How should policymakers use “pull” mechanisms to improve COVID-19 innovation incentives?

By Lisa Larrimore Ouellette, Nicholson Price, Rachel Sachs, and Jacob S. Sherkow

As we have emphasized throughout this COVID-19 blog post series, even though patent law historically has been the primary field in which legal scholars consider questions of innovation policy, governments use a wide variety of policies to incentivize and allocate access to new innovations. One of the key dimensions for comparing these different policies is when the incentive occurs. Under ex ante or “push” policies such as grants or R&D tax incentives, innovators receive funding early in the research process, before the results are known; for ex post or “pull” policies such as patents or prizes, only successful projects receive a reward. 

In a recent talk for the Iowa Innovation, Business & Law Center’s speaker series on COVID-19 innovation policy, one of us (RS) explained why pull mechanisms are very effective innovation policy levers to achieve the kind of clear technological goals presented by the pandemic. Here, we will unpack these ideas and explain how lawmakers should be adjusting these policies to bring this crisis to a more rapid close.

How do pull mechanisms affect innovation?

Pull mechanisms are anything that changes the expected ex post reward for an invention, including policies that change the effective market size. Potential innovators, knowing of the enhanced rewards, are more likely to devote higher innovative effort toward a desired goal. By creating rewards on the back end, these mechanisms “pull” innovative effort toward a goal, as opposed to mechanisms that provide resources for innovation on the front end (like grants) that “push” innovative effort forward. 

Pull mechanisms can come in many forms. Innovation prizes—also known as inducement prizes—are a well-known pull mechanism, typically offering a reward for a specified outcome. The famed Longitude Prize (established 1714) drove efforts to develop an accurate clock in the 18th century, and a new Longitude Prize today offers rewards for antibiotic-conserving innovation. Other examples range from Napoleon’s 1795 prize for a method of sterile canning to DARPA’s 2004 prize for a self-driving car. Much of Zorina Khan’s work has focused on this history of prizes as pull incentives. Changing the expected payoff for a given innovation can have a significant effect on R&D efforts. Although empirical scholars have not been able to show that stronger patent rights increase research investments, a robust literature demonstrates that expected market size affects innovation for patented products in the pharmaceutical industry. 

Along these lines, advance market commitments (AMCs) are market-based prizes that aim to directly and explicitly increase the eventual market for a product (or at least to specify it in advance). In an AMC, a funder commits to buy a certain amount of a product that meets certain specifications at a particular price—before the product has been developed. This sort of commitment can reduce uncertainty about whether there will be adequate demand for the product. AMCs have most prominently been recommended as a tool to drive vaccine development, and a $1.5 billion AMC for pneumococcal disease resulted in the immunization of over 180 million children. 

Less obviously, reimbursement through health insurance functions similarly to market-based prizes by increasing market rewards for health technology, such that proposals like “Medicare for All” are substantial innovation subsidies. Empirical work has shown that these policies do in fact change innovative effort. Covering new technologies or recommending their adoption can spur innovation, as shown in groundbreaking work by Amy Finkelstein in the vaccine context. Subsequent work by Margaret Blume-Kohout and Neeraj Sood has shown that the passage of Medicare Part D, which covers drugs for Medicare recipients, increased pharmaceutical R&D in drugs for the elderly. (Changes aren’t always government-driven; Leila Agha, Soomi Kim, and Danielle Li showed in a new working paper that closed formularies, wherein some drugs won’t be reimbursed in a class that already has adequate substitutes, pull innovative effort toward more scientifically novel research in classes without pre-existing therapies.)

How has the government used pull incentives to address the pandemic so far?

When faced with an innovation policy problem for which market rewards seem insufficient—like a global pandemic—Congress can raise or allocate funds distributable upon the success of some event or with certain conditions attached, thereby creating prize-like funding for specific goals. For COVID-19, part of the CARES Act contains prize-like inducements for industry. These include mandatory insurance coverage for SARS-CoV-2 tests (thereby expanding the tests’ market), the elimination of reimbursement restrictions on many telehealth visits that previously depressed the market for such services, and a commitment to purchasing a successful COVID-19 vaccine. With respect to vaccines, several recent proposals from congressional policymakers have focused on calibrating the government’s payout for a successful vaccine—most recently $25 billion. (Perhaps as a sign of government pull incentives’ paucity relative to push incentives, The New York Times labeled this move “unusual.”) 

Aside from Congress, federal and state agencies can also direct funds to prizes. While the primary incentive mechanism for federal agencies like NIH is ex ante grant distribution, Congress made clear in 2010 that federal agencies have authority to spend their appropriations on ex post prizes. And a 2011 report from the National Economic Council, Council of Economic Advisers, and Office of Science and Technology Policy further encouraged agencies to do so. An increasing number of agencies now post prize competitions at Challenge.gov, although prizes remain a small part of agencies’ overall innovation policy portfolio. NIH, to its credit, recently created a national innovation initiative for COVID-19 diagnostics.

Government purchasing and reimbursement can also act as a strong, innovation-forward prize, increasing the market size for goods and service. Reimbursement from the Centers for Medicare and Medicare (CMS) for health technologies and services operates in just this fashion, encouraging the development of technologies by, essentially, subsidizing (and increasing) payment. For COVID-19, we suggested back in April that CMS should increase its reimbursement limits for scalable COVID-19 testing (such as at-home testing) as an incentive to encourage the development of new testing technologies. CMS has done just that, increasing its reimbursement level to $100 per test. Given the urgency of the COVID-19 pandemic, pull incentives with quick payouts—such as prizes and purchases—are likely to be useful both for patients and industry.    

How should policymakers improve the use of pull mechanisms for COVID-19 innovation?

