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THE VACCINE MONOPOLY

Hannah Ayoubi ECON3438W

Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

Introduction Infectious diseases are the world's biggest killer of the human race. In times where a global health crisis is present, such as today with COVID-19, it is important that when a cure is available it becomes accessible to those who need it with urgency. Pandemics are said to occur every 100 years, but why are we still struggling globally to distribute vaccinations and medical care, knowing that history repeats itself? Vaccine patents prohibit generic companies from recreating these necessary vaccines, which results in a monopoly of the vaccine producer. This in return slows down the production of vaccines at the cost of millions of lives, as seen today in the COVID-19 pandemic. The current standard of global vaccine production is a questionable one. The population that refuses to become vaccinated has a valid opinion, given the structure of today’s unethical global health care system. Industry Overview Vaccine manufacturing is not an easy industry to participate in. The steps it takes to reach a safe, sustainable vaccine is not easy even for the pros that have been at it for decades. Outcomes may range due to the nearly infinite combinations of biological variability concerning basic starting materials, the microorganism itself, the environmental condition of the microbial culture, the knowledge and experience of the manufacturing technician, and the steps involved in the purification processes. (Plotkin, Robinson, Cunningham, Iqbal, Larsen, 2017, 4070) Failure to manage these risks can result in costly product recalls. Suspensions and penalties may be assessed if a manufacturer fails to fulfil supply agreements. In addition, lack of supply can disrupt routine immunization programs and negatively impact national public health outcomes.

Ayoubi 1

Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

(Plotkin, Robinson, Cunningham, Iqbal, Larsen, 2017, 4070) The most recent product recall of today was of the Johnson and Johnson COVID-19 vaccine, Janssen. A rare but serious adverse event occurring primarily in women, blood clots in large vessels accompanied by a low platelet count, was rapidly detected by the U.S. vaccine safety monitoring system. Monitoring for common and rare adverse events after receipt of all COVID-19 vaccines, including the Janssen COVID-19 vaccine, is continuing. (CDC, 2021) The FDA and CDC had recommended pausing the vaccine due to the adverse events it had been shown to create within a few individuals. They later retracted the halt saying that the chance of one experiencing thrombosis-thrombocytopenia syndrome (TTS) is rare and in a time of emergency the use of the Janssen COVID-19 Vaccine should be resumed in the United States. (FDA,2021) Today, the agencies can confirm that a total of 15 cases of TTS have been reported to VAERS (Vaccine Adverse Event Reporting System), including the original six reported cases. (FDA, 2021). A similar topic of concern is the halt of the AstraZeneca vaccine in several countries with adverse side effects like the Johnson and Johnson vaccine being present. The AstraZeneca virus has also been halted and even banned in several countries due to its slight risky nature. It is situations like these that bring up the question as to why the Johnson and Johnson Vaccine, Janssen, is the only one that seems to be (although rare) reporting deaths as a side effect of the COVID-19 vaccine Janssen. Why is it that Moderna and Pfizer created two different vaccines that have the same concept with no reports of TTS? Why did Moderna push for its authorization after seven days after Pfizer had been authorized? It is a little strange that these vaccine producers could not collectively use their research and development funding to find

Ayoubi 2

Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

something in unison. Instead, it seems more so that this vaccine, along with most other pharmaceuticals today are competitively produced for profit instead of the ethical contribution on behalf of the billions of lives at risk in a global pandemic. Johnson and Johnson announced that their vaccine could become a $1 billion dollar vaccine project if milestones were met. This also raises the question as to whether the vaccine was rushed for its promised glorifying profit. Vaccine Pricing Many factors go into the pricing of a new vaccine. Competitors also have a heavy influence on determining vaccination prices. Unless a new vaccine offers sizable technological advantages that translate into a recognizable clinical difference to justify the higher price. (Bruce, McGlone, 2010, 620) Charging a much lower price may ignite a “price war”, forcing everyone to competitively lower their prices to the detriment of everyone in the industry. A vaccine that falls short of reaching its full potential on the market poses global health ramifications for years. (Batson, 2005, 692) According to Bloomberg, Pfizer commands a higher price for its Covid-19 vaccine than some rivals. Under the terms of its supply deal with the U.S., it is charging $19.50 for each shot of the two-dose regimen. Meanwhile AstraZeneca Plc, which hasn’t yet gained U.S. authorization for its two-dose vaccine, has said it plans to charge less than $4 per shot, and J&J is aiming to price its single-shot vaccine at less than $10. (Griffin, 2020) In the current pandemic of COVID-19 before the distribution of vaccines began there was an official hearing at the end of February 2020 involving the Trump administration’s Secretary of Health and Human services in front of the US Congress. The intention of this was to declare the vaccines readiness and its beginning to speak about price. (Marengo, 2020, 516) Secretary

