Why Joe Biden Punched Big Pharma in the Nose Over Covid Vaccines

Last week, the Biden administration asked for a global waiver on vaccine intellectual property protections. What is this waiver? Why does it matter? And why did Biden stand up to big pharma?

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Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m writing about Joe Biden’s attack on vaccine monopolists. What happened is a bit technical and involves a bunch of weird international agreements on patents and IP, but the short story is that what Biden just did could be as significant as Reagan firing the air traffic controllers in 1981, or Teddy Roosevelt taking on JP Morgan in 1904 over a giant railroad combination. It’s a signal that the American order is changing.

Plus, beef prices are at record highs, so why are cattle producers going bankrupt? And why did we face meat shortages during the pandemic? I talked to South Dakota ranching advocate Bill Bullard about why our national food systems are collapsing.

Biden: We Must Vaccinate Everyone in the World

Three days ago, United States Trade Representative Katherine Tai announced that the United States supports a global waiver on intellectual property protections for Covid vaccines. There are two excellent vaccines. The first is produced by a partnership between industry giant Pfizer and the German company BioNTech, the second by multi-billion dollar start-up success story Moderna in a partnership with the National Institute of Health. Biden took the first step in a legal process to force these firms, among others, to share their technology.

The announcement sent shock waves throughout the world. French President Emanuel Macron jumped on board, director of the World Health Organization Tedros Adhanom Ghebreyesus called it a “monumental moment in the fight against Covid,” the FT’s Edward Luce said Biden had made “a brilliant move,” and political leaders globally began putting pressure on their own governments to follow suit. "Thank you, President Biden and USTR Katherine Tai,” said Lori Wallach of Global Trade Watch, a key leader in the campaign.

The pharmaceutical industry reacted with shock and anger. "In the midst of a deadly pandemic, the Biden Administration has taken an unprecedented step that will undermine our global response to the pandemic and compromise safety," read a statement from the trade association group PhRMA. The US Biotechnology Innovation Organization pronounced “extreme disappointment” and the European Federation of Pharmaceutical Industries and Associations warned this move will lead to counterfeit vaccines.

What just happened? And what does it actually mean?

There are multiple layers to this story. I’m going to offer an explanation of how this waiver affects the global attempt to address the pandemic, the politics behind the decision, and what it means going forward. The short story is that this is an unexpected and major defeat for the pharmaceutical industry, all the more bizarre that it comes from Joe Biden, who in his career generally deferred to big business. As one Washington lobbyist told the Financial Times, “Nobody really thought Biden was going to take on the pharmaceutical lobby, [they thought] that he would be too scared. But before the financial crisis, everybody thought the financial services industry was untouchable, then that changed. This week showed that pharma companies are the new banks.”

To understand what happened, we have to start with the development of the vaccines themselves.

The Vaccine Success Story

The development of Covid vaccines is the single most successful U.S. government program since the elimination of polio. Vaccines have traditionally taken more than a decade to develop. Yet, in this case, less than a year after the virus was first genetically sequenced by Chinese scientists and posted to the web, trucks began rolling out of factories with safe and effective vaccines ready for deployment. Today, more than a billion doses have been injected into arms, and wealthier countries are seeing the pandemic recede.

In part, the global spread of pharmaceutical technology is one reason for this success. China, Russia, Europe, and the U.S. all have put out vaccines that work. Yet the best new vaccines come from the U.S. or Europe, and use a new technology called mRNA. The old way of making vaccines consisted of growing a weakened or deactivated germ, which would create an immune response by getting your body to respond to something that looked like a deadly virus. But making these kinds of viruses was cumbersome because they have to be grown, and they don’t always work well. Flu vaccines are grown in chicken eggs, for instance, and that takes a long time.

The mRNA vaccine by contrast is not a weakened germ, it is a set of instructions to your body to produce a custom-designed protein shaped like a part of the Covid virus, which your immune system then responds to. In doing so, you acquire immunity. The mRNA vaccine is programmable, meaning that it’s easy to update the vaccine to address new diseases or new variants, and because it is chemical, production scales quickly. Think of the difference between the old way of doing vaccines and mRNA as similar to printing books by woodblocks, each of which has to be carved by hand, versus using moveable type printing presses.

