close to yielding a marketable product; this is applied research, or the development part of R&D.  Basic research advances knowledge for knowledge’s sake.  Although as fundamental breakthroughs percolate through society, people begin to recognize the practical applications, the commercial value of basic research is frequently too remote to attract investors.

We can see how taxpayers could “pay twice” for new medicines.  If a new medicine were developed almost entirely through government funding, the company marketing the drug need profits to recover its negligible research expenses.

Most medicines though – and new products generally – require a mix of research and development.  Even if the Federal government funds the basic research, a lot of work remains to yield a commercially valuable product.

The Moderna and BioNTech SARS-CoV-2 vaccines illustrate this.  Both use messenger RNA vaccines, and the NIH funded the basic research on m-RNA.  The breakthrough has offered enormous promise for 25 years but prior to 2020 no medicines on the market.  Turning m-RNA into medicine involved further breakthroughs to encase bioengineered proteins in lipid nanoparticles.  Moderna and BioNTech have done much of this last portion of the research.

What about the estimated $10 billion in Federal spending on COVID vaccines through Operation Warp Speed?  This has covered the testing and production of vaccines.  Manufacturing is distinct from the knowledge contained in a candidate vaccine, and patents reward knowledge creation.

Knowledge drives our prosperity.  More important than the mix of public versus private sector research is the discovery of new knowledge.  COVID-19 has revealed a very healthy global biomedical research industry.  Remdesivir and other treatments have reduced the fatality rate among hospitalized patients by an estimated 70 percent since March.  And researchers formulated two seemingly highly effective vaccines within weeks of the identification of the novel virus’ DNA.

Taxpayers should not have to pay twice for the same medicine.  Yet politicians have protected health at enormous cost during the pandemic.  Overpaying for effective vaccines or medicines is frustrating but preferable to going without.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision.  The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

About Dan Sutter

I am the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University.

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