Indemnity and Vaccine Pricing

ECONOMY/ GOVERNANCE

Topic:

• GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
• GS-3: Economy & Issues arising out of it.

Indemnity and Vaccine Pricing

Context: Pfizer, which supplies the Pfizer-BioNTech mRNA vaccine, is said to have requested that the government indemnify it from any claim that may arise from vaccine users in the future based on any adverse effects after getting the jab. 

What is indemnity and why is it sought?

• Indemnity is a form of contract. 
• Section 124 of the Indian Contract Act, 1872, defines a contract of indemnity as one by which one party promises to save the other from any loss caused to the latter. 
• Once the government of India grants such indemnity to the vaccine manufacturer or importer, it would mean that if a particular vaccine is perceived to have caused death or any lasting damage to a recipient, any claim of compensation arising from it will have to be met by the government, and not by the company. 
• In the event of a court ordering payment, the company will be in a position to recover the amount from the government.

• The law on drugs in India does not have a provision for indemnity related to the grant of approval for any new drug or vaccine in the country.

• If at all any indemnity is to be granted to any company for a particular drug or vaccine, it can only be in the form of an indemnity bond executed on behalf of the government of India, or a clause or set of clauses in any contract that the government may sign with the supplier. 

• There appears to be no precedent for any company getting such indemnity in India for any drug.

Is the demand for or grant of indemnity a standard practice?

• Indemnity is essentially a contractual matter between the supplier and recipient, and therefore, a good deal of confidentiality is attached to such agreements. 
• Pfizer is believed to have obtained such indemnity from several countries, including the United Kingdom, from which it has received supply orders. However, it has declined to discuss the issue in public.
• Normally, it is the company applying for approval of a new drug or vaccine that submits itself to various conditions and regulations. Approvals in most countries come with stringent conditions regarding quality standards, safety assessments and requirements regarding various phases of clinical trials.
•  However, given the peculiar global situation arising out of the COVID-19 pandemic, and the severe shortage of vaccines faced by countries such as India, which urgently needs to inoculate hundreds of millions of people, some vaccine suppliers may be in a position to set conditions.

What have the overseas companies got so far?

• The Drugs Controller-General of India has already taken a big step towards fast-tracking the import of vaccines by dispensing with the need for local trials. 
• Earlier, the Centre had decided that foreign-produced vaccines that had been granted emergency approval for restricted use by regulators in the U.S., the U.K., the European Union and Japan, or those included in the WHO’s Emergency Use Listing, would be granted Emergency Use Authorisation in India. 
• The New Drugs and Clinical Trial Rules, 2019 provide for payment of compensation by the sponsor of the trial or its representative to any participant who dies or suffers disability as a result of such trials. Exemption from these trials has reduced the risk to overseas manufacturers. 
• However, companies probably fear that they would still be liable under the ordinary law of tort, arising from future claims by anyone adversely affected after receiving the shot.

What are the implications of giving indemnity?

• Lower Prices: In the absence of indemnity, overseas manufacturers may load the risk onto the price of the vaccines, making each dose more expensive. By indemnifying the companies in respect of these vaccines, the government of India may be able to negotiate lower prices and higher volumes. 
• Faster Vaccination: Reduced prices and faster production may help accelerate India’s national vaccination drive. 
• Demand for Level Playing Field: The demand from indemnity from Pfizer has already given rise to a similar demand from domestic vaccine-maker Serum Institute of India (SII), which says all players should be treated the same way.
• Government needs to bear entire risk: Providing indemnity to all by government to ensure level playing field is inviting upon itself the entire risk associated with more than a billion vaccine shots.

Connecting the dots:

• Vaccine Nationalism
• Vaccine Diplomacy
• TRIPS Waiver for Vaccines