How a Potential Covid-19 TRIPS Waiver Expansion Would Undermine U.S. Innovation Capabilities

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In December 2022, the Office of the United States Trade Representative requested that the U.S. International Trade Commission (USITC) conduct a study concerning possibly expanding the “waiver” for certain provisions of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement negotiated during the June 2022 Ministerial Conference of the World Trade Organization (WTO) in Geneva.

As the USITC is undertaking this fact-finding investigation to inform decisions on whether to extend flexibilities under the WTO TRIPS Agreement to Covid-19 diagnostics and therapeutics, it should note that TRIPS waivers can undermine the U.S. pharmaceutical industry by degrading the intellectual property (IP) protections that are essential to the pharmaceutical innovation ecosystem. Less innovation in the pharmaceutical industry means fewer vaccines and drugs in the future, leaving the United States and other nations less prepared for future pandemics and other health emergencies.

Less innovation in the pharmaceutical industry means fewer vaccines and drugs in the future, leaving the United States and other nations less prepared for future pandemics and other health emergencies.

No Case Has Been Made for a Waiver

As of May 5, 2023, the World Health Organization (WHO) has declared the end of Covid-19 as a global health emergency. In addition to the necessity of a TRIPS waiver consequently being questionable now that Covid-19 as a global pandemic is in the rearview mirror, it is also quite clear that vaccine access and distribution in the United States and across the globe was not hamstrung by IP rights, but rather by factors as varied as manufacturing limitations, poor infrastructure, divisive politics, and even social pressures. It is now clear that the requirements for a prompt response to a future pandemic are supply chain resiliency, acceleration of advanced production methods, availability to conduct remote oversight of Good Manufacturing Practice production, and assurance that incentives remain for both small and large pharmaceutical firms to collaborate with each other, as well as with academia and the public sector. Therefore, given manufacturing limitations, an IP waiver would not actually increase access to vaccines. In fact, it could negatively impact the response to the next crisis because of the way it would disincentivize innovation. In this way, it seems to be a solution seeking a problem.

The Covid-19 TRIPS waiver has had minimal impact on overall vaccine access, and as of late 2022, no country had declared intent to make use of the TRIPS waiver. Global vaccine demand had plummeted by the time the TRIPS waiver was agreed upon. By the end of 2021, Pfizer alone had delivered 2.6 billion vaccines to 166 countries and territories across the globe. To achieve this, the U.S. biopharmaceutical firm reached breakthrough agreements in mid-2021 with the Biovac Institute in South Africa to manufacture the Pfizer-BioNTech Covid-19 vaccine for the African Union’s 55 members, as well as with Brazilian firm Eurofarma Laboratórios SA to manufacture the Pfizer-BioNTech Covid-19 vaccine for distribution across Latin America. The existence of reliable property rights allows and even encourages these types of collaborations—which thankfully helped bring the worst of the pandemic to a relatively swift end.

In December 2022, the board of Gavi, a nonprofit that supplies vaccines to low- and middle-income countries, voted to stop supplying Covid-19 vaccines to most nations due to lack of demand. This drop in demand indicates that the primary issue impeding vaccinations today is not lack of supply but lack of distribution capacity, among other things. Administering Covid-19 vaccines across a population requires significant healthcare infrastructure—such as refrigeration to keep vaccines at low temperatures and a well-trained healthcare workforce—which some developing countries lack. To increase global vaccination rates, efforts should focus on patient education and building healthcare infrastructure and distribution capacity, not facilitating additional vaccine production.

Currently, the supply of treatments for Covid-19 far outstrips demand as well. This is largely because secure IP rights have incentivized drug inventors to enter into over 140 partnerships with local manufacturers worldwide, boosting supply while also transferring technology and tacit knowledge to these foreign firms. Enforceable IP rights assure companies that their inventions will not be stolen in the short term, thereby making them more willing to reveal their secrets and participate in these productive manufacturing partnerships in the face of a global pandemic. Expanding the TRIPS waiver to therapeutics could counterproductively reduce access by discouraging pharmaceutical innovators from disclosing production and distribution know-how and providing qualified personnel to deliver a safe and effective vaccine on a mass scale.