The use of pull mechanisms to address the many innovation challenges of COVID-19 is certainly a positive development. However, even greater involvement from policymakers is needed now. In our view, policymakers should consider making it clear that they will deploy additional pull incentives as needed in three key areas: diagnostics, therapeutics, and vaccines.

Despite the NIH’s positive efforts to establish a prize-like innovation subsidy for diagnostics and CMS’s focus on establishing a substantial reimbursement rate for high-throughput COVID-19 testing, the nation still faces a shortage of diagnostic tests. In many areas of the country, laboratory testing capacity is at its breaking point, and patients sometimes wait ten days or more for test results. This is far too long to permit meaningful contact tracing and isolation, preventing cities and states from identifying and stopping new clusters of the disease. 

Additional pull incentives might help companies develop more capacity or deploy existing capacity in smarter ways. For instance, diagnostic test companies might be assured of equivalent reimbursement for using pooled testing, which would enable them to stretch existing resources many times farther. As another option, CMS might condition reimbursement for diagnostic tests on prompt completion of the test and return of its results to the patient involved, as a test returned more than a few days after it is taken begins to lose its clinical utility.

Similarly, although it might be assumed that insurance would pay for the administration of new drugs for the treatment of COVID-19, existing reimbursement policy may inadvertently create additional barriers that need to be addressed by policymakers. This is particularly true for hospitalized Medicare patients. For such patients, Medicare pays hospitals a particular flat rate based on their diagnosis. This inpatient reimbursement system is intended to encourage cost-effective care, limiting incentives to provide marginal procedures or tests, but it also may limit hospitals’ ability to administer costly drugs. We have written about the FDA’s emergency use authorization for remdesivir, which Gilead will soon be selling for $3,120 per course. That is a large fraction of the amount a hospital will receive for a hospitalized Medicare COVID-19 patient with no other complications or comorbidities, and there is reason to be concerned that hospitals may need to limit the use of remdesivir for financial reasons. 

Policymakers have existing tools they could use to address these financial disincentives. As one option, CMS might publicly signal that it would seek to use the existing new technology add-on payment (NTAP) program to provide additional reimbursement for costly COVID-19 therapies meeting a particular level of efficacy. Established by Congress in 2000, NTAP gives CMS the authority to provide additional payments for the use of new medical technologies in the inpatient setting.

As noted above, the federal government has already begun investing large amounts of money in a prize-like way to encourage the development of new vaccines against COVID-19, and dozens of vaccines are already in human trials, just a few months after the virus was identified and sequenced. But at least two aspects of the vaccine race could still be supported. First, it is important to encourage vaccine firms to pre-build the customized manufacturing facilities, even before their products have demonstrated clinical efficacy, to ensure that patients can begin to access these products as soon as their efficacy has been demonstrated in clinical trials. At least some of the above funding is dedicated for this purpose. But second, it will be critical to encourage companies not only to develop new vaccines, but to ensure that as many people have access to those vaccines as possible. 

As one of us has written, implementing a prize that is tied to the number of patients vaccinated—similar to the case of the AMC described above—would enable the government to encourage both outcomes. Importantly, doing so would be tied to the vaccine manufacturer’s demonstration of a particular level of efficacy around the vaccine—something that the FDA’s recent release of a guidance document on the subject should ensure. Our existing reimbursement structure might also be deployed for this purpose, if the government were to commit to a profitable reimbursement rate in advance. 

This post is part of a series on COVID-19 innovation law and policy. Author order is rotated with each post.

David Simon: Trademark Law and Consumer Safety

I was happy to read David Simon's new article, Trademark Law and Consumer Safety, forthcoming in the Florida Law Review. Simon argues trademark law should pay more attention to the physical harms that products pose for consumers, rather than just economic harms. The conventional view is that trademark law exists to prevent consumer confusion and lower consumers' search costs for finding the products they want. At the same time, trademark law protects sellers' investments in product quality and advertising.

Simon's article argues that trademark law does, or should do, a lot more than this: it should protect consumers from physical injury.

Simon begins with the following example. Imagine a consumer seeks a supplement to make her brain work better. By protecting the trademark BRAINSTRONG for a pill claiming to perform this function, trademark law helps consumers find the pill they want by preventing consumers from mistakenly buying a fake version sold by another infringing seller. The law also protects the investments of the real seller of BRAINSTRONG in making its pills work as claimed and in advertising the pills to consumers.

But Simon draws attention to the physical side of this story. He observes that some trademarks, like BRAINTSTRONG in this example, implicate health and safety. There are two avenues for this. First, what if the consumer buys a fake version of the pill by a trademark infringer, and the fake pill has devastating effects on her mind and body? Second, what if the consumer buys the real BRAINSTRONG, and it has devastating effects on her mind and body?

Simon focuses his article on the second avenue: where the seller of the real pill is overstating or simply lying about the effects of its product, in a way that potentially results in physical injury.  As I'll explain in a second, I think the first effect - trademark law's protection of consumers from fakes - is more significant. But let me first explain Simon's argument.

Simon argues that the Section 2 bars for misleading marks are not as effective as they could be at preventing sellers from making false or misleading claims about their products. Under 2(a), "deceptive" marks, that misdescribe a material attribute of a good or service in a way that the consumer is likely to believe, cannot be registered as trademarks. If the misdescription isn't "material", however, because it doesn't affect the consumer's purchasing decision, it can be registered, albeit only on a showing of secondary meaning.

So, in the BRAINSTRONG example, Simon sees a problem.  What if this BRAINSTRONG trademark, even if it's properly distinctive of a source, is making people think (wrongly) that the pills will help their brains, when the pills will not do so, and may even cause or exacerbate serious physical ailments. The "materiality" limitation I just mentioned is a problem because BRAINSTRONG, even if somewhat deceptive, could still be registered if the deception does not affect the consumer's decision to purchase the pill.  (25).  In other words, maybe the consumer buys BRAINSTRONG anyway, even if she knows there is a high chance it won't work or even a small chance it might hurt her.

