LONDON, Sept 10 (Askume Breakingviews) – Covid-19 has highlighted the vital importance of vaccines. The pandemic has killed 16 million people worldwide , and current concerns about measles outbreaks underline the extent to which citizens fear new outbreaks. This suggests that Big Pharma should be pouring resources into its vaccine arsenal to tackle the next big virus. But they are not doing so now, and it is unclear whether they will.
The World Health Organization says the world should be prepared for a virus that is 20 times more deadly than COVID-19. Scientists are calling this hypothetical virus a disease, a prediction that is even more disturbing now that the outbreak is already growing.
According to the National Library of Medicine, five of the last 12 pandemics occurred in the 20th century. The other two occurred in the 21st. Increased travel and urban living are often cited as reasons for more outbreaks: Given the frequency of travel, scientists estimate that a deadly bacterium could spread around the world in a matter of hours.
This increased risk is a significant threat to the world economy. The International Monetary Fund estimates that global losses from the last pandemic were close to $13 trillion, reducing global GDP by 3% in 2020 alone. Health systems around the world are still struggling to meet record wait times for essential services. With the threat of another serious health emergency, it is logical for Big Pharma to invest in vaccines to deal with such an emergency.
The owners of drug makers don’t have to be nice people to think this is a good idea. If a company successfully develops a vaccine against a deadly virus, it can reap huge profits. Pfizer ‘s (PFE.N) market value could rise 80% to $337 billion between 2019 and 2022,That’s thanks to its COVID-19 mRNA vaccine. Its operating profit more than doubled to $40 billion during the same period. Meanwhile, shares of Moderna (MRNA.O) surged 11-fold on the same technology, going from an operating loss of more than $500 million to a profit of nearly $9.5 billion in 2022.
Still, drugmakers are not prepared to fight future pandemics. Pfizer and AstraZeneca AZN.L, the $257 billion pharmaceutical giants that have also made COVID-19 vaccines during the pandemic, are directing funds to boost their oncology franchises rather than immunizing their vaccines. Pfizer spent $43 billion to acquire Cigene late last year in an effort to double its cancer drug pipeline. It has made no such investment to fight future coronaviruses. Meanwhile, AstraZeneca spent $39 billion to acquire Alexion to build out its rare disease portfolio at the peak of the pandemic in 2021, suggesting the company could achieve great success if the drug finds a way to treat a disease that affects a small number of people.
At first glance, this silence may seem strange. One investor told Askume Breakingviews that investors would add a 50% premium when valuing other pharmaceutical units compared to the vaccine business. Historically, this would mean that GlaxoSmithKline’s (GSK.L) underlying business is valued at about 15 times its expected EBITDA, while the rest of its pharma unit is valued at just 9.5 times. Similarly, investors value Sanofi’s (SASY.PA) pharmaceuticals unit at 10.5 times, while its vaccines business (with sales of about 7.5 billion euros, about 17% of the French group’s total sales) is valued at 14 times. Add that multiple to EBITDA in the model.
However, that premium is less helpful than it seems in helping the world deal with the coronavirus. The stability favored by shareholders is mainly for vaccines where demand is stable, such as the flu shot. Diseases with low frequency but high impact – those with the potential to cause pandemics – are not valued as highly by the market.
MPOX provides just one vivid example. Shares of Denmark’s $3.1 billion Bavarian Nordic Company (BAVA.CO) , which makes a vaccine for the disease, have risen more than 50% since the beginning of the year, outperforming the S&P Pharmaceuticals Select Industry Index ( .SPXSPH).
The post-Covid fortunes of companies like Pfizer and Moderna tell a similarly tumultuous story. Over the past three years, Pfizer’s stock price has fallen 40%, while Moderna’s stock price has fallen 80%. If the jump in valuations is very short-lived, there is no reason for CEOs to bet big on vaccines.
Despite this, getting vaccinated is a risky move in some circumstances. To gain approval from regulatory agencies such as the US Food and Drug Administration, pharmaceutical groups must provide evidence that the drug works in most cases. However, these restrictions make it difficult for other drugmakers to compete with new products. This is because regulators are often reluctant to enroll patients in vaccine trials when there are already effective vaccines on the market.
At first glance, it might seem like the government could intervene in the failures of the private sector. A comprehensive global strategy would see countries work together on a plan to jointly finance new vaccines, meaning there could be some kind of strategic vaccine stockpile to deal with future pandemics. One variant: Health officials around the world are working on a so-called “100-day challenge ,” in which an unknown pathogen would be identified and a vaccine designed, manufactured, and made publicly available within the same time frame.
However, hopes for a robust public sector response to the pandemic appear to be equally disappointing. At the World Health Assembly in May, countries failed to agree on how to distribute vaccines during future pandemics, and plans for a treaty outlining pandemic response options also failed. So the world’s hopes for fast-paced future vaccines depend on interim public support for individual programs. This is not without reason – for example, US state funding helped the Bavarian Nordics advance Mpox treatments. But given that COVID-19 is less than five years old, taxpayers may find it odd that the primary strategy for avoiding future equivalents is essentially to just hope it doesn’t happen.
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(The author is a Askume Breakingviews columnist. Views expressed are his own.)
