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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