My favorite example of the "materiality" limitation on the deceptiveness bar is the GLASS WAX trademark upheld in Gold Seal Co. v. Weeks. The court allowed GLASS WAX for a very popular window cleaner with no wax in it, because the court figured consumers would not care. There was nothing in the record, the court wrote,

"which would show that anyone would have felt actually deceived if informed that there was no wax in the product. … To the contrary, it appears that the product satisfies the needs of the customers; that the average or ordinary customer cares little about, and knows little about, the scientific composition of the product."

GLASS WAX shows a court being laissez faire when it comes to technically misdescriptive names. Consumers are supposed to get to make up their own minds about what 'satisfies their needs.' (The examples in the beauty industry abound.  Take the currently registered trademark HAIR NO MORE for a "hair growth inhibiting spray mist and gel." Clearly, it's not literal.  Or I hope not!)

Another part of Simon's argument relates to the Abercrombie spectrum's division between "suggestive" marks, which required consumers to use imagination to tell what's being sold and are thus treated as "inherently distinctive," and "descriptive" marks, which are pretty obviously descriptive of the product and can only be registered with a showing of "secondary meaning" (i.e. consumers have to see the primary significance of the mark as indicating a source).

Simon argues trademark law's preference for "suggestive" marks creates additional incentives to choose marks that at the end of the day are a bit misleading. For example, he argues that if a company chooses a mark like BABY SAFE for pool fencing, instead of say FENCE-A-POOL, the company can more likely register the mark without proving secondary meaning, since it's not directly descriptive of what the product really does. (26-27).

I am not sure this is necessarily true. Those slightly misleading marks might still be classified under 2(e)(1) as " merely ... deceptively misdescriptive ..." This would showing require secondary meaning in the same way as a merely descriptive mark under 2(e)(1).

But his point is still well taken. The "materiality" limitation to the deceptiveness bar means, as a general matter, that marks can, at least with secondary meaning, be registered so long as consumers don't care all that much. There could well be built-in pressures to misdescribe a product so as to potentially achieve a suggestiveness classification on the Abercrombie spectrum. (Even if I think 2(e)(1) deceptively misdescriptive might kick in there).

***

I think Simon is really on to something in focusing on trademark law's and the Lanham Act's role in regulating consumer safety.  I just don't think the "hot zone" for this regulation is the Section 2 bars for "deceptive" trademarks or the Act's preference for "suggestive" marks. There are several other places I would look for real regulation originating in the Lanham Act.

False Advertising Provision

First, the most obvious contender is Lanham Act 43(a)(1)(B)'s false advertising provision, which as Simon mentions, is the main way the Lanham Act polices false statements in commercial advertising or promotion. There is a "materiality" requirement in the false advertising context, since generally plaintiff has to prove the false statement was material to the decision to purchase the product. But there are plenty of ways to achieve a presumption of materiality. I think most of the examples Simon gives would expose the seller to a false advertising claim, and even lead to a presumption of materiality, for instance if the statement like BRAINSTRONG or BABY SAFE is deemed "literally false," or if it goes to the heart of the reason the consumer is buying the goods (e.g. brain performance, baby safety). See generally https://tushnet.blogspot.com/.

Certification Marks

Second, the other more direct place where the Lanham Act regulates consumer safety is through certification marks, which are obtained by third party entities on a standard, and which can be used by individual sellers to certify products as safe. I wrote about certification marks in a prior post, Jeanne Fromer: Should We Regulate Certification Marks?

I also enjoyed reading Margaret Chon's recent book chapter, Certification and Collective Marks in the United States. This contains a clear, insightful summary of definitional elements, key differences from regular trademarks, and recent case law on issues like types of confusion that count in certification mark infringement. Of particular relevance to Simon's topic, Chon observes, in this chapter and in other articles, that certification marks have the potential to increase social welfare by ensuring products sold under a certification comply with its standards respecting health and safety.

Regulation Through Source-Identification

Third, trademark law itself does do a lot of regulating through its source-identification function. I have always had more faith than many commentators in the work trademarks do in protecting buyers from physical harm. The issue is far broader than Simon suggests. The main purpose of trademark law (this consumer might argue) is to protect people from infringing goods that haven't been vetted by the buying decisions of consumers.

If I buy real BRAINTSTRONG pills that have been on the market for, say, over five years, I have no assurance from regulators that they are safe, since supplements aren't typically regulated by the FDA; but I do have assurance that other people have been buying these pills, coming back to the source, rather than choosing not to buy them. This is trademark's regulatory function.  If I come across a fake of BRAINTSTRONG pills, on the other hand, I do not have this assurance. I may be more likely to suffer serious physical harm as a result.

Obviously, this doesn't work as well for "credence" characteristics and harms people may never learn about. But I've always seen other Lanham Act provisions like the deceptiveness bar, false advertising, and certification marks, as filling in gaps where trademark law's source-identifier regulatory function fails.

That said, in her work Chon has consistently observed a tension between, on the one hand, the Lanham Act's "market-based approach to regulation," which relies heavily on marks to accurately convey product qualities to consumers, and on the other hand, true top-down regulation in the sense of protecting safety, health, and environment. This seems very much aligned with Simon's viewpoint and concerns.
                                                                           ***

In sum, I really enjoyed this article and found it creative and extremely thought-provoking.

How should policymakers incentivize and regulate convalescent serum therapy for COVID-19?