The mRNA technology comes from Katalin Kariko, a Hungarian immigrant who perfected the technology with fellow scientist Drew Weissman at the University of Pennsylvania. The two licensed mRNA to two small firms, BioNTech in Germany and Moderna in the United States. BioNTech spent years perfecting the technology and eventually got German government support. Meanwhile, Moderna received U.S. government funding in the 2010s from the Defense Advanced Research Projects Agency (DARPA), the same unit that helped create packet-switching technology in the 1970s.

When the pandemic hit, three things happened. First, Pfizer and BioNTech quickly agreed to work together to scale and develop their mRNA vaccine. Second, government scientists at the National Institute of Health designed a spike protein molecule and sent it to Moderna, which used it as the basis for its mRNA vaccine. Third, the U.S. government under Trump, through what was called Operation Warp Speed, created a market for vaccines, signing guaranteed-purchase agreements with a number of firms, including Pfizer/BioNTech and Moderna, to secure hundreds of millions of vaccine doses for the U.S. population.

This process worked remarkably well. The first country to have more than 50% of its population vaccinated, Israel, basically has no Covid anymore, and Covid is dropping rapidly everywhere these vaccines have been widely deployed. If we could deploy vaccines worldwide, we could effectively eradicate Covid, or at the very least, make the outbreak of new variants that can evade vaccines much less likely.

Where there’s great success, there’s great money. Pfizer is projecting it will make $26 billion in 2021 from its vaccine, and Moderna will make $18.4 billion. That’s a good thing. These firms should make large sums of money from a fantastically useful vaccine, even though the technology was publicly financed.

Still, despite this success, there’s a significant vaccine shortage. The world will need 10-12 billion to be fully vaccinated, and Moderna and Pfizer/BioNTech won’t produce that much. Pfizer/BioNTech, for instance, forecast production of 2 billion doses in 2021, and Moderna will make something on the order of a billion doses. That’s a lot, it’s just not nearly enough. Indeed, at this rate, some countries aren’t going to start significant vaccination campaigns until 2023. That’s quite dangerous, because if the pandemic keeps raging, it’s more likely that a vaccine-resistant Covid variant emerges. If that happens, such a variant will spread across the already vaccinated areas of the world.

So making sure we have a global vaccination campaign looks like a logistical challenge, but also a necessary one. That said, there’s a fly in the ointment, a ghoulish incentive at work for Pfizer, BioNTech, and Moderna.

Pfizer and the “Durability of the Franchise”

On an investor call last month, the CFO of Pfizer, Frank D’Amelio, discussed what would happen to revenue from his vaccine product as the Covid pandemic ends, what he called the “durability of the franchise.” He told analysts not to worry. People in rich countries will need annual booster shots, and that is where Pfizer will make real money.

For these annual treatments, Pfizer will be able to charge much more than it does now. The current price for a covid vaccine, D'Amelio noted, is $19.50 per dose. He told analysts of his hope Pfizer could get to a more normal price, “$150, $175 per dose,” instead of what he called “pandemic pricing.”

The ghoulish part, however, is why there will need to be annual boosters. It’s not because the vaccine strength wanes over time, though that might happen. It’s because, as D’Amelio told Wall Street, there will be new variants emerging from abroad that can evade the vaccine. And how will variants emerge abroad? Well as outbreaks occur in non-vaccinated parts of the world, new strains will naturally occur as the virus mutates. If the rest of the world gets vaccinated, however, new variants won’t arise.

What D’Amelia really wants is to be able to charge $150 for a vaccine he is now charging $19.50 for. But D’Amelio is also assuming that there won’t be a global effective vaccination campaign. And, in a narrow sense, while Pfizer’s main goal is to keep prices high, it is actually against Pfizer’s financial interest to have the rest of the world vaccinated. If the world gets vaccinated, Pfizer won’t necessarily be able to sell expensive booster shots in rich countries who can afford them. Yikes.

The corporate world, sans Pfizer, has a very strong reason not to want a vaccine-resistant variant. A new variant of Covid could force the world back into lockdown, which is expensive. The International Chamber of Commerce, hardly a bastion of lefties, put out a study asserting that not sufficiently vaccinating poor countries will cost $9.2 trillion (with wealthy countries like the U.S. bearing half the cost). Covid isn’t good business for most firms, but it’s great for Pfizer and Moderna.

