Reducing Drug Scarcity During Pandemics and Epidemics Through Contracts

Vaccines and other drugs were in short supply during the COVID-19 pandemic. How do we get pharma companies to work with third-party manufacturers to lessen drug scarcity in future public health crises? We show that government funding contracts can be part of the solution.
Reducing Drug Scarcity During Pandemics and Epidemics Through Contracts

This blog post was co-authored with Ana Santos Rutschman

The scarcity of life-saving medicines frequently slows government response to public health emergencies. During the COVID-19 pandemic, many countries were unable to obtain sufficient quantities of COVID-19 vaccines, remdesivir, and newer antiviral treatments. This problem is not new: similar problems occurred during the recent Ebola and H1N1 (swine flu) outbreaks. Nevertheless, when COVID-19 arose, the world was no better equipped to prevent scarcity.

Intellectual property (IP) rights, such as patents and trade secrets, contribute to this problem. On one hand, IP rights encourage pharma companies to invest in developing new drugs. Drug development and clinical trials are extremely expensive, requiring the investment billions of dollars for a drug that may never make it to market. IP rights ensures that pharma companies are incentivized by allowing them to recoup their investments.

On the other hand, IP rights slow down governmental response to scarcity. Under the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), World Trade Organization member countries are required to protect IP rights. This includes offering pharmaceutical-related patent protection and allowing companies to protect manufacturing processes as trade secrets. TRIPS does contain some safeguards for times of emergency. For example, it allows countries to utilize compulsory licensing, in which a government grants a third party a license to patented technology without the patent holder’s permission. However, there is no mechanism under TRIPS to compel companies to share the details for how to successfully recreate and effectively manufacture their technology. Nor do such provisions exist in national laws for high-income countries like the United States. This means that for complex products such as vaccines, it can take years to recreate the drug and then gain regulatory approval. During a public health crisis like COVID-19, such delays mean a greater disease burden and more deaths. 

This problem is illustrated by Moderna’s mRNA vaccine, which it developed with $2.5 billion in public funding. Under U.S. law, the government may license Moderna’s patented vaccine to a third-party manufacturer without Moderna’s permission. However, without Moderna’s cooperation, it would take a third party many months to recreate the vaccine, because the tiniest changes in manufacturing conditions can have a dramatic impact on vaccine efficacy and safety. Moreover, third-party manufacturers may face logistical hurdles in accessing the raw materials needed to produce the vaccine. Even if Moderna’s vaccine were successfully replicated, the third-party producer would have to prove that its version is safe to gain approval from the U.S. Food & Drug Administration. A legal mechanism to compel companies like Moderna to cooperate with third-party manufacturers would be far more efficient.

We believe that governments that provide funding for pharmaceutical-related research possess an important tool that they can leverage: the terms of their contracts that provide the funds. Many drugs that are brought to market are derived from government-funded research. When offering drug development funding, governments could use contractual provisions obligating the recipient to address scarcity of medicines. This could work at two different levels.

First, governments that provide funding for pandemic-specific pharmaceutical research could add safeguards to prevent or alleviate scarcity. Pharma companies that accept such funds would agree that subsequently-developed medicines would be made available to the public in sufficient quantity. In the event of scarcity, a grace period would begin to give the company time to address the problem. Afterwards, the company would be required to share technology with third-party drug manufacturers until there is a sufficient supply, or for the duration of the public health crisis, whichever occurs first. The government would, in exchange, pay pre-determined compensation to the company. Any company subject to such an agreement that refuses to cooperate would face financial penalties under the contract.

Requiring this up-front commitment from pharma companies would offer several benefits. It would prevent delays in negotiating with the producer and allow third-party drug manufacturers to gain access to know-how that is needed to scale up production quickly. Moreover, the mere threat of triggering the provision may prompt companies to voluntarily license out their technology. Currently, such out-licensing tends to benefit only a subset of countries. For example, in 2020, Gilead Sciences voluntarily licensed production of remdesivir to several foreign manufacturers. However, the resulting medicine could only be used by citizens in low-income and a few middle-income countries, even though high-income countries were also impacted by shortages.

Second, governments could proactively deploy dormant licenses to promote access to medicines. Such a license would be made up of a set of contractual provisions, that impose certain requirements on funding recipients and take effect if and when an agreed-upon event occurs. In this case, the triggering event would be a pandemic or epidemic. To improve legal certainty, we suggest that the trigger should be a formal declaration by a trusted body, such as a pandemic declaration issued by the World Health Organization. 

The obligations imposed by the dormant license may vary according to the government’s goals. Under an optimal approach, the license should mandate the timely transfer or commercialization of technologies covered by the license and establish affordable pricing of the resulting medicines. Where applicable, the license could also include an obligation to allocate medicines according to public health needs rather than to highest or first bidders. For example, in the case of pandemic vaccines, the agreement could commit a set percentage of doses to international procurement structures such as COVAX. It would be up to the individual government to decide how to tailor the dormant license.

Taken together, our proposals would create a legal framework to improve access to much-needed medicines during pandemics and epidemics. It could be utilized alone or in combination with other proposals to help ensure that when the next pandemic arises, we will be better prepared.

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