By Jacob S. Sherkow, Lisa Larrimore Ouellette, Nicholson Price, and Rachel Sachs

Over 120 years ago, a milk wagon horse named Jim was the United States’ most potent weapon against a raging diphtheria epidemic. During his lifetime, Jim—inoculated against the bacterial toxin that causes the disease—produced gallons of anti-diphtheria serum that, once extracted, could then be administered directly to patients. But tragic difficulties in making a safe and standard therapy from a single horse led Congress to pass the 1902 Biologics Control Act—the predecessor to the FDA’s current oversight over biologic products.

While convalescent sera have largely fallen out of favor since the development of modern vaccines, there is renewed hope in the space: the development of therapeutic sera from recovered COVID-19 patients. Encouraging the development of safe, pure, and potent COVID-19 convalescent serum has recently tasked policymakers with numerous challenges—some old, and some new. In this post, we explain the “manufacture” of COVID-19 convalescent sera and explore the regulatory and innovation policy difficulties in maintaining it.

What is convalescent serum therapy?

Recovered COVID-19 patients—including more than one million Americans—generally have antibodies to the SARS-CoV-2 virus, proteins in the blood to help their immune systems fight the infection. Some diagnostic tests look for these antibodies to determine whether someone has previously been infected; a successful COVID-19 vaccine would help patients actively produce their own antibodies before infection. These “neutralizing” antibodies are important to combat SARS-CoV-2 and are the source of significant promise for a robust treatment. One experimental intervention is to administer serum from recovered patients containing neutralizing antibodies to those who have not yet developed them—a process known as convalescent serum therapy, convalescent plasma therapy, or passive antibody therapy.

This labor-intensive process begins with collection of plasma (the liquid portion of blood with cells removed) from a patient with SARS-CoV-2 antibodies, a process that takes around 45 minutes as blood is removed, plasma is fractionated, and the remainder—mainly red blood cells—are returned to the patient. (The FDA has compiled information on donation options.) The antibody-rich plasma or serum (plasma with clotting factors removed) can then be administered to COVID-19 patients to help them fight the disease until their immune system develops its own active response.

Passive antibody therapy has a long history—including some improvements in survival during the 1918 flu pandemic and against the coronaviruses that caused SARS and MERS—and is expected to be most effective when administered before infection (when it can provide weeks to months of protection) or shortly after the onset of symptoms. Some researchers are studying the preventative effect of convalescent plasma in health care workers, but given the scarcity of plasma donors, this intervention mostly has been used for hospitalized COVID-19 patients.

The first randomized convalescent plasma trial for COVID-19 treatment, with 103 patients in China, found no statistically significant benefit among all patients but promising enough results among severely ill patients that a JAMA editorial found “optimism for the future of antibody therapy in this disease.” A matched control study in which 39 NYC patients with severe COVID-19 received convalescent plasma transfusions concluded that the treatment improved survival for non-intubated patients but not for intubated patients. But the lack of randomization makes interpretation more challenging. A report on 5,000 hospitalized COVID-19 patients as part of the FDA expanded access program for convalescent plasma concluded that the treatment appears safe—but the study did not have a control arm, leaving efficacy uncertain. A number of registered randomized trials are recruiting patients, although enrolling a sufficient number of participants can be challenging. As the New York Times reports, although the “only way to know for sure if the treatment works is to randomly assign patients to receive antibodies or a placebo … it can be impossible to find many patients who agree to have their treatment randomized to an unknown treatment,” especially because the product is already accessible outside the clinical trial setting.

How is convalescent serum regulated?

Convalescent serum is mainly regulated through the Public Health Services Act’s oversight of “biological products.” Section 262(i)(1) of the pertinent statute defines “biological products” subject to FDA approval, and specifically includes “therapeutic serum” in its list of covered products (a prophylactic serum would presumably be included in the term “blood component or blood derivative,” also in the list). Accordingly, any therapeutic serum must be approved by the FDA, something the Agency has not yet done for convalescent serum to treat COVID-19.

Despite the Act’s specific designation of therapeutic sera as biological products, historically, they have been quite rare. The use of serum was relatively popular in the 1920s and 1930s to treat polio, measles, and mumps, before the development of vaccines. The Public Health Services Act’s placement of therapeutic sera under the FDA’s jurisdiction wasn’t enacted until 1942. More recently, convalescent sera have been sparingly used in other pandemic contexts before other treatments were available; in 2009 it was used to treat patients in the H1N1 flu pandemic, and in 2013 in the West African Ebola outbreak.

Because it has not yet approved sera to treat COVID-19 patients, the FDA regulates convalescent serum as an Investigational New Drug (IND). In general, the FDA requires information to demonstrate that a product subject to an IND is adequately identified, pure, strong, and of sufficient quality (21 CFR 312.23(a)(7) and 21 CFR 312.305(b)(2)(vi)). This is easy enough to state. But regulation of serum is tremendously difficult. Every donor is slightly different, and the things the FDA normally measures—quality, purity, strength, and manufacturing chemistry processes—are not easy to measure for a product derived from individual donors’ blood. Serum is deeply unlike the manufacture of a standardized product produced at an identifiable facility. To the contrary, it has parallels with other difficult-to-regulate human donor products, such as stem cell therapy or fecal microbiota transplants. Regulating systems like these is substantially more complex than regulating standardized antibody products, which are complex enough on their own. The FDA’s May 1 guidance attempts to standardize the process of manufacturing convalescent serum, laying out requirements for patient and donor eligibility, the labeling of products, and recordkeeping. But substantial uncertainty—and significant variability, donor to donor, batch to batch—remains.

