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  • Of all the products in the world you

  • don't want to use market-based prioritisation,

  • it's got to be vaccines.

  • There's no technology known to man now

  • that is faster than mRNA.

  • Because of this monopoly or duopoly position

  • that the sellers are in, it tends

  • to have a high amount of market power and ability

  • to get higher prices.

  • Vaccines save two to three million lives every year.

  • But bringing them to market involves huge investments,

  • complex science, and secretive contracts.

  • Before the Covid-19 pandemic, few people

  • paid attention to the business models behind vaccines.

  • The global pharmaceutical market was worth $1.3tn in 2019.

  • Vaccines made up just 3 per cent of that,

  • generating around $33bn of revenue.

  • That compared to $142bn from cancer drugs.

  • So how do the economics of vaccines work?

  • Who funds them?

  • How profitable are they?

  • And will the Covid-19 pandemic and new technology

  • disrupt the vaccine market forever?

  • Until recently, there have really

  • only been four main players in the vaccine market -

  • GlaxoSmithKline, Merck, Pfizer, and Sanofi.

  • They represented 90 per cent of the vaccine industry revenues

  • in 2019.

  • Even for these market leaders developing a vaccine

  • is a costly and time-consuming gamble.

  • The process often takes a decade.

  • Work on infectious diseases is often very obscure

  • because the burden is so much out of sight

  • in the rich countries and where the deep scientific

  • and manufacturing power is.

  • Government is the main funder of the science.

  • And that's critical.

  • And in all of the benefits we have today,

  • if you think about the sequence analysis or the mRNAs

  • and the biotechnology, the new manufacturing, all of that

  • came out of investments in basic science.

  • As you go into phase 1 trials these

  • are taken over by industry.

  • Maybe one in every 10 vaccines and a phase 1 trial

  • goes on to be approved, while 50 per cent

  • to 70 per cent of vaccines in phase 3 trials

  • end up being approved.

  • They will only invest once the market and the chances

  • of success are well known.

  • This doesn't mean there's zero risk.

  • But largely what we see is that the public sector

  • takes on most of that.

  • But indeed, this is what allows the business of vaccines

  • to operate.

  • The cost of creating a vaccine varies widely.

  • On average, it ranges from several million

  • to a few billion dollars.

  • Supply, demand, and pricing for vaccines

  • are determined by a small number of actors.

  • On the buyer side, national governments and organisations

  • like Gavi, the Vaccine Alliance, and Unicef are among

  • the biggest purchasers.

  • On the seller side are the pharma companies.

  • Because the development costs and regulatory barriers

  • for vaccines are high, companies can maintain their monopolies

  • for longer.

  • It tends to have a high amount of market power and ability

  • to get higher prices than, let's say,

  • a generic small molecule drug, or even a vaccine for which you

  • have lots of competitors.

  • Up until Gavi was created, the global alliance for vaccines,

  • in the year 2000, there was no purchasing power

  • to get those new vaccines to the kids who needed them most.

  • So that was this great irony that, for example, rotavirus

  • and pneumococcus vaccines that now save millions

  • of young children's lives, they weren't getting out

  • in these countries.

  • Normally, what happens is when vaccines come out,

  • they come out at a high price in a low volume.

  • And over time, as the yield goes up,

  • as other manufacturers begin to produce it,

  • prices come down dramatically.

  • To give an example, our vaccines that are the WHO

  • approved vaccines cost over $1,300

  • if you look at it in the US model.

  • And we pay $27 for those.

  • So it's a pretty dramatic difference.

  • Gavi typically negotiates procurement

  • on behalf of 60 per cent of the world's children.

  • They try to ensure low and middle income countries pay

  • significantly less for vaccines than rich countries do.

  • If the disease is in the rich world,

  • one of the western companies will invent a new vaccine

  • with huge R&D investments.

  • They'll charge a reasonably high price as much as, say,

  • $100 in western markets.

  • And then eventually, either they'll

  • make a cogs-oriented version or the Indian or other developing

  • country manufacturers will come in.

  • By prioritising high volumes at low prices,

  • the Serum Institute of India has become the world's largest

  • vaccine manufacturer by volume.

