Rishabh SharmaEx-Research Analyst | Chemical Engineer | Management Student
By August 8 2020, agreements between the U.S. and pharmaceutical manufacturers for supply of novel coronavirus (COVID-19) vaccines amounted to over $8 Bn.
It is worth noting that nearly all of these vaccine candidates were far from performing Phase-2/3 trials, when these agreements were negotiated. These tie-ups feature some of the major incumbents in vaccine development programs such as Pfizer Inc., BioTech, Sanofi S.A., GlaxoSmithKline Plc, and Novavax Inc.
Several other countries including U.K., Germany, Netherlands, and Japan have entered into similar arrangements to secure supply for COVID-19 vaccines with over a billion vaccine doses already locked in. Closer to home, the Serum Institute of India (SII) has announced plans to develop nearly half of the vaccines required in the country and even announced a price ceiling.
The Problem Statement
From a neutral standpoint, these practices are indicative of ability of high-income countries to secure drug supplies through a number of advance purchase agreements (APAs); while countries which are not able to secure these high value arrangements are left to fend for themselves against a global crisis.
In totality, the situation is not all grim. Traditionally, costs of vaccine development run around a little shy of half a billion dollars, coupled with uncertainly, price ceiling by governments and the intensity of competition, the entire value proposition is far from appealing.
These purchase agreements and investments helps companies secure funds upfront to cover costs and provides much needed liquidity expediting the process of vaccine development. Governments get security as returns on this money that once the vaccine gets developed, they have the first pick, since it is highly-likely that a situation of international competition, supply-demand gap, and price escalation could exist. It’s certainly fun to be the first one in line!
In contrast, the problem gets compounded for middle- and low-income countries by significant proportions. Their inability to perform such an exercise will have a deep economic-social-environmental impact. With highly connected economic ecosystems, the impact of vaccination in one territory while not so much in the other, will still have negative economic implications for companies, countries, and governments.
Also, backing individual horses is not the perfect strategy especially with the odds against it! To put this into perspective, normally, a vaccine candidate in preclinical development has only about a 7% chance that it will succeed, i.e. come out as a winner on all biological efficacy requirements and safety criterion. Hence, there are high chances of a high failure rate which backtracks most of the possible advantages of the whole process.
The Ideal Way Forward
An ideal proposition, in contrast to adopting the aforementioned bilateral approach (individual governments and companies), is a more multi-lateral arrangement involving collective pools by countries. In this regard, a financial instrument has been offered by Global Alliance for Vaccines & Immunisation (GAVI) under COVAX facility.
COVAX is a comprehensive instrument which includes both, push (investments by companies over a differentiated array of players) and pull (purchase agreement of vaccines) measures. One of the primary advantages of the system includes risk mitigation by diversifying risk associated by tie-ups with a limited number of players for high-income countries. Hence, acting as an insurance policy. For low-income countries (60% of global pop), this could be life-saving!
Generically speaking, this helps tackle a global pandemic with a more right-pointing moral compass and a well-suited global approach. Currently, over 165 countries have associated themselves with the project. Economically, this could be a game changer that finances the entire global initiative at a fractional cost and also reduces damages from the pandemic which have been labelled to the tune of $375 billion per month, by International Monetary Fund (IMF).
It also leverages capabilities of multiple stakeholders bringing the best dough to the table. Furthermore, this move is not only of moral, social, and economic importance but also bears strategic sense as it helps short circuit the spread of the virus, by allowing for effective distribution of vaccines into high-risk zones in initial stages and then to less critical areas when production volumes have been scaled up.
Collaboration is thereby, the need of the hour and improves all our chances of succeeding. After all, we still are a globalised world.
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