Normally, products being studied under an IND can only be obtained by participating in a clinical trial; the FDA first approved trials of the use of convalescent serum for COVID-19 in April. However, the FDA has created a nationwide expanded access (EA) program (not to be confused with its Emergency Use Authorization (EUA) program), within which patients can access the treatment without being part of a clinical trial. The COVID-19 therapeutic serum EA centers on clinical trials being run by the Mayo Clinic; over 2,600 sites are connected with the program, and over 40,000 patients have been infused. If patients cannot access convalescent serum through this EA, a physician can request an individual patient-level emergency IND; incredibly, the FDA normally responds within four hours. While this streamlined access helps patients get treatment, it also makes it difficult to enroll robust numbers of clinical trial participants.

How can innovation policy encourage convalescent serum?

Convalescent serum differs from standard pharmaceutical therapies in ways that limit the potential effectiveness of many typical approaches for encouraging innovation of a biologic product. As noted, because convalescent serum is typically obtained from donors rather than manufactured in large factories, one may worry that the lack of standardization and some randomness associated with finding a batch of effective plasma decreases companies’ incentives and ability to study it for its intended uses. In typical circumstances, this would suggest increasing the need for governmental funding in this space to overcome FDA regulatory challenges and to encourage standardization.

But there are more ways policymakers might encourage the development of convalescent sera at their source: encouraging sera donation from and sera administration to COVID-19 patients. First, there are a number of other therapeutic areas involving donation of human bodily materials (including blood, plasma, gametes like eggs and sperm, and fecal matter). The FDA and Congress in particular can learn from the ways both monetary and non-monetary incentives have been used to encourage donation, including the ways in which recovering COVID-19 patients might feel altruistically motivated to participate in a study that might help future patients. More directly, clinicians might seek to repurpose existing donation mechanisms for COVID-19 purposes. As one example, the Red Cross has begun testing all blood donations for COVID-19 antibodies. This provides a benefit to donors, who can learn whether or not they have been exposed to the virus, while holding themselves out to be asked whether they would like their serum to go to COVID-19 patients if they test positive.

Second, policymakers should prioritize federal funding not only for clinical trials evaluating the efficacy of convalescent serum in COVID-19 patients, but also in studying additional aspects of the use of convalescent serum. For instance, as has been documented in the fecal transplant space, it might be that material from particular donors is far more effective at treating the condition in question than material from others. It would be important to determine, for instance, whether donations from patients who had developed asymptomatic COVID-19 infections differed from patients who had developed symptomatic infections and displayed different levels of efficacy when later administered to symptomatic patients. Such information—which is comparatively nonexcludable and likely under-incentivized for larger-scale developers—should be a prime target for federal funding.

Third, the FDA might seek to set ex ante standards, as it has already begun to do in its May guidance document, to help scientists determine how to structure the collection process as well as clinical trials. Standardization in collection and processing might also help regulators compare the results of different clinical trials, help determine which convalescent sera have demonstrated efficacy, and encourage efforts to characterize the sera more clearly.

Policymakers also ought to pay attention to the ethical dimensions of the donation and use of convalescent plasma. A market has developed for blood donations from COVID-19 survivors, potentially raising concerns both about exploitation of donors and access to expensive treatments. More generally, the history of research involving human biological materials is filled with examples of human tissue sampling without subjects’ consent—especially from people who were disproportionately likely to be members of minority communities (although not exclusively so). Suffice it to say, the people from these examples did not share in the profits reaped by researchers and commercial developers. Convalescent serum, like other potential COVID-19 therapies, sheds yet more light on the racial disparities in COVID-19 cases. As policymakers work through ways to fund sera-based therapies, they should be attentive to equity in all parts of sera development—from donor to patient. 

This post is part of a series on COVID-19 innovation law and policy. Author order is rotated with each post.

How will the FDA’s new COVID-19 vaccine guidance affect development efforts?

By Rachel Sachs, Jacob S. Sherkow, Lisa Larrimore Ouellette, and Nicholson Price

Policymakers are expectantly awaiting the development of a COVID-19 vaccine, which they view as critical to future management of the pandemic. A number of pharmaceutical companies have jumped into the vaccine race, moving at record speed, with several vaccines already about to enter Phase III trials. Last week, the Food and Drug Administration (FDA) released a guidance document on the development of new vaccines for COVID-19. In this post, we review the FDA’s new guidance, consider the ways in which the FDA must attempt to balance risk and access in this context, and address the critical question of patient access to future approved vaccines.

What does the FDA’s COVID-19 vaccine guidance do?

The FDA’s June 30 guidance broadly details the agency’s requirements for clinical trials of COVID-19 vaccines. These include considerations for trials’ designs and subject populations, measures of efficacy, statistical considerations, and safety thresholds, among other requirements. Notably, the guidance is the first from the FDA to establish such measures for a COVID-19 vaccine specifically. Besides providing vaccine developers, well, guidance for vaccine development, guidances issued early in the development process also bind the FDA to its own evidentiary mast against the siren song of political pressure. (In this way, guidances, too, can serve as an instrument in augmenting public trust.) 

The guidance clearly specifies current areas of scientific uncertainty and expresses what evidence the agency is looking for and how to obtain it. For example, the guidance admits that “[u]nderstanding of SARS-CoV-2 immunology, and specifically vaccine immune responses that might predict protection against COVID-19, is currently limited and evolving”—and, as a consequence, the goal of COVID-19 vaccine trials is not necessarily to demonstrate immunogenicity but “efficacy in protecting humans from SARS-CoV-2 infection and/or disease.” 

More specifically, the June 30 guidance notes a preference for vaccine trials with a 1:1 randomization of vaccine candidate:placebo, rather than trials investigating multiple different treatment arms. It also encourages following up with study participants for “at least” one or two years to determine the length of protection provided by the vaccine as well as to watch for potential adverse events. And the guidance suggests using a lab-confirmed SARS-CoV-2 infection as a trial’s primary endpoint, with incidences of severe COVID-19 as at least a secondary endpoint. The guidance also acknowledges the racial disparity in COVID-19 outcomes by “strongly encouraging” enrolling racial and ethnic minorities in any vaccine clinical trials. Developing a vaccine that is less effective when administered to Black patients, for example, would only exacerbate differential COVID-19 outcomes and contribute to health inequities.