To increase global vaccination rates, efforts should focus on patient education and building healthcare infrastructure and distribution capacity, not facilitating additional vaccine production.

Further, expanding the TRIPS waiver to therapeutics will disincentivize the creation of new Covid-19 treatments. Biopharmaceutical research is expensive and risky: the research and development (R&D) process for new drugs can cost close to $2.8 billion on average, and only 12 percent of drugs that enter clinical trials are ultimately approved for use. Not only that, but the average vaccine development time has been estimated at 10.71 years and the market entry probability is 6 percent. Companies will simply not invest in creating new therapeutics if they expect to lose ownership of their IP should their huge and risky investment prove fruitful. This risk is especially high in the pharmaceutical industry since—as established by multiple surveys conducted in the 1980s, 1990s, and 2000s—both large and small firms generally have few means other than patents to block second movers from replicating a new drug or other treatment.

Despite their inherent exclusionary rights, IP protections provide the clarity that allows and encourages entities who might otherwise be in competition to work together, especially in times of crisis. With its robust patent portfolio, BioNTech—an innovative biotech firm—was more willing to share commercially valuable information with Pfizer—the large pharmaceutical firm that delivered the testing, production, and distribution capacities—to rapidly develop an effective, safe, and widely used Covid-19 vaccine. The rapid and effective Covid-19 response shows how allowing various innovators the ability to immediately share knowledge, technology, and resources to develop and manufacture new lifesaving solutions at unprecedented speed is the greatest aspect of a predictable IP regime. The efforts of these collaborations resulted in a competitive marketplace of vaccines and treatments, including technologies that had not previously made it to market. The role of IP in supporting investments to develop new health technologies is well known. A strong and predictable IP legal framework has proven itself to be the key asset for tackling the next pandemic.

Risks to the United States’ Globally Leading Biopharmaceutical Sector

The U.S. innovation system—a network of capabilities, rules, and policies supporting research, development, and commercialization of new technologies—is a national strategic asset. Since the founding of the republic, the innovation economy has served as the basis for U.S. competitive and strategic advantage—a finding affirmed in the October 2021 White House National Strategic Overview for Research and Development Infrastructure.

IP practitioners and the biopharmaceutical sector in the United States highlight that any moves to undermine IP protections will weaken incentives for pharmaceutical companies to innovate. Biopharmaceutical R&D costs and risks are so high, and the development time so long, that private capital will not invest without the promise of exclusive rights on the output. Although quick government action and spending in the early days of the pandemic accelerated the development of Covid-19 vaccines, it is important to note that the rapid response to Covid-19 was built on the fruits of long-term, stable IP protections. Without this type of legal environment, the United States cannot expect to respond as successfully in a future crisis.

Further, a remaining question is whether a TRIPS waiver expansion might lead to an uneven global market in which U.S. firms are disadvantaged by an uneven playing field where foreign firms can free ride off R&D efforts they made no contribution to. This would create a perverse incentive for the private sector to shift capital away from any pharmaceutical segment that is encumbered by a TRIPS waiver. A good portion of the U.S. innovation economy relies on a symbiosis between public funding, which supports basic research, and private funding, which supports the activities that are required to convert basic research into medically effective and commercially viable treatments. For example, the science and technology behind mRNA vaccines—an essential tool in the fight against Covid-19—was supported over decades by both farsighted government investment, as well as through commercialization drawing on considerable private capital that expected a return on investment.

The success of mRNA vaccines was not an assured outcome, yet investors took the risk on the understanding that they would receive substantial returns should the technology prove effective. Throughout this long and risky R&D process, the secure and predictable assignment of IP rights let universities, government labs, and large and small companies cooperate effectively to develop the foundational mRNA vaccine technology and, ultimately, deliver vaccines in record time.

