The primary reason pharma developed COVID vaccines
SUMMARY: Big pharma is a big business, and nothing motivates big companies more than the potential to earn a lot of money on new products. Pfizer, alone, is estimated to earn about $15 billion for their vaccine, and they had absolutely nothing to do with Operation Warp Speed.
Big pharma is a huge business with profits that top almost every other industry. The net income margin 13.8% for the pharma companies versus the S&P’s 7.7%. Pharma’s response to this is that they need the high-profit margins for R&D. Worldwide pharmaceutical R&D spending in 2017 s piked to $165 billion, showing a rise of 3.5%.
A study from Oxford Economics found the pharmaceutical industry retains a considerably smaller share of total spending on its products than other research-intensive industries, despite investing a much larger share of its revenue in research and development (R&D) than those industries.
The study found that of the various high R&D manufacturing industries, the telephone industry retains 61% of total spending, the auto industry retains 68% and the computer industry retains 67%. Pharmaceutical manufacturers, by contrast, retain a much lower share of total spending at just 52%, with the remaining spending going to wholesalers, distributors and retail margins. This finding further validates a recent study by the Berkeley Research Group that found nearly half of total spending on brand medicines went to the supply chain and other entities in 2018.
There’s a lot of money in COVID vaccines
Despite being priced at less than $20 per dose, Pfizer expects sales of the vaccine it developed with BioNTech to total about $15 billion by the end of this year, with a profit margin of nearly 30%. Although Johnson & Johnson has said it will provide the vaccine on a not-for-profit basis, as long as the world continues suffering from the pandemic, that doesn’t mean the company won’t ever make money from it. That’s because there is an assumption among experts and executives at the drug companies that, even after the pandemic has passed, people will need to receive booster shots to protect themselves from new variants.
Pfizer did not take any taxpayer money to develop its vaccine and assumed all of the risk with an investment of between $1 billion to $2 billion in research and development.
One exception is Moderna, a relatively new pharmaceutical company which had no approved products for sale as recently as 2019. The drug maker had only $60 million in revenue that year, but took in $529 million in grant revenue and $200 million from early sales of its vaccine in 2020. The forecast for 2021 is for revenue of $16 billion, overwhelmingly from vaccine sales. Moderna shares are up 187% over the last 12 months.
Trump deserves zero credit
Pfizer notably did not accept government money to develop, test or expand manufacturing capacity under Trump’s Operation Warp Speed initiative to quickly find a vaccine and treatments for the disease sweeping the country.
In fact, Pfizer partnered with the vaccine’s original developer, Germany’s BioNTech, in March and the following month announced the first human study in Germany. The White House announced Operation Warp Speed in May.
The primary motivation for the vaccine development was money or potential profits. Moderna, Pfizer, and J&J have seen their stocks rise due to vaccine development. Yes, we are thankful that the pharma industry developed a vaccine for COVID, but once the COVID numbers start to decrease and the population starts to return to normal, you can bet that big pharma will be in the news because of high drug prices and excessive CEO pay.
Originally published at https://worldofdtcmarketing.com on March 15, 2021.
