A few years ago, I attended a review of a local planning application by a religious order called Plymouth Brethren to build a church in a small village where no members of the said group actually lived. It was clear that the aim was not devotion but generating a tidy profit by later changing its use to and selling it on. The church was certainly not wanted by the villagers. Putting the technical arguments aside, the planning enquiries main feature were young, inexperienced and poorly briefed council officers being totally outwitted by experienced developers and their slick legal teams. Let me explain why this is relevant to vaccine pricing.
Goliaths usually beats Davids
While this is a repeating theme in just about all pubic-private sector contracts, the pandemic has been associated with a flood of much needed public funds to the private sector, the need for skilled procurement has been paramount, and lacking. Some of this is money well spent, but far too much has generated undeserved wealth for shareholders and executives. The one which looms largest right now is the production and profits of vaccines with PPE as close second.
A report in the BMJ has a close look at this. Since the start of the COVID-19 vaccine campaign, Moderna and Pfizer have accumulated more than $100 billion in revenues, more that 20 times the WHO’s biennial budged for 2021-21. Plans have been announced that they will charge $110 per dose for a vaccine that costs about $2 to make. Though there are substantial distribution costs this seems an excessive mark up.
Profits of doom
The two companies now have $53bn cash in hand, so what are they going to do with it – reinvest it in research, pay back the public sector for all the initial R+D funding, for example? Afraid not, they are just doing what big corporations do; shareholder buy outs to inflate their share price, and acquisitions of smaller companies with lucrative patents to consolidate their market dominance.
Pfizer shares – a pandemic boost now falling towards pre pandemic levels.
Moderna shares – rescued by its COVID19 vaccines and now looking to therapeutic used for mRNA vaccines, such as in cancer.
Astra Zeneca share price – a company with other priorities, mainly cholesterol lowering drugs and treatments for asthma.
Moderna, a company who was rescued by their vaccine, has already spent $7bn on share buybacks last year, three times more than on research. In the pre-pandemic decade, Pfizer spent an astonishing $115bn in payouts to shareholders against $81bn on research in what is termed “maximising shareholder value”. The shareholders are a wealthy and tiny section of the worlds population who need that funding the least and act as a financial sink for much needed funding better used to alleviate poverty and to counter the personal and societal danger of excess wealth, reinvested or not.
AZO had a different approach. The vector for its vaccine was developed and licensed to the company by the team at Oxford in what might be seen as a mistake. Astra Zeneca were not specialists in the vaccine field and an element of nationalism might have swung the deal their way. Initial discussion had been with the more experienced vaccine manufacturer Merck. Offering their vector vaccine at cost price during the pandemic and then charging for profit thereafter was perhaps noble but a tiered pricing approach might have served poorer nations better.
Complications with the vaccine in the under 40’s and the superiority of the mRNA vaccines is seeing the end of the AZ vaccine though its vector platform may have an exciting role in vaccaintion against malaria, this time partnering with the Serum Institute of India. This more than hints that in the next pandemic, vaccine production will shift away from wealthy nations.
Public risk – private rewards
Another recent study conservatively estimates the US government invested $337m in high risk critical research that led to the mRNA vaccines and $32bn during the pandemic up till March 2022. The US and UK governments in particular then produced a global market through advance purchasing agreements the former guaranteeing $30bn for 2 billion doses.
The profits from the vaccines and how they are spent is not a scandal only due to its sad predictability. The public sector appropriately takes the risks with pump priming research and investment, but spectacularly fails to take any role in directing or influencing how the subsequent value of that investment is spent. I can only reflect how hard pressed civil servants involved in procurement deal with the corporations legal and contracting teams and, just like my village enquiry, have rings run around them.
What to do?
First, public sector investment has to have clear aims, such as vaccination of global populations against significant threats instead of national initiatives such as Operation Warp Speed.
Secondly, to achieve public health goals and set conditions into contracts which relate to pricing, access, technology transfer and re-investment in innovation.
Finally, shareholder buybacks with government generated profits could be prohibited, as they have been with pandemic support payments in the US.
Governments might consider – although this would be going against the free market grain – establishing public options to manufacture critical medical and public health technologies which would secure supply in the event of emergencies and serve as a significant negotiating lever for contracting with the private sector. Revenues could be re-invested into innovation and development of less profitable but essential area such as antibiotic development. Though going against free market thinking, it is possible and desirable.
This would leave us better placed to deal with forthcoming pandemics generated from the interface between the dwindling natural world, its populations of pathogens and sprawling humanity. It would turn taxpayer investment into real improvements in society. Instead, it funds the ominous growth of corporations and the inevitable and utterly unsustainable drift of wealth from under pressure public purses to the accounts of corporations and investors who are likely to spend their windfall without a nod to the greater good.
Of course, this scenario reflects huge losses in public cash which goes beyond drug companies alone. Procurement of the PPE and other technologies with market driven dogma results in splashing the cash on low quality contracts with low quality providers who often had contacts with those in power, and raises the issue of what government is meant to do. If they are not going to do the work themselves then procurement needs to be better, much better. Right now they are too easily outwitted by a sharp and responsive private sector, corrupted by their own informal networks and dogma and this had led to a significant part of the chaos we are now seeing in health care globally.
And back in my village, the planning application for the cash-cow church with no worshippers went through. Despite the best efforts of the villagers to plug the public sector gaps, it was, as with far too many public-private deals, a one sided battle.