Covid presents pharma with shot at redemption and profits

In the early stages of the Covid-19 pandemic, there was a protracted silence as some of the world’s leading pharmaceutical companies reflected on a long and unprofitable history of responding to outbreaks of infectious disease. 

The first cases of coronavirus were identified in China in late December, reached the US on January 21 and Europe three days later. But it wasn’t until mid-March that some of the biggest pharma groups announced their intention to pursue a vaccine.

Pfizer and Merck were among those initially hesitant to get involved, according to Peter Hale, executive director of the Foundation for Vaccine Research in Washington, which regularly works with the industry’s biggest participants. Mr Hale described an atmosphere of “extreme reluctance” in the early weeks of the pandemic.

Faced with the need to develop a vaccine on an accelerated timeline, under immense public scrutiny and possibly at no profit, the road ahead looked fraught with risk.

Ten months later, 202 companies are developing inoculations, 47 products are in clinical trials, and the commercial benefits of what once seemed like a purely altruistic endeavour are clearer.

Pfizer ultimately announced it would work on a vaccine on April 9 in partnership with Mainz, Germany-based BioNTech — a collaboration that has gone on to great success. Shares in the two companies rose 7.7 per cent and 13.9 per respectively on Monday, on the news that their vaccine, using groundbreaking mRNA technology, had proved to be more than 90 per cent effective in clinical trials.

Staff member sets up an antibody production line at the Swiss facility where the Moderna vaccine will be produced © Denis Balibouse/Reuters

Pfizer declined to comment, highlighting comments from the company’s chief scientific officer in early March when he called on pharma companies to work together to tackle the virus. Merck said it started to investigate potential antivirals in January, though it was not until late May that the company announced it was working on two vaccines.

While the commercial calculation to join the vaccine race was different for different companies, experts said two factors fundamentally heightened the allure after those early weeks: the sheer size of the pandemic and the unprecedented levels of public funding.

The market of the future

In previous viral outbreaks — such as Zika and Sars — the diseases retreated fairly rapidly, leaving corporations that had attempted to make a vaccine out of pocket.

“After companies had invested tens to hundreds of millions of dollars and had parked other high priority programs . . . they felt like brides left alone at the altar,” said Gary Nabel, who stepped down as chief scientific officer at Sanofi this month to form a new start-up.

In contrast, growing evidence in late January that Sars-Cov-2 could spread via person to person transmission, suggested a much bigger epidemic — and sales market — than previously suspected.

Many experts now believe that Covid-19 will become endemic and recur in the human population for years to come. It means that even for companies that have vowed not to make a profit during the pandemic, such as AstraZeneca and Johnson & Johnson, there may be a substantial market for vaccinations and booster shots from as early as mid-2021. Others, such as Pfizer and BioNTech, have not committed to a not-for-profit model during the pandemic, with analysts estimating $3.5bn in combined revenue for the two companies next year alone.

As a model for the potential Covid-19 market, analysts point to the influenza vaccine, with average global sales estimated at about $4bn-$5bn a year, shared largely between Sanofi, GlaxoSmithKline and Seqirus.

Geoffrey Porges, an analyst at SVB Leerink, projected there could be $9.56bn in global sales of Covid-19 vaccines in 2021, which would drop to $6.8bn by 2023. Although he conceded that any estimate of the endemic market at the moment was a “wild-ass guess” given that scientists do not know how long vaccine-generated immunity will last.

Breathtaking public investment

The second trigger was intense and unprecedented investments from public bodies, most notably the US government, which de-risked research and development, according to Mr Hale. “Hundreds of millions [of US dollars] were thrown at several of these companies in a way that took their breath away”.

To a lot of pharmaceutical companies, used to footing bills for high-risk investment in research, development and manufacturing, billions of dollars of government money was a game changer, he said.

AstraZeneca ($1.2bn), J&J ($1.5bn), Moderna ($2bn), Novavax ($1.6bn), Pfizer ($1.95bn) and Sanofi/GSK ($2bn) all received funding from the US government’s Operation Warp Speed, through both early stage investments and purchase agreements.

David Mitchell, founder of Patients for Affordable Drugs, a US campaign group, said that for some companies, such as Boston-based biotech Moderna, the government seemed to be paying for everything. 

“That means anything over the cost of goods is pure gravy for these companies,” he said. “Their oft-made claim that they need to charge high prices because of the risks that are involved in developing new drugs is no longer valid.” 

“We’re socialising all the risk and privatising all the profit,” he added. Moderna did respond to a request for comment.

Validating new vaccine technologies

For smaller pharma companies the pandemic has also offered a once in a lifetime opportunity to prove the viability of their technologies.

“The hardest thing for you to do as a scientist is to break into new vaccines with new technologies,” said Mr Nabel, the former Sanofi chief scientific officer. “There are unknown risks and late-stage failures so for the small companies, an opportunity to have a vaccine move forward with a lot of subsidies, with a quick path into the clinic, is huge.”

Moderna has a pipeline of other respiratory vaccines. If their Covid vaccine is successful — it uses similar mRNA technology to the BioNTech-Pfizer shot — it could unlock investment and regulatory approvals for other parts of their vaccine portfolio, analysts predict. Moderna’s share price rose 7.3 per cent on Monday after the BioNTech-Pfizer announcement.

Line chart of share prices (rebased) showing Biotech's developing mRNA vaccines have seen steep gains

US biotech Novavax, too, has everything to gain, according to SVP’s Mr Porges. Novavax had spent years attempting to develop vaccines for respiratory illnesses, with little success.

In 2019 the company was almost delisted from the Nasdaq stock exchange after it announced a second vaccine trial was unsuccessful in less than three years and its share price fell below $1. But its Covid-19 vaccine looks like it may be best in class on some of the key measures, according to results from monkey and early human tests, and its stock is back up above $85.

Dr Gregory Glenn, president of research and development at Novavax, admitted the company had been “in bad shape”, but said he believed the Covid-19 vaccine would validate much of the company’s other work.

Line chart of share price ($) showing Novavax's meteoric rise

A shot at redemption

For the bigger corporations, many of which have had their reputations tarnished by scandals involving issues such as drug pricing and unethical marketing, Covid-19 may also offer a shot at redemption.

“Helping to bring the world out of this is a fantastic opportunity for them to make a difference,” said Bruce Aylward, an epidemiologist working on Covid-19 at the World Health Organization. 

The pharmaceuticals industry was found to be the most poorly regarded sector in the US last year, according to a Gallup survey, below oil and gas and advertising. Now pharma companies are being discussed over dinner tables and water coolers around the world, associated with the biggest global drive to save humanity from a deadly disease.

‘Helping to bring the world out of this is a fantastic opportunity for [pharma] to make a difference,” says Bruce Aylward, World Health Organization © Fabrice Coffrini/AFP /Getty

An overlooked safety problem in a fast-tracked vaccine that caused death or severe illness would be catastrophic for a manufacturer but extremely unlikely — no significant safety problems have been identified with any of the vaccine candidates to date. Whereas “losing the race” and ending up with a marginally less effective vaccine than other manufacturers would still be net positive.

“I think they get credit for at least having a go,” said Mr Porges. “So long as they’re transparent and ethical, they’ll be given a pass.”

Additional reporting by Hannah Kuchler

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