Last week Moderna announced that the U.S. government secured 100 million doses of its COVID-19 vaccine candidate known as mRNA-1273 as part of a plan to ensure early access to safe and effective COVID-19 vaccines for the population of the United States. The contract is worth up to $1.525 billion and includes outlay for manufacturing and delivery of 100 million doses, including incentive payments for timely delivery of the product. Combined with the other payments from the federal government (BARDA) to Moderna, which totaled $955 million, last week’s financial commitment brings the total government commitment for early mRNA-1273 access to $2.48 billion. Another Operation Warp Speed deal, it also includes an option for the government to purchase up to an additional 400 million doses of mRNA-1273. Although the government can ensure the actual vaccine costs don’t get passed on to the American consumer, they certainly cannot control the price providers will charge for the services of administering the vaccine should it be deemed safe and effective by authorities based on clinical trials. Data reveals BARDA and DOD negotiators get tougher as biotech must ‘sharpen the pencil.’ This is a good thing and portends what must transform into true value-based health models. The actual contract falls under the U.S. Department of Defense (Contract No. W911QY-20-C-0100).
The current award translates to an implied price point of approximately $15.25 per dose, which the Pharmaletter points out is “materially below SVB Leerink Research’s analyst Dr. Mani Forooohar’s previously modeled ~$22/dose, as well as the Pfizer and Germany’s BioNTech US supply agreement implied price of ~$19.50/dose.” With inventive payments, some of the risk inherent in deals like this is passed to Moderna as government negotiators sought to balance a rational incentive with the realities of A) pandemic conditions; B) economic recession factors; C) $955 million worth of ongoing taxpayer-derived payments already awarded to the Cambridge-based biotech; and D) factoring in the product must be proven safe and effective.
Competitive Landscape Emerging?
UK-based the Pharmaletter, one of the better independent media focusing on drug development, often refers to select key investment bank analysts for perspective on these deals. In this case, Leerink observes a declining price point and the passing of risk from buyer to seller as evidence for a trend for greater competition in the emerging COVID-19 vaccine market. This makes sense as Moderna has already been on record that government contracts would be “materially lower” than their retail price point ($32-$37 per dose) directed toward lower volume deals.
The UK media pointed out that the difference between the price point to the U.S. government and Europe has narrowed (85% from a previous 75%) reflecting shrewder negotiations from government negotiators. Of course, this makes sense. In all reality the DOD, BARDA and the whole cast of government characters have much of the leverage.
Reflections on Directions
Of course, analysts are busy predicting models for revenue recapture after the pandemic period. Unfortunately, much of this modeling assumes a healthy and vibrant market with insurance coverage and healthy job growth. What if the U.S. economy goes into a tailspin due to the pandemic? Evidence suggests this this could be occurring right now. More Americans are out of work than at any point in history. By July, 51 million Americans were out of work.
Prior to the pandemic, nearly 30 million were without insurance in America (despite ACS) and up to 25 million could be at risk for losing insurance during the pandemic, meaning 55 million could have no insurance as 2020 comes to an end. With staggering numbers such as these, biotech firms’ pricing models are subject to political risk of various initiatives for relief. Political volatility grows as whichever party is in power with the transition to 2021, politicians will be under pressure by a social, political and economic pressure cooker. The status quo, or the standardized ways of going about managing this, won’t work well.
The U.S. must understand the acute and deep crisis it’s now in. That healthcare is both part of the cause and part of the solution should trigger the best and brightest minds to help society experiment with models to transform the “healthcare system” known today, from one that leads to lots of hospital costs to one that prides itself on reducing such demand in the first place. With value-based care model experiments representing examples or possible seeds for change, economically the pain (and costs) of such a transition are high. Hence, economic energies must be directed to the next wave of healthcare transformation, with use of technology (including artificial intelligence, precision and personalization), process re-engineering and disruptive care models, not to mention inclusion of incentives to providers, pharma and the whole value chain to drive reductions in costs with parallel improvements in individual and population health. Creative-destructive forces will drive changes, as one of the most brilliant and least appreciated economists Joseph A. Schumpeter suggested, leading to what are known as ‘creative destructive’ forces that will lead to economic winners and losers; but so what if the net result is reduced overall healthcare costs with both healthier individuals and population groups? What this author is concerned about primarily are winners associated with higher health care costs and worse outcomes. That can’t be culturally, politically or economically accepted anymore.