More controversially, however, the guidance pegs studies’ primary efficacy endpoint at “at least 50%”—a far cry from the 90%+ efficacy for vaccines against polio or HPV. This means, of course, that at least some vaccinated individuals (including high-risk individuals) would become infected. At the same time, an efficacy endpoint of 50% is not unheard of for vaccine development, and is used routinely for seasonal influenza vaccines. In cases like the flu, the goal is not necessarily to inoculate everyone, but to flatten the curve enough (i.e., to bring down R0) so that transmission is effectively halted. Mandating a coronavirus vaccine to demonstrate 90%+ efficacy while the pandemic rages would be allowing the perfect to be the enemy of the good.

For now, Moderna, a vaccine developer relatively far along in the approval process, has delayed part of its trial, seemingly to conform to the guidance. Moderna’s technology—an RNA-based vaccine approach—is novel and has its fair share of skeptics. But the guidance, like all good guidances, has the salutary effect of committing the FDA and developers to a common set of principles and evidence to the usher development of important therapeutics.

How does the FDA use its information-forcing powers to balance risk and access in the COVID-19 vaccine context?

The FDA doesn’t just regulate to ensure that new products are safe and effective; a key part of its role is to require and shape the production of costly information about the products it regulates. Professor Rebecca Eisenberg has argued persuasively that the FDA is an innovation agency, not just a consumer protection agency, and this information-forcing role is central to that purpose. It is difficult and expensive to generate information about health-care innovations, whether therapeutic drugs, medical devices, or vaccines. In the face of manufacturers’ incentives to underproduce this information, the FDA steps in to require a certain amount before it will allow products to be marketed. The amount of information required is debatable—as we have previously discussed, requiring more information decreases the risk of the FDA making a mistake during the approval process but delays patients’ access. This role is particularly important in a pandemic, where urgency colors every new biomedical development but high quality information is still needed, not least because errors can be particularly costly in terms of both medical outcomes and public trust. 

The guidance’s specific requirements (e.g., 1:1 vaccine:placebo, 1-2 year follow-up, specified endpoints) are an effort to ensure that the information generated about a vaccine is robust enough to merit approval and the likely widespread use that will follow. Ideally, as multiple candidates are taken through clinical trials, developers will learn more about the virus and more about effective development efforts. The FDA may require more and better information to approve later vaccines, both because firms (and the FDA) have more experience, but also because once the first vaccine is on the market, the need for a second vaccine is not quite as desperate. That said, the FDA has suggested that accelerated approval—a faster and easier approval pathway—may be more likely later after more is known about how the virus works. More vaccines will still be needed, but the agency can afford to be slightly pickier with each approved vaccine, and correspondingly to demand better evidence of efficacy and safety (for instance, once an approved vaccine exists, non-inferiority trials for later vaccines would look for an efficacy within 10%).

One crucial step the FDA could take to improve the information produced in vaccine trials would be to facilitate the sharing of information about failures in vaccine development. In the ordinary course of drug development, failures are minimally shared, as knowledge of dead ends not to follow is considered valuable confidential business information. Keeping failures secret in the COVID-19 vaccine development efforts would be a terrible waste, particularly as the clinical landscape is already littered with inefficiency and duplication. The European Medicines Agency already exercises a similar authority more generally.

The FDA’s role of ensuring that developers generate high quality information about safety and efficacy is in some tension with another prominent government initiative: Operation Warp Speed. Operation Warp Speed is an effort to speed the development of therapeutics and vaccines as much as possible, but part of that effort means that the government (particularly BARDA, the Biomedical Advanced Research and Development Authority) will be picking winners and supporting particular candidates—long before they have the sort of information the FDA is looking for. The FDA is correspondingly emphasizing its independence from other efforts; the information required to approve a vaccine seemingly does not change based on the mechanics of Operation Warp Speed or other government efforts. Nevertheless, and with good reason, the firms operating under Operation Warp Speed will be using the FDA’s guidance to shape their development efforts.

If the FDA approves a COVID-19 vaccine, how will the United States pay for it?

The FDA’s rigorous requirements and stated reluctance to issue a vaccine EUA have been described as throwing cold water on the goal of having a COVID-19 vaccine in 2020. Experts suggest that even summer 2021 is an aggressive goal, requiring tremendous duplicative spending and a lot of luck. But while an effective COVID-19 vaccine remains aspirational, politicians, patient advocates, and pharmaceutical innovation experts have been worrying about vaccine cost since the early stages of the pandemic. We think it would be helpful if these discussions distinguished between affordability—the out-of-pocket costs to patients that can pose barriers to access—and the separate question of overall financial incentive for developers, recognizing that pharmaceutical profits and public health are not incompatible.

Any FDA-approved vaccine will likely be free for Americans who want it. The push for adoption of U.S. vaccines typically comes from the CDC’s Advisory Committee on Immunization Practices (ACIP), which formed a COVID-19 work group in April to create an independent framework for assessing vaccines and to review early clinical trial data. The Affordable Care Act requires insurers to cover ACIP-recommended vaccines with no cost-sharing (at least as long as it is not overturned). As we have previously discussed, HHS has also used CARES Act funding to create a COVID-19 Uninsured Program Portal, which will cover any FDA-approved vaccine for uninsured Americans, when available. The Trump administration stated in June that any COVID-19 vaccine will be free for “any American who is vulnerable, who cannot afford the vaccines.” It seems likely to us that Congress will allocate additional funding for vaccine coverage if necessary, including to ensure that patients are not billed for the health care provider’s administration of the vaccine (in addition to the product itself).

