Will Commercialization of a Covid19 Vaccine Be Allowed?

In the early 1990's in the depths of the AIDS crisis, a somewhat academic discussion began around HIV vaccine development. Perhaps discussion is too strong. More in hushed tones and whispers. The burning question? If a company developed an efficacious HIV vaccine, would they ever be allowed to commercialize it? Sell it. Make a Profit?

A nice summary of the underlying question was provided by Piltsch et al. 2019. (https://www.insidegovernmentcontracts.com/2019/05/rights-in-government-funded-ip-changes-may-be-on-the-horizon/)

They noted that it is often forgotten that the US Government funded research is subject to a government use license which generally provides that the U.S. Government has a nonexclusive, nontransferable, irrevocable, paid-up license to practice the invention or have the invention practiced throughout the world by or on behalf of the Government. 

Furthermore, since 1980, the US Government possesses specific rights that require a contractor, assignee, or exclusive licensee of a subject invention to grant a license to a third party if necessary to achieve “practical application” of the subject invention. “Practical application,” in turn, includes utilizing the invention and making its benefits “available to the public on reasonable terms.” 

In effect, if the Government has funded it, there are situations when they can take that which has been developed and have someone else make it, especially in the time of national crisis.

Of course, they have never done that, right? Wrong. October 2001. The US Government decides that the Bayer patent for ciprofloxacin is fair game . The Wall Street Journal, Oct 22, 2001, reported the efforts of both Democratic Senator Charles Shumer and Republican Senate minority leader Trent Lott to address the failure of Bayer to meet the soaring shortage of ciprofloxacin in the face of the anthrax scare. In fact, it was Senator Lott who was urging the Senate to take up the debate on stripping Bayer of the patent making the patented therapy available for immediate generic production.

Fuller & Webster (2001) reported that within the month, the US Department of Health and Human Services (DHHS) and Bayer AG reached an agreement that provided for the US government to be able to source 100M tablets at a price of $0.95 per tablet, which was even lower than the previously offered discount of $1.77 per tablet, and in doing so allowed Bayer to retain its rights as the sole supplier of ciprofloxacin to the US market. There was an option for an additional 200M tablets.  https://www.reliasmedia.com/articles/75045-hhs-reaches-deal-with-bayer-on-cipro

However, this was a widely criticized agreement due to continuing concerns over the perceived high price, and because in return, DHHS did not exercise its authority to commandeer Bayer’s patent on ciprofloxacin (which was to expire in 2003) to allow generic production. 

And so, here we are again. Many, many companies are benefiting from enormous US Government handouts, and in some cases bailouts, under the pretext of working on a covid19 vaccine. Hopefully, one or more of these will demonstrate safety and efficacy against covid19.

In the US we are in a situation of having one of the most willing interventionist governments in many years. From a private investment perspective the surging share prices of some companies working on covid19 vaccines with valuations in excess of $25B in some instances for firms that have never commercialized any product, forces the question: If the pandemic rebounds, the second wave, and any of these companies does successfully show that their vaccine is safe and efficacious, what will be the US Government response?  What if they cannot make enough doses for the entire country? How much will they be allowed to charge?

We already had one announcement that any US funded vaccine will be retained for US use first. France demanded that Sanofi secures any covid19 vaccine for its population before any is shipped elsewhere due to its investment. And there is a track record of Governments doing that. It has been termed “vaccine nationalism”. In 2009, with the influenza H1N1 pandemic, the US, Australia, Canada, all made it clear that none of the companies with influenza vaccine manufacturing in these countries would be permitted to export or sell their pandemic influenza vaccine abroad until their national demand had been satisfied (Fidler, 2010).

The recent experiences of Bayer with ciprofloxacin, and the 2009 H1N1 pandemic influenza vaccines make it clear. If the covid19 pandemic continues and there is a successful vaccine, the need to restore communities through the widespread rapid deployment of a new covid19 will only occur if the Government intervenes and exercises it retained rights in any technology that has received US government funding to ensure that vaccine access occurs through making its benefits “available to the public on reasonable terms.” 

Then that leaves the remaining question outstanding: if the US Government forces the manufacture of a successful vaccine to be given to other companies or parties as is its right, and dictate that it be made available to the public on reasonable terms, then what is the valuation of these small publicly traded companies with their currently inflated share prices?