  • It typically produces more than 1.5bn doses of vaccines every

  • year, which are used in 170 countries.

  • This year it has increased capacity

  • and is aiming to manufacture at least one billion doses

  • of Covid-19 vaccines alone after signing deals

  • with AstraZeneca and Novavax.

  • It is more expensive to make a vaccine in the US and Europe.

  • Traditionally, those companies haven't had large facilities

  • because the volumes that they sell at are much lower,

  • but at a very high price.

  • Well, these are proprietary products

  • that the companies have spent lots of money in high risk

  • in order to go through trials.

  • They have to recover all of those

  • and make their profit from the rich world

  • market and the middle income market,

  • knowing that those Gavi markets are not going to give them

  • any meaningful margin.

  • But returns on investment are not straightforward.

  • The lack of transparency around each company's production costs

  • makes it difficult to assess a vaccine's profitability.

  • We do know that at the top end Pfizer's pneumococcal vaccine,

  • Prevnar, which works against pneumonia,

  • generated $5.8bn in revenue in 2019.

  • If you've invested maybe a few hundred million dollars

  • in the R&D 10, 15, 20 years ago and you have a captive market,

  • then you're going to make a pretty good profit.

  • A very, very healthy profit.

  • Some would even say an excessive profit.

  • At the other end of the spectrum are well-established,

  • low-cost children's vaccines, like measles.

  • Low profits drove several producers out

  • of the market in the 1970s and 80s.

  • In the past decade an increase in vaccines for adults

  • and those taken annually, like the flu vaccine,

  • have helped make the market more profitable.

  • But for governments, the health, societal, and economic returns

  • are much greater.

  • Gavi estimates a $21 return for every dollar invested

  • in vaccine programmes for the 73 countries it typically

  • supports.

  • Well, the most salient number is that in the year

  • 2000 over 10m children under the age of five died every year.

  • By 2016, that number was under 5m per year.

  • That's per year.

  • That's millions.

  • This is the way things work.

  • Then came the pandemic.

  • The outbreak of Covid-19 brought China and then Europe

  • to a standstill.

  • As the novel coronavirus spread to the US and across the globe,

  • it wasn't long before governments

  • were betting billions of dollars on developing vaccines

  • to fight the pandemic.

  • A new vaccine market was about to emerge where demand

  • was unlimited, and governments would do everything

  • in their power to secure doses.

  • The total amounts involved relative to normal vaccine R&D,

  • it's tens of billions of dollars, maybe

  • a total of $25bn or so.

  • That's gigantic in the world of vaccines.

  • Now relative to the economic damage of the pandemic,

  • which is in the trillions, it's truly a rounding error.

  • This is the best money that's been spent by governments

  • during this pandemic.

  • The public sector, governments collectively,

  • have really de-risked and subsidised

  • the R&D process every step of the way from the earliest

  • stages of R&D, oftentimes to the scale-up of manufacturing

  • and, of course, purchasing.

  • Other big funders include the Bill and Melinda Gates

  • Foundation and CEPI.

  • The Coalition for Epidemic Preparedness Innovations

  • is a public private partnership that

  • supports vaccine development to stop future epidemics.

  • One recipient of a small grant from CEPI

  • at the start of the pandemic was Moderna,

  • a biotech company that had yet to bring a product to market.

  • By the end of 2020, US federal funding for Moderna's vaccine

  • had swelled into the billions, and it was approved for use.

  • So Moderna took a huge amount of public money - up to $4bn

  • from the US government.

  • And that helped them build this proof of concept.

  • The vaccine uses messenger RNA technology which the company

  • spent a decade developing.

  • We invested around $3bn in the last 10 years

  • to get the technology to this place.

  • The pandemic has accelerated the company

  • turning into a commercial company by three

  • to maybe four years.

  • The first vaccine approved in a western country also used mRNA.

  • It was made by US pharmaceutical giant Pfizer

  • and Germany's BioNTech.

  • While Pfizer did not take public funding to develop

  • and manufacture its vaccine, it did have an initial $1.95bn

  • advance purchase agreement through Operation Warp Speed.