So what is the holdup for global vaccination? One argument is that there isn’t immediate ramp-up capacity to make the doses we need, both the factories and trained personnel, and the inputs necessary to make mRNA vaccines. Bill Gates made this case, saying, “It’s not like there’s some idle vaccine factory, with regulatory approval, that makes magically safe vaccines.” And it’s true that vaccines are difficult to make, requiring special machines, plus a complex supply chain network.

That said, the productive capacity argument strikes me as, well, bullshit. Back in March, the Associated Press reported that the former director of chemistry at Moderna said that, with technical help, “a modern factory should be able to get vaccine production going in at most three to four months.”

And think about it. There were no production lines when Pfizer-BioNTech and Moderna-NIH started needing to make doses to do the clinical trials. In a matter of six months they went from having zero doses to having enough to do the trials to having some hundreds of millions of doses of those vaccines. Ramp-up capacity is idling because IP holders are refusing to transfer their technical knowledge.

And that’s where the intellectual property barriers, and Joe Biden’s recent action, comes in.

Compulsory Licensing

Pfizer-BioNTech and Moderna-NIH have significant amounts of intellectual property wrapped up in their vaccines, and intellectual property includes a legal right for them to have a monopoly on who can make the protected product. This IP includes not just the patents on the vaccines themselves, but protections on the machines that make the vaccines, the chemical precursors, trade secrets, copyrights on technical specifics and the software that runs the machines, and industrial design IP. There is a massive thicket of legal barriers designed to ensure that only Pfizer/BioNTech and Moderna can control deployment of their vaccines, even if it’s technically possible for someone else to make the medicine.

The incentive for firms with a monopoly license over a critical IP-heavy product is to withhold supply. And that’s what these firms are doing. Moderna-NIH is making its vaccine, and not licensing it to others. Similarly, Pfizer-BioNTech have refused to let others make their vaccine, with the exception of a monopoly license to Shanghai Fosun Pharmaceutical Group in China, which will begin producing hundreds of millions of doses for China.

In poor countries, the situation is different. Pharmaceutical companies would prefer to keep prices high, and even though only the elite in those countries will be able to afford the vaccines, that’s still more profitable than lowering prices for everyone. These countries are stuck. Even if there are available factories, without a licensing deal from BioNTech/Pfizer or Moderna, they can’t start trying to make what we know is an excellent set of vaccines. There are factories out there who could scale up production, if the IP barriers went away. But those barriers are significant. So those countries are turning to China and Russia, whose vaccines are effective, just not quite as good.

There is another path, one that’s used quite frequently when a patent holder refuses to negotiate. This is known as a compulsory license, where a country will simply allow a non-discriminatory licensing regime for a patent against the will of the holder. This is fairly common in the electronics or telecom equipment industry; if a firm holds a patent on a key part of a common standard, that firm is often not allowed to block competitors from licensing it.

Compulsory licensing is also fairly common in American history. In the heyday of American inventiveness and productivity growth, from the 1930s to the 1970s, divestment of patents and technical knowledge was a key remedy in antitrust suits for firms trying to withhold supply, as well as a critical part of our industrial strategy. I got a list of antitrust cases in 1952, and the DOJ antitrust division forced an end to anti-competitive uses of patents over a hundred industries, from electric lamps to variable condensers to wrinkle finishes for paint to telescope grocery carts.

This unlocking of corporate knowledge created, among other things, Silicon Valley. AT&T’s Bell Labs invented the transistor, but it had problems manufacturing them because its leaders focused on maintaining its regulated monopoly. An 1956 antitrust suit forced AT&T to share its patents. Fairchild semiconductor, a small company that birthed Silicon Valley, took the market lead. In fields with compulsory licensed patents, the number of follow-on patents exploded in subsequent years, mostly from small companies.

And this makes sense. Intellectual property is a government granted temporary monopoly, but in return for that grant and the royalties it brings, the patent holder has a common carriage-style obligation to act in the public interest should its patent become critical to a key standard or public need.

