Why Are We Paying Moderna Twice For An Unproven Vaccine?

Moderna, a relatively new biotech firm, generally is seen as the U.S. frontrunner in developing a coronavirus vaccine.

It trails several Chinese companies.

Based in Cambridge, MA, Moderna should certainly get an award for milking the government.

It doesn't matter if the vaccine works. Moderna already was paid twice over.

The big winner in initial contracts, Moderna got $483 million in April to develop a vaccine. While that may have seemed adequate to jockey the vaccine through both the development and testing process, the company decided to go back to the trough for more. It is having the government pay $472 million for the Phase 3 testing.

Together these payments virtually guarantee that the company will make a substantial profit. Yet, Moderna will still get a patent monopoly on the vaccine, which will allow it to charge people in the United States and elsewhere in the world as much as it wants.

Simple arithmetic shows Moderna almost certainly has made a profit already. The company reported having 892 employees at the end of 2019. Let's suppose it paid each staffer $20,000 a month for the three months between signing the contract and when they had their first round of clinical tests. (It was actually more like two months.)

That would come to $53,520,000. If we double this for equipment and other inputs, we get $107,040,000.

We first picked up the tab for the research and the testing and now we are giving the company a patent monopoly so that it can charge people around the world as much as it wants for the vaccine.

The Phase 3 trials are projected to involve 30,000 people. Recent research indicates that the average per-person cost in a Phase 3 trial for vaccines is $10,000. That would come to $300 million.

Let's raise this by 50 percent because Moderna is in a hurry. That gets us to $450 million.

Since the government paid $483 million for the pre-clinical research and $472 million for the Phase 3 trials, it looks like Moderna is making a healthy profit on both. Yet, the government is still giving Moderna a patent monopoly, which means that it will arrest anyone who tries to produce the vaccine without Moderna's permission.

To save literalists some trouble, people don't actually get arrested for patent violations. They get served with a civil court injunction telling them to stop violating the patent. They could then get arrested for defying the injunction if they continued to produce the vaccine without Moderna's permission.

If we go back to Econ 101, the rationale for the government granting patent monopolies to drug companies or anyone else is to give them the incentive for doing research and developing new products. The monopoly will allow Moderna to recoup research costs and be compensated for the risk that they won't have a successful product.

The Moderna story won't fit here. It already was compensated for its research costs by the government. Furthermore, it has zero risk. If its vaccine turns out to be ineffective or have harmful side effects, the company already has been paid.

The patent monopoly means that we are paying Moderna twice. We first picked up the tab for the research and the testing. Now we are giving the company a patent monopoly so that it can charge people around the world as much as it wants for the vaccine.

This should be a huge scandal, but I guess everyone knows that drug companies rip us off. Besides, economists and media types are too busy worrying about unemployed workers getting too much money and not seeking jobs that don't exist.

Dean Baker is a founder of the Center for Economic and Policy Research, which studies how economic policies affect the citizenry.