  • The US government's COVID-19 investment programme has

  • surpassed $10bn, most of which has been spent on vaccines.

  • It's not the only country that placed huge bets on vaccines.

  • China and Russia funded their own vaccine candidates.

  • And the German government gave BioNTech $445m.

  • The UK government contributed £65.5m to Oxford university.

  • And its vaccine manufacturing partner, AstraZeneca,

  • received up to $1.2bn for trials in manufacturing from the US

  • government.

  • Well, there was no point in us generating a vaccine in January

  • of last year if it wasn't going to be able to take it

  • all the way through clinical development

  • and into emergency use licensure.

  • And as a university we are able to do

  • much of the early clinical development

  • and get that taken quite a long way,

  • but we were never going to be able to manufacture

  • a vaccine that was going to be used as a licenced product.

  • The unprecedented public funding helped these companies develop

  • vaccines in less than a year.

  • Until now, the fastest vaccine ever created

  • was a mumps vaccine developed by Merck in four years.

  • The pandemic demanded an urgent response,

  • but that also led to questions about the prices

  • of Covid-19 vaccines.

  • We have a high degree of secrecy.

  • We have governments really desperate for access

  • to vaccine supplies and willing to sometimes

  • pay very, very high prices.

  • And things are happening very quickly

  • under emergency conditions.

  • So it's, unfortunately, a perfect storm

  • where the risk of abusive pricing or unfair pricing

  • is quite high.

  • I think pharma did hold a lot of power in this negotiation.

  • But I also think that they could have gone higher.

  • Plenty of investors actually would

  • have liked them to go higher and didn't make a secret of that.

  • Prices for Covid-19 vaccines very widely.

  • The Oxford-AstraZeneca vaccine is about $3 to $4 a dose.

  • Along with Johnson & Johnson they

  • have committed to selling their vaccine on a non-profit basis

  • during the pandemic.

  • AstraZeneca say they will do so in perpetuity

  • for low and middle income countries.

  • Moderna said it has charged the US government as little

  • as $16.50 per dose to return some money to taxpayers.

  • But smaller orders for other customers range from $32 to $37

  • per dose.

  • We invested $3bn in this technology since the beginning.

  • We've never made a penny of profit.

  • We thought it was not appropriate not

  • to make a small profit.

  • The value that we are asking for the product

  • is way undervalued to the healthcare system.

  • If you just look at the saving in just hospitalisation costs,

  • they run much, much higher per inhabitant.

  • It's very difficult to actually come up

  • with an evidence-based judgement on the fairness of any price

  • or the fairness of any profit margin.

  • Companies want to play countries off against each other

  • and so aren't very incentivised to want to make

  • these contracts transparent.

  • And democratic governments often don't want their public

  • to know that they've gotten a bad deal,

  • or they don't want rival countries

  • to know that they've gotten a good deal.

  • And so there's not very much incentive

  • for making these public.

  • Before the pandemic US pharma companies

  • were under pressure over high prices for drugs.

  • The industry looked ripe for reform.

  • So then we come into the pandemic

  • and you have a situation where some companies say, look,

  • this shows how important it is to invest in innovation.

  • So you should pay us a good amount of money.

  • But then on the other hand some companies

  • said, ah, this is our opportunity

  • to make a contribution by saying we'll offer these vaccines

  • on a non-for-profit basis.

  • I think it's reasonable to allow companies

  • to make a profit from the high income countries having put

  • such a huge effort into this work,

  • and also make sure that it will be

  • available for low and middle income countries in perpetuity

  • without profit.

  • Moderna said it expects to make $18.4bn from its Covid-19

  • vaccine sales this year.

  • It has not revealed the profit margin

  • for its Covid-19 vaccine.

  • Pfizer said it expects to make about $15bn with a profit

  • margin of more than 20 per cent.

  • The profits will be split 50/50 with BioNTech.

  • These forecasts have partly shaped

  • the company's varied share price performances in the past year.

  • In previous pandemics, including Sars, the outbreak

  • ended before companies could develop a vaccine.

  • Those who invested in the endeavour made a loss.

  • But Covid-19 is widely expected to become endemic.