More recently, compulsory licensing has also been used for health emergencies. South Africa and Brazil used compulsory licensing to produce HIV medication, the Bush administration threatened it against Bayer when it tried to price gouge an anthrax treatment, ciprofloxacin, after 9/11, and Malaysia used it for a hepatitis treatment. The patent holder still gets paid royalties, but they don’t have control over the price or terms.

Indeed, the mere threat of a compulsory license is often enough to get pharmaceutical companies to cut a deal to produce or to change pricing terms. Still, not every country has pharmaceutical factories, so you don’t just need compulsory licensing, but also the legal ability to export from countries with factories to countries without them. In previous instances where we needed to relax IP for health emergencies, everyone benefitted. Expanding production of cheap HIV medication in the 2000s, despite opposition from U.S. pharmaceutical producers, saved millions of lives. And big pharma remained quite profitable.

Which brings us to what happened last week.

Joe Biden Punches Pharma in the Nose

The governing worldwide agreement enforcing intellectual property claims like patents, industrial design, copyrights, trade secrets, and so forth is the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and it upholds what has become a de facto global IP system. In March, India and South Africa asked for a waiver of parts of this agreement to allow countries to use compulsory licensing regimes to both produce vaccines, and export or import vaccines depending on who can make them. They wanted to have global sharing of expertise and IP, with a compulsory licensing regime. Pfizer/BioNTech and Moderna would get royalties from anyone making their product, but they couldn’t stop anyone from producing it.

It takes a consensus of the WTO member countries to push through a TRIPS waiver, and with the U.S. opposed, negotiations couldn’t even start on the text of what that waiver would cover. But if the U.S. supported such a waiver, it might seem inevitable that compulsory licensing and exports would be on the table, and vaccine producers like Pfizer, BioNTech, and Modern would start cutting deals with local producers to expand production. Remember, it’s not compulsory licensing that matters, it’s the threat they would have to deal with compulsory licensing.

So the question for the Biden administration was whether to support negotiating at the WTO for a TRIPS waiver for Covid vaccines. As the Daily Poster noted, Joe Biden, and many in his administration seemed unlikely figures to stand up to pharma, as they have deep ties to the industry. Secretary of State Tony Blinken, White House official Steve Ricchetti, deputy Chief of Staff Jennifer O’Malley Dillon, etc. all had pharma as clients prior to entering the administration. Moreover, as a Senator, Biden himself voted against the U.S. government’s ability to control prices of products developed with public money.

To add more fuel to the fire, taking on pharma would require reversing longstanding U.S. policy. The U.S. government fought against cheaper access to HIV medications in the 1990s, and pushing for stronger patent protections for pharma has been a key foreign policy strategy for decades. Under Trump, the U.S. wouldn’t allow negotiations for such a TRIPS waiver over Covid vaccines to start. There were however foreshadowings. Biden promised to waive IP rights when he was campaigning for President. And before Biden; Trump and the Democrats in Congress did actually face down pharma in renegotiating NAFTA, which laid the groundwork for this battle.

Still, it was a huge shock when Biden flipped the U.S. position last week. His United States Trade Representative, Katherine Tai, made the announcement that the U.S. supported a waiver to allow compulsory licensing and exports for covid vaccines, and would negotiate at the WTO to make that happen.

Ambassador Katherine Tai @AmbassadorTai

These extraordinary times and circumstances of call for extraordinary measures. The US supports the waiver of IP protections on COVID-19 vaccines to help end the pandemic and we’ll actively participate in @wto negotiations to make that happen.

Why the radical change? First, there was a knock-down drag-out fight across American political institutions, with hundreds of members of Congress involved, and civil society groups and pharma lobbyists battling it out. This gave the Biden team a political opening.

There are two reasons the administration then supported the waiver. The first is that the Biden administration really does not want Covid variants to return and force another lockdown. The second is, geopolitics, and ‘vaccine diplomacy.’ China’s vaccines, which use traditional methods, are not as effective as the mRNA treatments, but they exist. And China is sending its vaccines to more than 80 countries, with Russia also pushing its influence through its own effective vaccine. These countries are, rightfully, making a big deal of how the U.S. isn’t doing any exporting, and generating leverage as a reliable partner when the West is absent.