But free at the point of sale to patients need not—and should not—mean free to the U.S. government. Vaccine development is tremendously expensive, requiring customized manufacturing facilities that usually take many years to build. Having any chance of meeting 12-to-18-month development timelines requires building these factories now for promising candidates, with recognition that most will have to be abandoned as unrecoverable sunk costs when clinical trials do not pan out. Vaccines are also less profitable than repeat-use treatments, and political pressure often pushes profits even lower. But vaccines can have huge positive externalities for society beyond the benefits provided to individual vaccinated patients—as illustrated by the enormous daily costs of COVID-19 that an effective vaccine would eliminate.

The conventional solution for this kind of market failure in innovation policy is to supplement market rewards with public funding—and the federal government is indeed putting substantial sums into COVID-19 vaccine development. A $1.6 billion contract with Novavax was announced Tuesday, following pledges of “up to $1.2 billion” to AstraZeneca and about $1 billion more divided among Moderna, Johnson & Johnson, Merck, and Sanofi. Some commentators have pointed to this funding as justification for compulsory licenses or price caps on successful vaccines. But the goal of this funding is to correct for market rewards that are insufficient to motivate companies to build facilities at-risk, before a vaccine candidate's efficacy is known; decreasing market-based incentives would subvert this goal and exacerbate this market distortion. Total public funding for COVID-19 vaccine development so far is less than the daily social cost of the pandemic in the United States alone. If this funding speeds vaccine development even slightly, it will have been worth it.

Indeed, in addition to laying out guidance for the standards that will be used for vaccine approval, the federal government should consider committing now to reimbursement rates for an approved vaccine, akin to what it has done for advanced COVID-19 diagnostic testing technologies. As multiple scholars have noted, an effective COVID-19 vaccine is the kind of technological problem that lends itself well to an innovation challenge prize known as an advance market commitment (AMC), in which the government commits to paying a certain amount per vaccinated person, under certain assumptions about the vaccine’s effectiveness that align with the FDA’s guidance. Even though an entirely new prize system isn’t politically likely, wide-scale government purchasing can replicate most of the benefits of market-based prize systems like AMCs. Committing to a profitable reimbursement rate could provide additional motivation to get working COVID-19 vaccines into Americans’ arms more quickly.

The legal and policy issues arising in the context of vaccines for COVID-19 are not entirely unique to the vaccine context. The federal government has already faced questions around the FDA’s approval standards, regulating in the face of uncertainty, and ensuring access to other new healthcare technologies for COVID-19, such as drugs and diagnostics. But the particular facts underlying the development of new vaccines counsel in favor of solutions to this problem that differ from those the federal government has already considered. Now, several months into COVID-19’s spread into the United States, federal policymakers should work to ensure that plans specifically encouraging innovation into and access to vaccines are developed and implemented.

This post is part of a series on COVID-19 innovation law and policy. Author order is rotated with each post.

Racial disparities in healthcare innovation in the time of COVID-19

By Nicholson Price, Rachel Sachs, Jacob S. Sherkow, and Lisa Larrimore Ouellette

In previous posts, we have explored how structural racism contributes to disparities in COVID-19 cases and deaths and in access to COVID-19 treatments and preventatives. Legal institutions have also been complicit in creating a healthcare innovation system in which those receiving scientific and medical education are far from representative of the U.S. public. The resulting disparities by race, gender, and class raise substantial problems for both equity and economic growth—but these inequalities receive too little attention from most health and innovation scholars, ourselves included. This week, we examine how the COVID-19 pandemic has highlighted and exacerbated racial disparities in three slices of the healthcare innovation ecosystem: medical education, medical patenting, and clinical trials.

Racial disparities in medical education

The U.S. healthcare system is pervaded by inequality not just in access to care, but also in the profession itself. In 2008, when the American Medical Association (AMA) finally apologized for a long history of exclusionary policies, the percentage of African American physicians and medical students was just 2.2%—even worse than the 2.5% a century earlier. In the past five years, 5.7% of U.S. medical school graduates have identified as Black or African American. But there is far to go in making the profession more representative of the U.S. public.

As in other areas, the law has long enabled these disparities. In 1889, the Supreme Court upheld a West Virginia law restricting access to the profession for those without a “diploma of a reputable medical college,” and today, all state medical boards require a degree from an accredited medical school. The 1910 Flexner Report requested by the AMA—which helps accredit schools—recommended closure of five out of the seven African American medical schools operating at the time. Only Howard and Meharry remained open by 1923, and most other medical schools were closed to or skeptical of aspiring Black physicians.

In addition to creating barriers to entry into the medical profession, legal institutions have expanded the activities requiring licensure. For example, until the 1940s, Black midwives provided most prenatal and childbirth care to Black women in the United States—an essential service, at a time when many white doctors and midwives would have refused to care for them. But these midwives were regulated out of existence through state scope-of-practice laws and the Sheppard–Towner Act of 1921, which provided federal funds to states for professionalized prenatal care.

In the midst of a pandemic, a physician workforce that does not represent patients is problematic both because Black patients are less likely to face discrimination from Black doctors and because Black doctors—and other medical workers such as nurses and technicians—have been hit hardest during this crisis. They have spoken out in recent weeks about their frustration and fatigue. Professor Adia Harvey Wingfield, a sociologist who focuses on Black health care workers, fears that COVID-19 may cause “a setback of the modest advances the medical industry has made towards improving racial diversity.”

