“How much is it for?”
On 19th April 2021, the Government of India put out a statement announcing that all individuals above the age of 18 will be eligible to get vaccinated from 1st May 2021. A move that was received well by many Indians as we saw a huge surge in covid cases across India. The decision, on the surface, a good one had then found itself in a flurry of controversy and unanswered questions.
Where are the vaccines amidst a shortage to inoculate all adults from May 1st? Why is it that the States have to procure it and not the Central government? What is the need for the division of the vaccine inoculation process between centre and state?
The controversy grew when Serum Institute of India and Bharat Biotech announced their pricing for state governments and private hospitals for the procurement of vaccine doses. In the initial statement, the Pune-based Serum Institute of India stated that the Covishield vaccine they are producing would be available for states to procure at Rs 400 per dose and Rs 600 per dose for private hospitals to procure. A few days later, Bharat Biotech came out with their price list that said that Covaxin would be priced at Rs 600 per dose for states and Rs 1200 per dose for private hospitals.
This essentially created 3 markets:
50 % of the production going the Central government to inoculate individuals above the age of 45
- where the Central Government is procuring both vaccines for Rs 150 per dose
And the other 50% of the production going to State governments and private hospitals to inoculate individuals between the ages of 18-44
- State governments, procuring for Rs 400 per dose for Covishield and Rs 400 per dose for covaxin
- Private Hospitals, procuring for Rs 600 per dose for Covishield and Rs 1200 per dose for covaxin
Why were people angry about this?
It was revealed that the government of India earlier had struck a deal with SII and Bharat Biotech to procure the vaccines for just Rs 150 per dose, which was being given by the central government for free at government hospitals and for Rs 250 in private hospitals. Adar Poonawalla, CEO of SII had revealed that the original price of Rs 150 per dose that the Central government had procured the vaccines for, was part of a special deal that they had negotiated with SII.
But with the new system in place, the states and private hospitals having to vaccinate 18–44 year-olds, find themselves paying more than double the cost incurred by the central government. This led to many outrage over the ‘profits’ being made by the two vaccine manufacturers.
The outrage led to the government reaching out to the companies and asking them to lower the prices for state procurement, a face-saving measure at best by the government of India. SII and Bharat Biotech, later announced that both would effectively be reducing their prices for state procurement from Rs 400 to Rs 300 per dose in the case of Covishield and Rs 600 to Rs 400 per dose for Covaxin.
Where did it go wrong?
Firstly, Other than the export commitments Serum Institute had, till the announcement was made that the states and private hospitals have to procure the vaccines by themselves from SII and Bharat Biotech to inoculate people between the ages of 18 to 44, the Central government was the sole buyer of the vaccines in India. It was the Central government that for the first few months, buy the vaccine and distribute it among states for free. The central government could have easily leveraged their position as a sole buyer to the sole seller of Covishield and Covaxin to try and get cheaper prices.
It was made clear by Adar Poonawalla that the Rs 150 per dose price tag placed on the vaccines was not enough to fulfil the needs at hand. “New Delhi managed to negotiate a competitive price of 150 rupees per shot, and then set out to distribute them free of charge — first to healthcare and other frontline workers and then to those older than 60,” writes Andy Mukherjee for The Print. Adar Poonawalla said to the NDTV that the Rs 150 price tag was not enough to reinvest in building capacity and building new vaccines.
This is why the central government, as a sole buyer could have negotiated a new price that is higher than the cost of the vaccine wherein,
- the vaccine manufacturers could make a profit that would help reinvest and fuel faster production and manufacturing of the vaccines
- and the state governments would not have to bear the costs of procuring vaccines as the central government can absorb these costs.
But unfortunately, by dividing the vaccine market into three separate categories- central procurement, state procurement and private procurement the companies were allowed to charge higher prices for the vaccine.
Secondly, I also think it is unfair to criticize a private manufacturer for charging higher prices for a commodity that is in high demand, at a time when they need to increase production not only to meet the domestic needs but also the export commitments that the companies have with different countries. Amidst the domestic vaccine shortage, the Indian government effectively banned the export of all vaccines, hurting the inoculation procedure of many countries that depended on the production capacity of SII.
At a time when we need the vaccines as soon as possible and in a large quantity it is unfair to ask the manufacturer to reduce the prices because of a social media outrage. A higher profit margin would allow the company to reinvest larger sums of money to increase production which would lead to a faster rate of inoculation of the Indian populous, effectively curbing the spread of covid-19.
The third and final point I would like to make on this topic is that I do not think it is the responsibility of the manufacturer to offer the vaccines at a cheap price, but it is the responsibility of the government to offer the vaccines for free. The taxpayers pay tax to the government, effectively to take the necessary steps in crises and use the tax revenue pool to procure as many vaccine doses as possible for the states to distribute them and inoculate the largest populous possible.
At the end of the day, it is not only the fact that the vaccines have to be distributed but also the vaccine manufacturer has to stay in business to be able to produce vaccines like these in the future. By pricing it a little higher it allows the vaccine manufacturer to invest in the necessary technology, capacity building machinery and manpower to increase production.
