Just as the COVAX vaccine-sharing scheme faces a major shortfall, the US decision to commit to a patent waiver on COVID-19 vaccines could increase global production. On the face of it, this is what South Africa and India had been asking for and is a move toward greater equality in access to vaccines. However, a more important obstacle to vaccine manufacturing by emerging markets (EM) is the transfer of manufacturing know-how. While Brazil might soon join the ranks of China, India and Russia as a COVID-19 vaccine manufacturer, this option is not available to most EMs.
Figure 1 Share of People Who Received At Least One Dose Of COVID Vaccine As Of 24 June 2021, %
Source: Our World in Data, Continuum Economics
For developed markets (DM) (because nobody is protected until everyone is), the waiver makes sense from a self-interest perspective. Even so, US President Joe Biden’s decision highlights his credentials as a multilateralist and a believer in global solutions to the health crisis (though Continuum Economics notes that his multilateralist streak ends with his ‘Buy American’ policy). Crucially, it projects the image of US global leadership. Indeed, the UK, Canada, Australia and the EU opposed the waiver when it was proposed by South Africa and India in October 2020. They could be swayed by the US decision, though the mood in EU political circles still appears to be against a waiver. But what does this mean for EMs? For the moment, not much: the World Trade Organisation still has to adopt the waiver, which would have to wait until year-end. In the strictest sense, all the waiver means is that EMs trying to develop their own vaccines will not be sued by another entity that already holds the patent on the product. But how many EMs are able to develop their own vaccines, apart from the ones that already have, i.e. Russia, India and China? The key point here is that any form of innovation, including medical research, involves more than a patent. The know-how and knowledge imbued in the production of the vaccine, which is merely codified in the patent, are intangible, not easily transferrable and arguably of greater value than the patent itself.
Gavi, the alliance that pioneered the COVAX initiative, is therefore encouraging pharmaceutical companies to come forward with this knowledge as well. In particular, the challenge of understanding how to replicate the highly complex manufacturing processes behind mRNA vaccines is hard enough for DM scientists, let alone EM replicators (though they are less likely to use some of these vaccines due to climate conditions). To a large extent, the waiver concession made by the US to EMs is a half-measure and will only be a game-changer if it is a prelude to knowledge sharing.
Pharmaceutical companies have denounced the waiver for obvious commercial reasons, but some of the concerns they raise hold some validity. First, a misunderstanding by EM manufacturers of the intangible aspects of vaccine innovation creates a risk that the safety of vaccines could be compromised if they are not produced by their original manufacturers. Though China’s Sinovac was safe, the insufficient extent of protection provided by its first jab lends some validity to that argument.
While many countries currently have a government-led approach to vaccine procurement and distribution, there is significant potential for commercial support in certain regions, not least in emerging markets. The main political risk insurance product available to clients in protecting against some of the key risks highlighted would be contract frustration pre and post-shipment (mainly used by our exporter clients). This protects the clients against export controls, trade embargoes and licence cancellations. Exporters can use this product when trading a product/service to either a foreign government entity or a private company. Being one of the most traditional coverages, contract frustration enjoys the perks of longevity, including a healthy market appetite. With many insurers comfortable writing this business, significant capacity is available, depending on the country of risk and the underlying good/services being provided. The market is keen to support global trade, especially when it concerns the global vaccine effort. It is working increasingly with government clients and multilaterals to help manage their exposures to continue improving their ability to support their export and trades. Sarah Taylor Head of Political Risks and Structured Credit Global Broking Centre, Aon
To overcome the pandemic Life Sciences organisations around the world have partnered to develop, produce and increase access to vaccines that support global herd immunity.
Changes to the regulatory framework in relation to patents and the movement of goods, however, create a regulatory risk that adds an additional layer of uncertainty for Life Sciences organisations.
The long-term implications of this change cannot yet be determined, but will inevitably be watched with interest by the industry.
Anne-Christine Fischer Global Life Science Practice Leader Global Risk Consulting, Aon
Second, from the point of view of pharmaceutical companies, patents provide a central incentive to innovation. While the AstraZeneca vaccine was driven by public and charitable funding, it is unlikely that the existing variety of COVID-19 vaccines would have emerged in record time without the profit incentive. Despite the many calls to make COVID-19 vaccines a global public good, they remain private. Global public goods must be non-rivalrous (i.e. using them does not reduce the amount available to anyone else) and non-excludable (it should be impossible to prevent anyone else from getting their benefits). Drugs and vaccines are both rivalrous and excludable.
“Ultimately, domestic vaccine manufacturing in EMs is the only means of avoiding dependence on the goodwill of DMs, but is it feasible?”
Third, pharmaceutical companies are right to point out that another equally important obstacle to EM accessing vaccines apart from patents is the hoarding of vaccines by DM and the export controls imposed by governments on the raw ingredients required to produce vaccines (nucleotides, enzymes, lipids, vials, caps and syringes). This is reportedly one of the issues faced by Brazil, which has experienced delays in shipments of raw materials from China. Here, governments, not companies, are at fault, and the patent waiver does not address these issues. Finally, for most EMs, that cannot manufacture vaccines, the main problem remains the high cost of vaccines. To address this, the former UK Prime Minister Gordon Brown is leading a global initiative that encourages DMs to cover USD 60 billion, or two-thirds of the costs of vaccinating the world. Ultimately, domestic vaccine manufacturing in EMs is the only means of avoiding dependence on the goodwill of DMs, but is it feasible? Can Africa, which is home to only 0.1% of global vaccine production, aspire to indigenous vaccines? At the moment, there are fewer than 10 vaccine manufacturers in Africa, based in Egypt, Morocco, Tunisia, Senegal and South Africa. Rwanda, South Africa and Senegal are calling for the establishment of full vaccine-manufacturing plants to prepare for future pandemics. However, this is challenging as vaccine manufacturing requires specialised skills that are not abundant in Africa, although there is more potential to increase Africa’s fill-and-finish capacity — South Africa already has a deal to fill and finish J&J’s COVID-19 vaccine. South Africa’s BioVac Institute has even won a deal with US company ImmunityBio to make the company’s vaccine, if it is approved. But while an indigenous vaccine remains a worthy objective for Africa, it is a long-term one. Latin America is also trying for indigenous vaccines. Cuba is attempting to achieve ‘vaccine sovereignty’, but the US trade embargo makes it a necessity more than a choice. Brazil is developing its own vaccines but will have to overcome a history of the deindustrialisation of its capabilities in indigenous vaccine development begun in the 1980s, which has led to Brazil outsourcing the production of active pharmaceutical ingredients. Currently faced with bottlenecks in its supply from China, Brazil is now attempting to make the key inputs from scratch. For most EMs, the development of vaccine know-how is more likely to require a first phase of knowledge transfer from foreign manufacturers to local ones; only after this can an indigenous vaccine manufacturing base take root. One option to facilitate know-how transfer is to licence the vaccines and share know-how, just as was the case in the agreement between AstraZeneca and the Serum Institute of India. Pfizer has also laid out a plan to share expertise, data and tools publicly in drug development and manufacturing capacities. Continuum Economics views these initiatives as a priority at this stage. An alternative solution is that DM countries share excess vaccines. Until the G-7 meeting in June, this had been resisted by DM countries. At their June meeting, the G7 agreed to donate 1 billion COVID-19 vaccines to poorer countries, but this is a long way off the 11 billion doses which the World Health Organization says are required to vaccinate most of the world’s population. Overall, the prospect still remains for a multiphased economic recovery with EM economies lagging DM countries.