By Edward Alden
The industry’s defeat was all the more striking because it comes at a time when drug companies are riding a rare wave of public approval for the speed at which they developed and produced remarkably effective breakthrough vaccines for COVID-19, including several that used a completely new technology never before deployed in vaccines. That the companies lost big despite this wave of sympathy should be a broader wake-up call to corporate America, which has grown accustomed to getting its way in Washington. Biden’s Democrats, who are pushing for tax increases on corporations and the wealthy, no longer genuflect to big business like Obama and Clinton administration Democrats. Republicans, while still reflexively pro-business, are in thrall to former U.S. President Donald Trump’s cult and no longer provide the cover to corporations they once did.
The question for Big Pharma, and increasingly for big business generally, is whether companies can pursue their narrow interests through what has become an increasingly cynical alliance with Republicans. Or will they actually embrace the new role the vaccine breakthrough offers and step up to the challenge of helping solve a growing array of broader social problems?
This was not the way it was supposed to go for the drug companies. For decades, the industry has not only been immensely powerful but shockingly arrogant in its exercise of that power. In 2016, for example, the companies used their Republican congressional friends to hold up then-U.S. President Barack Obama’s signature trade agreement: the Trans-Pacific Partnership (TPP). That trade pact would have been a good deal for the drug companies because it would have strengthened patent protection well beyond the current standard. Obama’s trade negotiator, Michael Froman, used every tool he had to persuade the 11 other countries involved in negotiations—which were worried about the high cost of new drugs—to accept an eight-year period of “data exclusivity” that would prevent copying of expensive new biologic drugs the industry was developing at the time. AbbVie’s biologic drug Humira, which treats rheumatoid arthritis and other inflammatory conditions, was the world’s top-selling drug last year; the current annual cost for Humira injections is more than $72,000.
As with the vaccination effort in the United States, success will require the best of both government and the private sector.
But the drug industry wanted more: 12 years of exclusivity to lock in even higher profits. Lobbyists persuaded then-Republican chairperson of the U.S. Senate Finance Committee, Orrin Hatch, to hold up the deal to strong-arm the Obama administration. The result was the TPP never came up for a ratification vote in Congress. Obama’s successor, Trump, who ran on a broader anti-trade campaign, pulled the United States out of the pact on his third day in office. The remaining 11 countries went ahead with the deal regardless but stripped out all the extra drug company protections, underscoring how isolated the U.S. negotiating position had been.
The drug industry’s arrogance has a strong pedigree. In the World Trade Organization’s Uruguay Round of global negotiations in the early 1990s, Big Pharma had the best seat at the table. It was those negotiations that led to today’s level of patent protection—the so-called Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. U.S. negotiators had been persuaded that such “intellectual property” industries would be the United States’ competitive advantage of the future. To persuade developing countries to protect patents and other intellectual property, the George H.W. Bush and Clinton administrations agreed to lift long-standing quotas on textile imports, ultimately accelerating the loss of hundreds of thousands of manufacturing jobs in the United States. The industry also keeps winning on its biggest domestic priority: resisting proposals that would require the U.S. government to lower the high price of branded drugs under Medicare. The companies have continued to blunt congressional efforts, despite the fact that more than 8 in 10 Americans support the idea. In his State of the Union address last month, Biden called for giving Medicare that negotiating power, but the proposal was then left out of the agenda for his American Families Plan and faces an uncertain future in Congress.
How big a setback will the patent defeat be for the industry? Critics note that Biden’s proposed waiver of TRIPS protections for vaccine patents is far from a magic wand for a developing country like India struggling to produce enough vaccine doses to combat its massive COVID-19 outbreak. The new drugs, especially the mRNA vaccines, involve complex and exacting production processes; even with the freedom to copy the recipe, it could take these countries years to master production. Export controls and other supply-chain bottlenecks on key vaccine ingredients are currently a much bigger barrier than intellectual property rights to accelerating production around the world. And the details of the TRIPS waiver, which will be negotiated through the notoriously sclerotic World Trade Organization, could take months to iron out.
In the meantime, the industry has a choice. It could go all-in with sympathetic Republicans to try to block the Biden administration. Republicans in the U.S. House of Representatives have introduced legislation that would prevent the administration from implementing the waiver. U.S. Sens. Tom Cotton and Thom Tillis issued a statement saying Biden’s move would “hand over America’s medical technology to adversarial states like China and Russia.” But there has been notable silence from both Senate and House Republican leadership. And although Trump, who remains the party’s symbolic leader, supported the massive 2017 corporate tax cut that lined the pockets of many companies, he was not notably sympathetic to the drug industry. In his 2016 campaign, Trump called for steps to lower drug prices, though he took no actions to accomplish this in his four years in office. Betting the industry’s future on this motley coalition seems like a poor gamble.
Instead, the drug industry should show leadership by going all-in to vaccinate the world. Although the United States and Britain have hoarded vaccines, it is incontrovertible that unless the virus is contained everywhere, it will remain a serious threat for the foreseeable future. Both the public and private sectors have a huge stake in success; although companies like Pfizer and Moderna should be applauded for their ingenuity, drug development and rollout have been supported by billions of taxpayer dollars, pounds, and euros in the United States and Europe. There is plenty of room for drug companies and their shareholders to profit handsomely while working closely with governments to remove every obstacle to expanding production and expediting distribution. As with the vaccination effort in the United States, success will require the best of both government and the private sector.
Other companies will face that same choice—to cooperate or to fight—as the Biden administration presses ahead with the most ambitious agenda of social legislation since former U.S. President Lyndon Johnson’s Great Society programs in the 1960s. Businesses could stick to the playbook and use their influence to try to block Biden’s signature efforts, such as the infrastructure package and the expansion of the safety net for families, to save a few bucks on their taxes. Or they could recognize that unless some of these gaping social needs are addressed, they will eventually face a costlier societal and political backlash.
The pandemic is a rare opportunity for the most powerful industry of them all, Big Pharma, to right its course and set an example for the rest of the business world. It should not waste that opportunity.
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