  • Analysts predict the annual vaccine market for the virus

  • could reach $10bn a year, or more

  • as producers tailor vaccines for new strains.

  • If the vaccines aren't very successful

  • but they do provide a very meaningful contribution

  • to the fight against Covid, then we're

  • likely to move to something like a flu model

  • where we sell more vaccines for the flu

  • than we do for every other vaccinated illness

  • in the world.

  • Then the question will be, are there so

  • many competitors in the market that the price falls?

  • Or the price may go up because it

  • will be more of a natural normal market where people will

  • perhaps choose a particular vaccine because it has a higher

  • efficacy rate rather than a market

  • where it's controlled by these gigantic government contracts.

  • One big question is whether governments

  • should have demanded more in these deals for subsidising

  • development and guaranteeing sales.

  • It does feed into a larger debate that was already

  • happening about what happens when governments fund science,

  • especially really basic research.

  • It goes on into the private sector,

  • and it makes the private sector a lot of money,

  • but not much of that flows back to the government.

  • For governments of low and middle income countries

  • the return on investment calculation

  • is entirely different.

  • They are battling just to secure supplies of Covid-19 vaccines

  • amid a flurry of bilateral deals between rich countries

  • and vaccine producers, and global disputes about controls

  • over vaccine supply chains.

  • Of all the products in the world you

  • don't want to use market-based prioritisation,

  • it's got to be vaccines because if you went that way

  • the rich people in the rich countries

  • would buy all the output for quite a while,

  • and it wouldn't be assigned according to who's

  • at risk of dying, for example, getting

  • to the elderly and the healthcare workers.

  • Gavi, the World Health Organization,

  • and CEPI set up the COVAX programme to mitigate this

  • and provide equitable distribution for Covid-19

  • vaccines.

  • The COVAX advanced market commitment, or AMC,

  • has raised $6.3bn and aims to distribute 2bn doses this year,

  • with two-thirds of those subsidised for 92 lower income

  • countries.

  • We also hoped that by having global supply

  • it would reduce the number of bilaterals.

  • And it looked like that might have helped for a while.

  • But there really has been a global panic seeing doses being

  • rolled out, people hoarding doses,

  • and also the new variants have made people nervous.

  • There are some governments that have said,

  • yes, we politically support COVAX,

  • we will put money into COVAX, we will subsidise other countries

  • through COVAX.

  • They are the very same governments

  • that have turned around and said we are going to basically eat

  • up most of the world's existing volume

  • through advanced purchase commitment.

  • Any head of state is going to think about,

  • I have to protect my people.

  • That's the natural instinct.

  • And that may be true in a normal situation.

  • But in a global pandemic you're only

  • as safe as everyone is safe.

  • Covid-19 has turbocharged normal market forces,

  • from funding to the speed at which vaccines were developed,

  • and the subsequent international scramble to buy them.

  • But are there more fundamental ways the virus

  • will change the vaccine market?

  • I think the Covid-19 pandemic will completely

  • shake up the vaccine market.

  • And that's because of these new technologies like messenger RNA

  • and viral vectors.

  • By accelerating them so fast they've

  • completely shaken up who's on top, who has the potential

  • to create the next vaccine.

  • The fastest vaccine ever had been four years.

  • The Ebola vaccine was around five years.

  • And the fact that this happened in 303 days is extraordinary.

  • The pandemic was an opportunity to prove

  • that mRNA, or messenger ribonucleic acid technology,

  • could work.

  • The synthetic mRNA delivers instructions

  • to cells in the body to produce the viral protein, which

  • stimulates an immune response.

  • The success of Pfizer, BioNTech, and Moderna's mRNA vaccines

  • mean the technology could be applied

  • to a wide range of other vaccines and drugs.

  • The mRNA platform, we're going to push that to the limit.

  • And we should get a lot more vaccines.

  • And a malaria vaccine, or an HIV vaccine, or a TB vaccine

  • are miraculous things.

  • That's measured in saving millions of lives, not

  • some economic thing.

  • That is about life itself.

  • The speed at which mRNA vaccines can

  • be tweaked to respond to new variants and then mass produced

  • could also make vaccines more profitable.

