By the New Year of 2021, at least two or three new crown vaccines around the world will have reached the mass injectable stage.
Within a few months, millions of people will get their first dose of a vaccine from Pfizer, Moderna or AstraZeneca.
Although these vaccines save the public, drug companies also need to make money for their shareholders.
There seems to be a lot of money to be made from producing new crown vaccines, but how much money do these companies really make?
How will the market for new crown vaccines change in the long term?
Selling prices are under pressure and profits are low
Unlike most drugs, vaccines are not a cash cow.
The market is small, and there are not many pharmaceutical companies that can make vaccines.
Before the outbreak, the global market for vaccines was only about $24 billion a year — a tiny fraction of the $1 trillion annual pharmaceutical market.
Sanofi, for example, the biggest maker of flu vaccines, has a 25% market share among its peers but generates only a few billion dollars in annual revenue.
In the case of the new crown vaccine, there has been public pressure to keep the cost as low as possible in order to make it affordable for people around the world.
That’s why the companies are releasing their first vaccines so cheaply — starting at $3 a dose (AstraZeneca) and going as low as $25 to $37 a dose (Moderna).
If the companies’ vaccines could halt the spread of the epidemic, the financial benefits would be hard to quantify, but the brand impact and prestige would still be huge.
Given the huge economic benefits of the epidemic, drug companies are afraid of charging too much for vaccines at this stage, because they fear that governments and the public will not buy them and that their reputations will be damaged.
Compared to the flu vaccine, the new crown vaccine has a wider market and lower profit margins.
At a time when the virus was the world’s enemy, the total annual revenue from new crown vaccines was about $10 billion.
By contrast, Merck (MRK) makes more than $7 billion a year from Keytruda alone.
This low price under public pressure will end when the epidemic is over or when vaccination demand is fully met.
We don’t know what the post-epidemic era will look like.
Perhaps the virus will continue to spread in recent years, so there will still be a demand for new crown vaccines worldwide.
It may also be that the vaccine’s immunity lasts long enough for the spread of the virus to be suppressed, so demand for the vaccine is greatly reduced.
While drug companies may not be able to maximise profits in the short term, there may be a good opportunity for them to raise prices when viruses are less transmissible but not extinct.
No matter how long the post-pandemic era lasts, drug companies have more leeway to sell their vaccines at higher prices if they are no longer widely needed around the world.
As demand for vaccines falls and the public becomes less concerned about the outbreak, this will ease the price squeeze.
In the future, therefore, the order size of vaccines in the market may be less important, and smaller volumes may also lead to higher gross and net margins.
Demand is diverse and the market is broad
Vaccines that are currently known to be effective on the market need to meet different conditions for production and transportation.
Pfizer’s vaccine, for example, requires extremely cold storage (about minus 70 degrees Celsius);
Modena’s vaccine only needs to be stored at minus 20 degrees Celsius, so it is more suitable for existing cold storage in hospitals.
Both vaccines, however, still need to be stored continuously in sub-zero temperatures, harsh conditions that are impossible in most parts of the world with inadequate electricity and infrastructure.
AstraZeneca’s vaccine, by contrast, does not have such strict storage temperature requirements and may be a better choice in poorly equipped areas.
Figure Note: Vaccine volunteers at Modena are of all ages and jobs
This means not only that there is demand for a wide range of vaccines, but that most of them have large audiences of their own.
Christopher Snyder, a professor at Dartmouth College, an Ivy League school, said the commercial value of pharmaceutical companies producing vaccines is enormous, even if they are in the fifth or sixth place in the industry.
The money invested in the trial phase always pays off. Even if a vaccine is cheap, a small share of the world market can make money.
Patents are a business
But Pfizer and Modena have another way of making money, not from the vaccines themselves, but from patents on the manufacturing process.
The patent on the vaccine is valid for 20 years (minus the time it takes to get the approval process done).
In most cases, big manufacturers patent their vaccines around the world to prevent companies in other countries from making “pirated” versions.
Ana Santos Rutschman, a professor at the Center for Health Law at St. Louis University, says patent rights for vaccines generally do not make a lot of money.
There are many patents attached to a vaccine, such as 81 for the HPV vaccine.
The patents cover formulas, regulatory standards and manufacturing processes.
And when new vaccines come out today, there are few patents that haven’t been filed in the past.
“There is not a lot of untapped intellectual property left in the vaccine industry,” says Santos Rutschman.
Most vaccines are made in much the same way or rely on some existing technology to trigger an immune response.
Of course, vaccine formulations vary, but for the new crown vaccine, manufacturers have come to a consensus that no patent will be filed.
Even if the application is made, the vaccine may be valid for only a few years if the variability of the virus is unknown.
But Modena and Pfizer’s vaccines are about much more than just preventing a new strain of the virus. They have also managed to introduce a more important element — the use of RNA messengers to stimulate an immune response.
Investment in the development of the new crown vaccine has also boosted research into mRNA in the field.
The new crown vaccine is the first to use this new technology, and it is possible that RNA technology could be used not only in more vaccines, but also in other therapies.
Several patents are likely to be issued for the new technology in the vaccine, but Professor Santos Rutschman says it is still unknown how companies will use RNA technology until the news is made public.
Perhaps mRNA technology will continue to generate patent revenue for companies long after the epidemic.
In fact, companies are more concerned about the benefits of the vaccine itself than “what is the catalyst to stimulate immunity”.