• Nicolas Granados

COVID-19: A Silver Lining for the Pharmaceutical Industry?

The impact of COVID-19 has been both shocking and profound. Although modern medical technology has allowed such viruses to be less deadly than diseases of the past, the economic impacts could haunt modern economies for many years to come. Robert Wood, Chief UK economist at Bank of America, has revised down his UK growth forecast for 2020 to a 7.4% contraction, his reason being that the fiscal stimulus measures put forward by Chancellor of the Exchequer Rishi Sunak were proving to be less effective than expected. Most sectors of the economy, both in goods and services, are performing poorly, with new entrants into the labour market at an unprecedented low from March-April. However, among the sectors that could benefit could be the Pharmaceutical industry. Various medical bodies and government bodies, including the European Union’s EMA, have offered support to the pharmaceutical sector including accelerating regulatory approval procedures in order to speed up the process of developing a vaccine to the virus. Bank of England forecasted economic growth. Source: Financial Times Therefore, could it be likely that the pharmaceutical industry could stand to benefit from the pandemic? The extent of the ability to profit from the development of a vaccine depends on pricing regulations in countries where the vaccine is developed. In the United States, there is a potential for big profits due to the fact that price controls are not stringent. This comes after lawmakers attempted to restrict the amount of profit that pharmaceutical firms that develop the vaccine could make, however the final aid package that passed omitted language that would limit manufacturers' property rights but also restricted federal ability to intervene if the price of the vaccine is too high. Republican lawmakers argued the case for the absence of federal intervention in pricing arguing that cutting the profit incentive would reduce innovation and decrease the incentive for development, slowing the development of any vaccine. The pharmaceutical industry can therefore price its vaccines so that the developers make a profit, but also, the industry will stand to benefit due to the fact that they can profit from investment into the development process of the vaccine and from the diffusion of information from non-profit and medical bodies. According to the advocacy group Patients for Affordable Drugs, every drug between 2010 and 2016 that has been patented involved science funded with taxpayer’s money, with the taxpayer contributing more than $100 billion into research and development. The result of the omission of language limiting high pricing of vaccines is hardly surprising given that the Pharmaceutical industry spent $295 million on lobbying in 2019. Given these windows of opportunity, a number of pharmaceutical firms have begun the development of vaccines. Roche Pharmaceuticals have begun to work on a vaccine and have begun phase 3 clinical trials, with a $25 million backing from the US government’s Biomedical Advanced Research and Development Authority (BARDA) to speed up development and testing. This is not a vaccine, but a treatment usually used to treat arthritis however could be successful in combatting COVID-19. There has also been inter-pharmaceutical cooperation from Roche, Johnson & Johnson and Sanofi Pasteur who have agreed to share resources and information, including clinical trial data, in order to increase testing capacity and speed up the development of a vaccine. This comes after the EMA said that the growing number of fragmented studies were insufficient to generate a large enough pool of data in order to reach conclusive results and more cooperation was needed. However, there are many impediments to successfully developing a vaccine, whose development comes in stages. Firstly, there is the exploratory stage that requires research in labs on the virus and to understand how it fundamentally works and to explore antigens that could treat the virus. Second is the pre-clinical phase that involves computer simulations and work on animals including developing antigens. Then comes arguably the stage where most firms fail when it comes to developing vaccines: the clinical development stage. This is done in tiers. First, the vaccine is given to a small group of healthy people to see possible side effects. Then, it is given to a wider group of people who have the virus and then to a larger control group to see for any widespread side effects and to test the effectiveness of the vaccine. The vaccine is then subject to regulatory review and then it can be manufactured and undergo quality control. It takes an average of $319-469 million to develop a vaccine to the end of phase 2a, where it is given to a small control group, starting from the pre-clinical stage. One firm on the forefront of developing the vaccine is Moderna. On news that the firm is already in advanced stages and is now undergoing clinical trials, their stock price increased rapidly and is up 78.1% YTD at the time of this article being written. Their development of the vaccine comes after discoveries that COVID-19 shares between 80-90% of genetic material with SARS and Moderna were already in advanced stages of developing a vaccine for the SARS virus and the firm are predicting a best-case scenario initial autumn roll out of the vaccine. Moderna CEO Stéphane Bancel. Source: Getty Images Historically, however, vaccines have had a mixed track record when it comes to profitability and success. There are only mainly 4 big vaccine players within the pharmaceutical industry, most have gone bankrupt or have left the market, according to Moderna CEO Stéphane Bancel. The rates of return on vaccines are traditionally quite low due to the very high fixed costs, research and development costs and adjustments that have to be made in response to changes in countries’ regulatory framework which is a constantly evolving landscape. For instance, Moderna has more than $2 billion into developing vaccines during the lifespan of the firm however is yet to be profitable. High fixed costs include developing the production capabilities to produce the vaccines on a mass scale and the research facilities, this is shown by Pfizer spending $600 million to just develop one production facility for vaccines. Some vaccines have proved profitable however, with Pfizer’s best performing product being Prevenar 13 which helps to prevent against pneumonia. Therefore, how much the pharmaceutical industry could stand to profit from developing a vaccine or treatment depends primarily on the regulatory hurdles that stand in the way, from pricing regulations to the speed at which drugs and vaccines get approved past a clinical trial. Moreover, the success depends crucially on the dispersion of information from pharmaceutical firms and medical bodies, as there needs to be a coordinated effort in finding a solution to the disease.