Ayoubi 3

Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

Azar stated, “We would want to ensure that we work to make it affordable, but we can’t control that price because we need the private sector to invest”. The day after that 45 members of congress drafted a letter to President Trump asking that the department of Health would not grant any exclusive licensing for the vaccine. This was asked with regard to the fact that the research ultimately leading up to this vaccine was funded by the public sector. (Marengo, 2020, 516) Historical Background The first patent related case was brought to light when the production of the Anthrax vaccine came into play in 1882. Pasteur and Chamberland set up a small manufacturing industry to meet demand needs for the anthrax vaccine with no stabilization. The lack of vaccination manufacturing allowed the ongoing development of the unstable Anthrax vaccine and monopoly of Anthrax distribution and production. (Rosenberg, 1982, 14) The vaccine itself began to fail in 1882 in Germany and France, the vaccine was either too strong or too weak depending on when it was produced or which batch one had received. There was no method to the production of the Anthrax vaccine, the only working aspect of the vaccine production was that supply was fast. (Rosenberg, 1982, 14) After claiming that his vaccine was unalterable and transportable, meaning that his company could transport the vaccines without the help of other producers, he stated, “Practice has shown that the vaccines were weakened, so that various kinds of accidents occurred ... rather than being something set and immutable, as previously assumed, viruses are variable, they change with time, climatic conditions, etc.” (Pasteur 1933, vol. 6, 387). Pasteur’s monopoly shortly ended when it was evident that the vaccine could not be transported properly, and he would need the help of other producers. Pasteur had filed no patent claim for preparing

Ayoubi 4

Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

his vaccines, he simply created contracts with other production labs. (Lowy, 1994, 645) Pasteur continued the exploitation of Anthrax, but again this failed as well. Many production labs began to create contracts and vaccine transfers within countries while still in Pasteur’s monopoly without the approval or knowledge of Pasteur. Some countries, such as Australia failed to comply with the pricing requirements set by Pasteur. (Jan, 1990, 26) This resulted in many spinoffs of the Anthrax vaccine by Pasteur’s lack of standardization. This raised the ultimate first concern of quality control in the phase of emergence. Influenza Case This was a similar case with the influenza pandemic vaccine. “Patents have the potential to negatively impact the procurement of pandemic influenza vaccine by developing states because patents grant a temporary monopoly to the patent holder, thereby preventing generic market entry, which has the effect of increasing competition amongst pharmaceutical manufacturers and driving down prices on products.” (Correa, 2016, 36) The presence of a monopoly within the pharmaceutical industry does not only appear in the event of a pandemic, but it has also been a recurring problem that has proceeded with no control. Profit The vaccine market’s profit comes from a positive externality associated with consumption (Kessing, Sebastian, Nuscheler, 2006, 1065). When a person is vaccinated, they will not be able to spread the disease. Given the circumstance, a monopolist is in full control of these external global effects. A monopolist has the power to manipulate the vaccine production and costs, accordingly, increasing the willingness to pay of those who are in demand of the

Ayoubi 5

Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

vaccine (Kessing, Sebastian, Nuscheler 2006,1065). The monopolist also has the power to grant vaccine patents to other vaccine manufacturers to spread the medicine worldwide. The solo monopolist vaccine manufacturer holds a great deal of power and expected revenues. This causes a havoc of competition. The Pneumococcal Vaccine In a case of India’s decision to grant the pneumococcal vaccine patent to Pfizer, Pfizer was soon criticized as the manufacturer hiked up the vaccine prices for a vaccine that would in return save 180,000 lives. The vaccine is currently $3 for those under a specific finance plan through Global Alliance for Vaccines, but it costs $60 in India’s private health care sector (Dutta, Sumi S, 2017). These high prices are not attainable for those in need of the pneumonia vaccine in developing countries. The international humanitarian agency, Médecins Sans Frontières, launched a public campaign calling on Pfizer and GlaxoSmithKline, the only two manufacturers of the vaccine, to reduce their prices. The effects of a patent transfer can lead to price increases which makes it difficult to advance the distribution of vaccines. Since there is no national law that states the price floor or ceiling for vaccines, this can lead to a situation like the decision to grant the pneumococcal vaccine patent to Pfizer going sour and effecting multiple countries already in distress from a certain disease. (Dutta, Sumi S, 2017) The Negative Network Effect The global vaccination market is a large one, with annual sales of US$21.7 and US$25.3 billion in 2009 and 2010, respectively, and is projected to grow at a compound annual rate of 9.3%, reaching an extraordinary figure of US$39.5 billion in 2015 (Adida, Elodie, Debabrata

Ayoubi 6

Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

Dey, Mamani, 2013, pg.420). The operational issues of low vaccination rates can be attributed to two factors. One being supply side issues, vaccine producers may not have all the information from a normal 10 - 15 year long test and approval period in the time of a pandemic. This leaves major producers with uncertainty and causes them to under produce the vaccination, this occurred in the shortage of influenza vaccines (Adida, Elodie, Debabrata Dey, Mamani, 2013, 424). Another operational issue is the negative network effect faced by the global population. As more and more people become vaccinated, less of the population worries about falling victim to infection (Katz, Shapiro, 1985, 426). This leaves a certain fraction of the global population not vaccinated and with low willingness to pay to become vaccinated out of the diminished fear from contracting the infection. This in return creates a negative network effect and can cause negative externalities in the long term. Monopolistic Power It can be said that the pharmaceutical market is socially damaged by a monopoly. Pharmaceutical industries including vaccine manufacturers are driven by incentive from funding and profit. (Institute of Medicine, 2003,20) The more profit they receive the more supply they will bring to the public. The patent system however is a dangerous subject. As Machup says, “If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, based on our present knowledge, to recommend abolishing it. (Machlup 1958, 80) (Marengo, 2020, 215). The role of patents in the appropriability of the benefits of innovation is overstated because of lead time, learning curve