Serum institute reached out to Oxford-AstraZeneca and signed a deal early in the pandemic to be to produce the vaccine that they had been working on. This sealed the fate of SII as a sole producer of the AstraZeneca vaccine in India unless a new manufacturer or government of India strikes a deal with Oxford AstraZeneca again.
The same restrictions do not apply to Covaxin, so the government from the beginning should have been more proactive in trying to get other vaccine manufacturers to produce or increase the production of Covaxin and take the Monopoly away from Bharat Biotech as the sole manufacturer. On 2nd May 2021, it was reported that Bharat biotech has struck a deal with another Hyderabad-based company, Indian Immunologicals Limited (IIL) to manufacture Bharat Biotech’s Covaxin. IIL is said to be one of the largest vaccine manufacturers in the world and could begin rollout of drug substance of Covaxin by July-August. The Union Ministry also announced that Maharashtra government-run Haffkine Biopharmaceutical Corporation Ltd and government-run Bharat Immunologicals & Biologicals Ltd are set to produce a total of 30-35 million doses per month.
India is in dire need to increase the production of vaccines, the bureaucratic mess created by the central government has been the main culprit of what has hurt our inoculation process as well as the mess that the second wave has been.
Sharing is caring?
In October 2020, India and South Africa reached out to the WTO, the World Trade Organisation and requested for a temporary waiver on TRIPS which is ‘Trade-Related Aspects of Intellectual Property Rights.’ The request was supported with the claim that by allowing the waiver on TRIPS off of covid-19 vaccines, drugs and other medicinal resources; the access to medicines and important drugs would become more equitable in the world that would allow local or domestic manufacturing of important lifesaving drugs and that this would potentially give countries a better chance at beating the virus.
Despite the fact that the proposal by India and South Africa was supported by 140 members of the WTO, the proposal was blocked by Australia, Brazil, Canada, Ecuador, El Salvador, Japan, European Union, United Kingdom, and The United States. The argument they make is that waiving off IPR would hamper scientific innovation and discourage drug makers.
It is clearly an attempt by these countries to protect their pharmaceutical industry and the monopoly they hold for many drugs. A patent gives the manufacturers exclusive rights to manufacture the product they have developed. The IPR rules and regulations allow countries as well as companies to strike deals with other manufacturers to allow them a temporary waiver of the IPR and manufacture the vaccine (for example, Oxford-AstraZeneca and Serum Institute of India).
International Federation of Pharmaceutical Manufacturers & Associations (IFPMA) director-general Thomas Cueni defended the patents, arguing that “At a time when the focus should be on science and innovation, undoing the very system that supports it is dangerous and counterintuitive,” an argument that was supported by US Chamber of Commerce’s Global Innovation Policy Center senior vice-president Patrick Kilbride who called the calls for waivers of IPR as “misguided and a distraction from the real work.”
Billionaire-Philanthropist Bill Gates also recently argued against the patent waiver. He argued, “The thing that’s holding things back, in this case, is not intellectual property…It’s not like there is some idle vaccine factory, with regulatory approval, that makes magically safe vaccines. You have got to do the trial on these things. And every manufacturing process needs to be looked at in a very careful way.”
The director-general of the World Health Organisation, Dr Tedros Adhanom on 7th march 2021, wrote an article titled ‘Waive Covid vaccine patents to put world on war footing’ on the WHO website in which he writes that “the future is ours to write. Let’s not be held back by politics, business as usual or those that say we can’t. This is the biggest crisis of our lifetime.”
The situation we are in currently will not end magically by waiving off patents. But at the same time, by holding onto the exclusive rights of manufacturing drugs and vaccines, the pandemic will only prolong and there would not be an end to it anytime soon. India and South Africa have once again reached out with a similar proposal to the WTO to waive off IPR on the covid vaccine and drugs.
As I had mentioned earlier, Covaxin will now be produced by other companies as well namely, the Hyderabad-based company, Indian Immunologicals Limited (IIL), Maharashtra government-run Haffkine Biopharmaceutical Corporation Ltd and government-run Bharat Immunologicals & Biologicals Ltd. This was possible because Covaxin was developed by Bharat biotech along with ICMR. It is unclear about the IPR of Covaxin and whether if it belongs to Bharat biotech, ICMR or the Government of India but the government nevertheless allowed other companies to manufacture this vaccine. It is to allow a similar process not just in India but other countries as well especially in the Global South that these IPR need to be waived off.
Intellectual property plays a significant role in fostering innovation as well as creating an incentive for research and development but in a time when we have a full-fledged pandemic, where countries have been economically devastated and people are falling sick and dying at an unprecedented rate, the proposal is not at all radical as the countries rejecting it make it seem.
Prime Minister Narendra Modi last week while speaking to President Joe Biden had reportedly pressed him to support the waiver. This is not just an issue that pertains to the Covid-19 pandemic that we are currently experiencing but has been an issue that has been dividing the developed and the developing countries for decades now.
This post is part of the weekly newsletter on economics, finance and public policy – Finanomics by Phani Datta. You have reached the end of the twelfth edition of finanomics, thank you for reading. Please do let me know your thoughts, suggestions, feedback, or comments on the newsletter as well as the content in it. Thank you, happy Sunday! See you next week!