  • We're going to end up having technologies like mRNA

  • enabling a new vaccine that is going to be best in class

  • and first in class, that are going to be able to maintain

  • a high profitability.

  • I think platform technologies for the future

  • of vaccine development, and messenger RNA is one of them.

  • We haven't really seen messenger RNA vaccines widely

  • used at all before 2020.

  • And in the last year they've gone

  • from being something of a niche research area

  • into having massive impact.

  • I believe we will end up with Moderna having the vaccine that

  • will have a combination of a seasonal boost for flu

  • and the new variant for SARS-CoV-2

  • And it's going to be one shot.

  • So how is that going to compete with a vaccine that's

  • only the seasonal flu?

  • I believe those vaccines will have no future.

  • There are also reasons to be cautious about the future

  • of mRNA.

  • Just because mRNA and the viral vector vaccines

  • have been pretty successful for Covid

  • doesn't mean they're going to be successful for everything else.

  • And so I think that there will still

  • be a debate inside some of these big vaccine players,

  • like GSK, Sanofi, and Merck about to what extent

  • they should rush towards this new shiny object,

  • and to what extent they should rely

  • on their own reliable proprietary platforms.

  • I do think for the next pandemic we

  • will be able to solve the problems of the mRNA platform.

  • That is we'll fix the thermal stability,

  • we'll fix the scalability, and we'll fix the cost.

  • We kind of caught mRNA halfway to prime time.

  • Analysts predict that 2021 vaccine sales from Moderna

  • and Novavax will outpace those from three of the biggest

  • vaccine producers who dominated the market before Covid-19 -

  • Merck, GSK, and Sanofi.

  • All three have yet to bring a Covid-19 vaccine to market.

  • With new players in charge, they've

  • got a lot of capital, Investors.

  • Are really backing them, and they can go into new markets,

  • most obviously, flu.

  • The big question, the billion dollar question

  • is, how many of those firms are going

  • to find a business model that allows

  • them to scale up production and global distribution?

  • Could the pandemic propel the vaccine segment

  • into becoming a much bigger part of the global pharmaceutical

  • market?

  • Vaccines probably saved more lives than any other tool.

  • If we can take vaccines and apply them

  • more in the area of cancer, then that just changes the numbers

  • completely because the cancer market is,

  • it's over 10 times the R&D, over 10 times the spend,

  • potential for growth.

  • I do not think that we're going to see the entire pharma

  • industry switch to focusing on vaccines.

  • It's still a business where you often sell to governments,

  • where they're often very large contracts and not

  • that much competition, and not that much growth.

  • With more than 113m cases of coronavirus confirmed globally

  • and 2.5m known deaths, vaccines are widely seen as the key

  • to ending the pandemic.

  • Public investment in vaccines are

  • dwarfed by the economic costs of this global health crisis.

  • An estimated $6tn in economic output was lost to 2020,

  • and another $4.4tn will be lost this year.

  • Public health experts have been telling

  • governments and politicians for years

  • that vaccine supply is a huge global strategic priority,

  • and that you should protect it.

  • I think they've finally woken up.

  • Traditionally, when governments have

  • tried to invest in that infrastructure

  • it's not worked out very well.

  • It's always been the private players in the private sector

  • that's been able to succeed, scale up

  • because of the entrepreneurship and freedom

  • that a private sector company would have.

  • SETH BERKLEY: Obviously, if you want

  • to have manufacturing facilities ready to go that are there

  • in case of an outbreak, you're going

  • to need to make sure that there's financing

  • for that because from a for-profit company

  • the idea that you would have facilities that

  • are available that are not being optimally used

  • might not make business sense, but they

  • may make public health sense.

  • So I see this as a partnership between government

  • and the private sector.

  • I'm very enthused that vaccines, all the standby capacity

  • that we will have on for the next pandemic,

  • we may be able to use that when there's not a pandemic going on

  • to create lots of low cost supply

  • capacity for the entire world.

  • Imagine that you'd have a vaccine you know back

  • in the summer, you would have saved millions of lives.

  • Covid-19 has already changed the vaccine market,

  • potentially irreversibly.

Of all the products in the world you

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