Ayoubi 7

Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

complementary assets are often more important and because imitation is often very costly and difficult (Teece, 1986, 290) (Levin 1987, 786); Patents are more and more used not for their original aim of incentivizing innovations but for strategic purposes, e.g. as means for entry deterrence, for blocking rivals’ innovations, for infringement and counter infringement suits against rivals, as ‘bargaining chips’ in the exchanges of technology among firms and to signal to financial markets likely streams of future profits (Levin, Klevorick, Nelson, Winter, 1987,786). Importance The issue of vaccinations being distributed, manufactured, and replicated in a not so timely manner reflects increased hospitalizations and the true monopolistic colors of not only America’s health society, but global ethics. Billions of lives are at stake during a pandemic, if we can understand that history repeats itself, why is the global health care system not aligned in a levelheaded manner? The promised billions of dollars to vaccine manufacturers seems more important than the 3.2 million deaths and counting that have been the outcome of the COVID-19 pandemic. The failure to contain the COVID-19 virus early on is a warning to future generations to come that will experience a pandemic and their future leaders who will have to provide guidance and relief to their deemed society. The failure to engage vaccine distributors is a result of monopolistic competition between R&D funding from the private sector, promised government revenues, and the drive to create a massive profit. Command Based Solutions The issues that arise here are plentiful to spark solutions. In terms of vaccine prices, there should be a command-based solution by the World Health Organization that limits price ceilings

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Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

on vaccinations to ensure availability of all individuals in need of a vaccination. This would result in lower death rates from infectious diseases worldwide. This would also decrease the ambition of creating a vaccine solely for high profit and revenue. With a price ceiling in place, vaccine manufacturers would be more concerned with the stability of the vaccine itself. This would also eliminate any concern in the transfer of patents between vaccine manufacturers. With all new vaccines being distributed and remade in the same fashion, allocating a price ceiling allows for some room for applicable countries to change the price to accommodate a population. If we placed this command-based solution into a situation of today, where we have multiple companies working on COVID-19 vaccinations, one could only hope to see the day that all R&D funding going into these companies would be funding one extremely stable vaccine. The issue with this however is that creating a price ceiling on vaccines would give less profit to the supplier, causing the supply to go down. This could seriously hurt a population’s death and hospitalization rates amid a pandemic. The only relief of this would be government intervention, which is being seen today with the COVID-19 vaccine distribution system. The main advantage of this command-based solution would be the price ceiling on vaccinations worldwide ensuring vaccination availability among all individuals. This would prohibit vaccine manufacturers from price gouging. It would also ensure that all social classes have equal access to vaccines. It would not allow for discrimination against any aspects, including those who have or do not have healthcare. This would allow for something like the pneumococcal vaccine situation described before to never happen again.

Ayoubi 9

Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

An alternate command-based solution and the best command-based solution would be for the government to mandate vaccinations after they are FDA approved, to ensure that the infectious disease is eliminated completely from society and alternate strains cannot arise. With FDA approval, worries of the public regarding adverse side effects of the vaccine are eliminated. More of the global population would be willing to receive a vaccine that is FDA approved rather than FDA authorized. With time moving forward, it is rather hard to grasp the side effects that are to come with any of these vaccines in the coming years. Mentioned before were the possible global health ramifications if a vaccine put on the market proved it did not reach its full potential. While COVID-19 vaccinations are being administered worldwide, one can only wait to see the long-term effects of these vaccines that will be hidden behind billions of dollars of profit and research. Currently, all three vaccines being administered in the United States are classified as Emergency Use Authorization, in other terms, the EUA of vaccines is an easy way out that allows drug makers to submit less safety data during an emergency. (FDA 2021) Full approval, also known as a Biologics license requires companies to submit six months of data. Dr. Sidney Wolfe, the co-founder of Public Citizen's Health Research Group states, “I think that these concerns would be lessened if they were told, we now have six months of follow up on his vaccine, which means we're more comfortable with how long it lasts, how effective it is and how safe it is…” The main advantage of FDA approval instead of Emergency Use Authorization benefit both the consumer and the distributor. Vaccines that are FDA approved will remain on the market post pandemic and will continue to be produced for future and pediatric use. (FDA, 2021)

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Hannah Ayoubi 03/14/2021

The Vaccine Monopoly

Professor Cosgel Econ 3438W

Vaccines that do not receive the approval will not be produced past a certain point after the pandemic. With FDA approval, there would be less of an argument for those who are a bit weary of the vaccination to become vaccinated. FDA approval would also show stability for the vaccine. Rather than feeling like a test subject or guinea pig, one can become vaccinated and feel the true freedom from a pandemic that a vaccine should administer. The FDA is globally respected for its scientific standards of vaccine safety, effectivenes...