Racial disparities in medical patenting

Racial disparities in medical education parallel (and may exacerbate) similar disparities in the medical innovation ecosystem—medical patenting, in particular. Doctors tend to be user-innovators, contributing to innovations in pharmaceuticals, medical devices, and surgical methods, many of which go on to be patented (though surgical patents have legal force only in the narrowest of circumstances). A lack of Black physicians and other Black medically trained professionals means a lack of Black medical patentees—and a gap in who is likely to be remunerated from contributions to medical innovation.

To be sure, racial disparities in patenting are neither new nor limited to the medical profession. Although America has always had Black inventors, the U.S. Patent and Trademark Office specifically excluded Black inventors until Reconstruction. As recently retold by Professors Kara Swanson and Brian Frye, an enslaved man, known as Ned, invented an improved “double cotton scraper”; a slaveowner then filed a patent application for the device. In 1858, the application was rejected by the Patent Office in an odious legal opinion, Invention of a Slave, that grounded itself in the Dred Scott decision, concluding that Black people were unfit to take the inventors’ oath. Following the Civil War—up until at least 1940—non-white inventors constituted roughly 3% of patentees—while then comprising roughly 10% of the U.S. population.

Such a disparity was not merely the result of legal restrictions, but a product of systemic violence against Black Americans during the onset of the Jim Crow era. Professor Lisa Cook has meticulously constructed patenting rates of Black inventors from the Civil War until today, laboriously teasing out Black patentees from census and archival data, historical directories, obituaries, and even printed programs from Black inventor fairs. Matching patent data to lynchings and race riots common in the late-nineteenth and early-twentieth centuries, Professor Cook documented a steep decline in the rate of patenting by Black inventors as violence increased in the United States—accounting for a loss of roughly 1,100 patents from Black inventors during a 70 year period. Extrapolating a bit from Professor Cook’s data summaries, this would have meant a loss of roughly 17 drug and medical patents from Black inventors during that time—including 1918–1920 during the flu pandemic.

Today, structural barriers—a product of centuries of overt and structural racism—remain an impediment to Black medical innovation. First, patents are not cheap—they can cost tens of thousands of dollars from preparation to issuance, and actually bringing an invention to market can cost orders of magnitude more. In a world stratified by racial disparities in wealth (and access to capital), this is likely to contribute to a significant deficit of Black inventors. Second, exposure to “centers of innovation”—specifically, areas of high socioeconomic status, strong education systems, geographic areas that produce a larger number of patents—is correlated with a strong likelihood of becoming an inventor oneself. Given the racial disparities in these measures, this further contributes to the paucity of Black patentees. And third, as shown by Professor Cook, concerns over violence and personal safety—emblematic in the ongoing spate of police violence against Black citizens—have dampened innovation. Black patenting rates—even in 2010—continued to lag behind those of 1899.

Like many other illnesses, innovations to treat and diagnose COVID-19 come largely from the medical profession. With a diminished roster of Black physicians, and consequently, Black physician-innovators, a dearth of Black patentees ensures that those suffering the most from the disease have not been afforded equal opportunities to cure it.

Racial disparities in clinical trials, including for COVID-19

These racial disparities in medical education and in innovation extend to the clinical trial context as well. As we have discussed, emerging data show that communities of color, and particularly Black Americans, are being hit disproportionately hard by the COVID-19 pandemic, being more likely both to contract the disease and also to experience serious illness or death as a result.

But if history is a guide, it is unlikely that the clinical trials designed to test the efficacy of new treatments and vaccines against COVID-19 will be equally available to communities of color. Black Americans in particular are underrepresented in clinical trials of new medicines, and particularly underrepresented in certain therapeutic areas, such as oncology. Black patients made up just 4% of clinical trial participants for new oncology drugs approved in 2019, despite having higher death rates from most cancers. Clinical trials are therefore less likely to gather data on the efficacy of drugs in Black patients. As the FDA itself acknowledges, race is a social construct rather than a biological one, but many drugs do demonstrate differential efficacy in minority populations, due to environmental factors, the disproportionate burden of other chronic illnesses, and other factors.

A wide range of factors contribute to the racial disparities in clinical trial participation, but one is certainly the United States’ history of unethical medical experimentation on and exploitation of communities of color and particularly on Black people. Perhaps most notable is the Tuskegee syphilis experiment from 1932 to 1972, in which the U.S. government sought to study the course of the disease when untreated in Black men. The men never consented to the study, and perhaps most shamefully, when an effective syphilis treatment was developed, the researchers did not offer it to the men. Another prominent example is the story of Henrietta Lacks, a young Black woman undergoing treatment for cervical cancer whose tissue samples were taken and commercialized without her knowledge.

To be sure, we do not mean to ignore here the vast history of racial discrimination in medical treatment more generally. Even after the federal government used Medicare as a financial tool to force the desegregation of American hospitals (through Title VI of the Civil Rights Act), hospitals continued to turn away patients who were un- or under-insured, including women in active labor, leaving them to suffer from additional complications and mortality. A disproportionate number of these patients were minorities. It was only in 1986 that the federal government passed a law to remedy this practice, the Emergency Medical Treatment and Active Labor Act (EMTALA), to ensure that hospitals cannot reject patients in need of emergency medical treatment, but other forms of discrimination persist.

Putting it all together, not only does COVID-19 disproportionately impact Black and other minority communities—the entire medical innovation system fighting the epidemic is rife with systemic disparities. To improve disparities in the care that Black patients receive, both during the pandemic and after, policymakers should aim to increase Black participation throughout this ecosystem, including in medical education, in patenting, and in clinical trials. The NIH’s search for a COVID-19 vaccine is currently being led by a brilliant Black woman, Dr. Kizzmekia Corbett. Inequality in innovation has been framed in terms of “lost Einsteins,” but a better question might be: How many lost Dr. Corbetts are we missing out on?

This post is part of a series on COVID-19 innovation law and policy. Author order is rotated each week.