By creating an environment that calls into question the IP protections on Covid-19 vaccines and treatments, the WTO would be weakening the incentives for companies to invest in financially risky technology in the future since, even if their venture is successful, they may lose the IP protections that would allow them to recoup their investment. Innovation is a process that is often replete with risk and, at least in the pharmaceutical sector, typically failure along the way. Private investors, including venture capital funds and pharmaceutical firms, take this gamble because even if money is lost in failed projects, those losses are offset by gains when there is a success.

Throughout this long and risky R&D process, the secure and predictable assignment of IP rights let universities, government labs, and large and small companies cooperate effectively to develop the foundational mRNA vaccine technology and, ultimately, deliver vaccines in record time.

A weakening of the patent system upsets this risk diversification strategy, resulting in a chilling effect on private investment, and thus, less innovation and fewer new drugs in the future. Even if the federal government could shoulder some of the R&D investment burden currently borne by the private sector, there is no credible case that a government agency has the resources or capacities to undertake the costly and complex sequence of testing, production, and distribution activities that are necessary to convert R&D into a safe and viable product.

Risks to Future Pandemic Preparedness and Resiliency

Global trends such as climate change and urbanization make future pandemics more likely. It is critical that the United States maintain a dynamic and innovative pharmaceutical industry to combat this threat. Government action, in partnership with private industry, in the early days of the Covid-19 pandemic accelerated the rapid development and scale-up of vaccines. Through a myriad of policies such as preordering millions of vaccine doses, Operation Warp Speed expedited the development and rollout of vaccines by months, likely saving thousands of lives.

Even though quick action played a key role in the overall response, a crucial lesson from the Covid-19 pandemic is that waiting to act until a pandemic is declared will be too late. The technology for mRNA vaccines was developed over decades and sustained by a dynamic and innovative biopharmaceutical ecosystem that connects universities, government labs, and large and small firms in the industry. Because of this large body of preexisting work—much of which was facilitated through the security and predictability afforded by reliable IP protections—pharmaceutical companies were able to prototype Covid-19 vaccines within days of receiving the viral genome.

Further, this ecosystem not only rapidly produced dozens of Covid-19 therapeutics, but also already possessed an existing supply of drugs that proved effective in treating Covid-19. Without a long-standing, healthy innovation ecosystem, this could not have happened. It simply is not commercially rational for the private sector to invest the millions—sometimes billions—of dollars that are required for taking an idea that is funded at the basic research level and doing all the work required to turn that into a commercially and technically viable product without clear, enforceable IP protections.

Declared End to the Covid-19 Pandemic Phase

Following the WHO’s announcement, the Centers for Disease Control and Prevention (CDC) issued a similar declaration that effective May 11, 2023, the public health emergency of Covid-19 is over. By these dates, deaths from Covid-19 had dropped 95 percent from the high levels of the pandemic phase. Clearly, the declarations by the WHO and CDC do not mean the disease is no longer a global threat. However, the risks posed to the population of the world are of a different nature than when concerns about vaccine availability and distribution were initially raised to the WTO and the TRIPS waiver was proposed. Many lessons have been learned worldwide regarding pandemic response, as summarized by the WHO and other authorities. None of these summaries have recommended a TRIPS waiver as a practice to be considered. Instead, the response to the pandemic has confirmed that respect for IP rights in the United States and globally remains the clearest and most compelling incentive to assure the future developments of vaccines, diagnostics, and therapeutics. Reliable IP rights are indeed foundational principles in the Constitution of the United States. IP protections essential for innovation and for future pandemic readiness and response should not be undermined, nor waived.

Walter G. Copan, PhD, is vice president for research and technology transfer at Colorado School of Mines, as well as senior adviser (non-resident) with the Center for Strategic and International Studies in Washington, D.C., and cofounder of its Renewing American Innovation Project. He previously served as director of the National Institute of Standards and Technology (NIST).

This report is made possible by general support to CSIS. No direct sponsorship contributed to this report.

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Walter G. Copan
Senior Adviser (Non-resident), Renewing American Innovation Project