Locally producing the Covid-19 drug remdesivir and its problems
A Bangladeshi company, Beximco Pharmaceuticals, is to start making the new Covid-19 drug, remdesivir. This is under international rules which allow poorer countries to break the patents of new drugs when it's necessary.
This raises the interesting question, or perhaps the problem, of what is really necessary. Should we be looking to the longer term or the short?
We face an economic problem that doesn't have a correct solution. It has a variety of trade-offs and we have to decide what the right set is. Our problem is “public goods” -- which are non-rivalrous and non-excludable. The first means that my use of it doesn't reduce the amount you can use; the second that it's not possible to stop people from using it.
Both theory and observation tell us that people will undersupply such goods. The two features -- there is no scarcity and we cannot stop someone from using them -- mean that there's great difficulty in making a profit out of producing them.
The drug itself isn’t the public good; it's the knowledge of how to make it and the effect it has. Once people know things, the use doesn't diminish the knowledge others can use, and it's difficult to stop them.
The solution we use is inventing excludability. In order for developers to make back their billions -- and it does cost this much to get a drug through trials and approval -- they have a patent on it. It lasts for 20 years, or about 10 years after approval is granted; they make their money back in that time. After that anyone can copy it.
This is not a perfect system, but it might be the best we've got. However, this causes problems in the short term, in those first 10 years of the patent after approval. As in this instance. We have a pandemic, and without some form of cure, millions will die and economies around the world will be crippled.
Are we going to allow some capitalists to make a fortune out of this misfortune? That is where this balance between long and short term comes in.
That international law allows any government to kill a patent. If it's really important, then the government of, say, the US could just cancel any protections on remdesivir. They are unlikely to, but they could.
But if we told the people who had just spent a billion dollars that they've lost it because this is really important, then what does that do to the incentive of the drug researchers? They're going to be less likely to work on whatever might be the next thing to try and kill us all.
Incentives do matter, after all.
International law has varying levels of strictness. The poorer a place is, the easier it is for them to break such patents. This is not on the grounds of justice or fairness, it's purely pragmatic. Remdesivir might sell for $4,000 or so a treatment. Bangladesh isn't going to pay twice the per capita GDP for one course of drug treatment.
So Gilead, the maker of the drug, doesn't actually lose any money by allowing local production of the drug. It would sell none anyway, so incentives haven't been changed by allowing the local manufacture.
The problem comes when that local manufacturer starts to leak information to the international markets, where people might be expected to pay a higher price. That higher price is necessary to encourage people to work on solving the next problem.
There really isn't a perfect answer to this problem. We don't want poor people to die because they can't afford a drug, most of the price of which is just profit to capitalists. But we also want the capitalists to be repaid, to profit, so that future drugs are developed against future dangers.
One such drug company, Glaxo, is entirely pragmatic about this. It charges full price in the US because it can. Then it negotiates with various other rich countries’ health care systems for how much they will pay.
After that, middle income countries pay something, and poor ones get it at manufacturing cost plus a tiny amount. What is happening with Beximco is another solution, the government breaks the patent and a local company manufactures.
The important point to recognize here is that there are no solutions, just trade-offs. We really do have an underlying and unsolvable problem here. Developing drugs takes hundreds of millions to billions of dollars. To recoup that means drugs are expensive in the beginning but poor people can't afford them.
Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.