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A $2 Billion Bet on Pfizer’s Covid Vaccine Is Worth It

The U.S. just took a step beyond funding Covid-vaccine research toward actively securing shots. On Wednesday, the government signed an agreement with Pfizer Inc. and BioNTech securing 100 million doses of their vaccine candidate for $1.95 billion, payable if the inoculation succeeds in clinical trials and gets approved by the Food and Drug Administration. 

Vaccine pricing is always contentious, and even more so now in the midst of a global pandemic. Setting terms in advance is the right idea even though the government doesn’t know and won’t know for some time if the shot works. The alternative — waiting until a candidate proves effective and relying on weak U.S. pricing mechanisms to keep it affordable —  isn’t appealing.

The value of a vaccine that protects against Covid would be enormous, from the health benefits it would accrue to individuals to the broader advantages of helping protect the community at large and allowing broader swaths of the economy to stay open safely.

Advance pricing provides security to both the drugmaker and the government. Pfizer knows it has a market, and the government doesn’t have to worry about fighting over price in a variety of possible futures where it has even less leverage. The government would be in a tough position absent this contract, for example, if Pfizer’s vaccine proved to be the only successful option among the many now under development. The country could wind up bidding against others for limited supply with limited recourse for ensuring affordability. A fragmented health system and curbs on federal power make it hard for the U.S. to restrain prices.

The contract also sets something of a price ceiling; Pfizer didn’t take pre-approval government funding, unlike several competitors. It will be hard for others to charge a higher price absent a major efficacy gap if some of their government-funded research risk has been paid off.  

Because each person requires two shots, 100 million doses is enough vaccine for 50 million people. While that makes the deal look a bit less appealing, it still would only come out to a price of about $39 per person, within the range of what Medicare pays for flu vaccines and below what drugmakers charge for some new inoculations. As an added bonus, the shots will be offered for free to Americans. 

The contract allows for the U.S. to acquire up to 500 million additional doses. If the same price is available, which is admittedly uncertain at this time, getting enough vaccine to inoculate 60% of the U.S. population could cost something like an additional $6 billion. That’s certainly not a pittance, but it’s a rounding error set against the trillions of economic losses and stimulus packages forced by the pandemic. If the price jumps significantly after the delivery and many more doses are needed, it could be grounds for reassessing both the wisdom of the deal and Pfizer’s corporate citizen card. 

Pfizer vaccine’s protectiveness is impossible to predict before a large-scale trial finishes. However, if it clears the FDA’s published efficacy standards and gets authorized, it will dampen the threat of Covid-19 — no small feat. If it offers durable immunity and can cut transmission, it could have a substantial effect with fewer doses.  

Should other vaccines work better or price differently — AstraZeneca PLC has pledged to provide 300 million doses “at cost” after the U.S. government gave it up to $1.2 billion in funding — Wednesday’s deal could look like an overpay. Nevertheless, the contract is worth the gamble. Given the unknowns of “warp-speed” vaccine development, multiple attempts are crucial. There’s a clear benefit to minimizing failure risk and maximizing supply with these types of contracts.

There’s also a potential long-term benefit to the strategy. Vaccine development, especially for novel infectious diseases, is an expensive and rarely profitable endeavor. Advance commitments help ensure the development of platforms and expertise that the world is likely to need again.

The government’s execution hasn’t been perfect; an earlier bidding process could have resulted in better pricing than an ad-hoc model. But even belated preparation beats last-minute improvisation. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

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