As a result, the traditional calculation within the U.S. government changed from pro-pharma to anti-pharma. The people in charge of money and guns took the progressive position, because the progressive position was a way to counter Russian and Chinese vaccine diplomacy, and to keep the economy free from a renewed pandemic threat. Treasury and State Departments, the National Security Council, and the National Economic Council, all supported the waiver. So did the United States Trade Representative Office, led by Katherine Tai, who made the final case to Biden.

(As an aside, I worked on the Hill for six years, and USTR was always the center of corporate power in government. For USTR to go against pharma is truly the world turned upside down.)

The Way Forward

The pharmaceutical industry is doing what smart organizers would do to defeat this proposal. They are getting key allies, such as Angela Merkel of Germany, to come out in opposition to the waiver, and will attempt to delay it as long as possible. Moreover, the actual details of the waiver matter, so the battle really is just beginning at the WTO. And even with IP waivers, making mRNA vaccines is extremely difficult, so the U.S. will have to force Moderna, BioNTech, or Pfizer to engage in tech transfers. Otherwise, it will take a year to reverse engineer their processes, and that is too much time to let Covid fester and brew new variants.

That said, if Biden follows through and forces the ramp-up of production elsewhere against the wishes of the pharmaceutical giants, it will not only address the pandemic and help restore American global leadership (while unmasking hypocritical Europeans), it will set the stage for a long-overdue reorientation of the American economy away from concentrated power. It’s hard to overstate how big a deal this move could turn out to be. Biden just showed that big pharma, one of the most powerful forces in American and global politics, is not untouchable.

One analogy would be Teddy Roosevelt launching an antitrust suit against the giant railroad combination, the Northern Securities Corporation, in 1904. Roosevelt made it clear that J.P. Morgan, who engineered the merger, was not the boss of America. Another analogy was when Ronald Reagan fired 11,345 striking air traffic controllers, who had gone out on picket lines demanding better working conditions and higher pay in 1981. This action was no isolated attempt to deal with a labor dispute, it was a signal to employers throughout the economy that the day of organized labor was over. It was, in the word of law and economics scholar Richard Posner, one of the “defining moments of the Reagan administration.”

This week, Joe Biden did something that could turn out to be similar, not in terms of political philosophy but in terms of making a signal that the architecture of U.S. politics is now different. Of course, making this signal meaningful requires real follow-through, and there are many reasons to imagine it will fall apart. But this is a first step, and a very major first step, at that.

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Beef Is Expensive. So Why Are Cattle Ranchers Going Bankrupt?: During the Covid pandemic, Americans went to the supermarket and found something that hadn’t happened for decades - a meat shortage. There was plenty of cattle, but the beef wasn’t getting to the supermarket shelves.

What happened and why?

To answer this question, I asked Bill Bullard, a former cattle rancher and the current CEO of R-CALF, a cattle producer-only membership organization focused on the viability of the U.S. cattle ranching industry. “We have so skeletonized the entire live cattle and beef supply chains that it is no longer capable of withstanding a shock,” he said, “whether it be the covid pandemic or a climatic circumstance.” This shortage was a wake-up call. “The industry is incapable of meeting our national food security needs.”

Bullard is an ardent anti-monopolist, a viewpoint developed through hard-won experience dealing with a consolidated meatpacking industry. He noticed problems with our cattle markets becoming more severe in late 2014. That’s when beef prices and cattle prices started to diverge.

Such a divergence is very weird, because a lower price paid to farmers for cattle should lead to lower prices for consumers at the supermarket for beef. Cattle and beef prices should move in tandem, like oil and gasoline, since beef is merely processed cattle. And when these price signals do move in tandem, the market works - expensive beef leads to producers selling more cattle, and driving down the price of beef.

Only, what happened since late 2014 is the opposite - even as the beef sold by meatpackers got more expensive, the prices those meatpackers paid to cattle producers went down. Under Covid, this divergence has gotten far more severe, with record prices for consumers, even lower prices for cattle, and at some points, shortages and breakdowns of supply with bare supermarket shelves. Domestic cattle producers are increasingly exiting the industry, even though there’s more demand than ever for their product. Bullard told me that it’s a highly consolidated set of middlemen, the meatpackers, who are grabbing all the profit, charging higher prices to consumers while driving independent cattle producers out of business and ultimately breaking down America’s food system.

My full interview with Bullard is here.

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Thanks for reading. Send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller