The mistakes pharmaceutical companies made with their Covid vaccines

Covid-19 looked as if it would mark the start of a golden age for the pharmaceutical industry. It’s not worked out that way, says Matthew Lynn.

Rewind only a year, and it seemed reasonable to assume that Covid-19 would transform the prospects of the major pharmaceutical multinationals.

Three safe and effective vaccines were developed in a year; regulators worked at record speed to get them approved and governments pre-bought doses in the millions to ramp up production – perhaps the same would happen for a whole range of other diseases.

Investors started pouring money into both the established giants and the biotech start-ups on the promise that the industry was about to enter a new golden era. 

What went wrong?

True, a lot of money has been made over the last couple of years. Pfizer’s jab, the most widely used, has been a blockbuster, delivering annualised sales of $37bn, almost doubling its turnover, and turning the jab into the biggest pharmaceutical product in the world. Moderna and AstraZeneca did not make quite so much, but still chalked up nine-digit revenues for their vaccines.

And yet, despite that, there is not much sign that progress can be sustained – the share prices of many of the main players have been tumbling. True, the wider stockmarket has also been weak, especially for innovative, technology-based companies, but even so, there is no escaping the fact that Covid-19 is not turning into a catalyst for rapid growth in the industry. No one is making a fortune out of Covid-19 anymore. 

There were three big issues. First, the Omicron variant was more infectious, but at least somewhat milder than the Delta variant, and it only partly evaded existing vaccines. There was almost no way of stopping it from spreading, but fortunately very few vaccinated people who caught it required hospitalisation. Sure, it was still sensible to get vaccinated, and to get a booster as well, but the demand for the jabs inevitably started to wane. Flu vaccines are a major product, but in reality most people don’t bother because they are not that worried about catching it. As 2022 unfolded, Omicron meant Covid-19 was starting to go the same way.

Next, vaccination kills its own market. It is a paradox of developing and manufacturing vaccines that, the more successful they are, the less demand there ends up being. At the most extreme level, the disease is completely wiped out so that no one needs to worry about it anymore: polio has been largely eliminated from the developed world and measles and mumps have been tamed. Some of the drug companies are pushing for annualised vaccination against Covid-19, especially for the elderly or vulnerable, but it is starting to look as if two or three jabs will be enough. Almost all of us have been vaccinated now, and that means the demand isn’t there any longer. 

Too greedy for their own good

Finally, and most importantly, the firms were too greedy. The AstraZeneca Oxford vaccine was the obvious exception, sold at cost price, but Moderna and Pfizer both pushed for very high prices, charging health systems as much as $30 per jab.

That now looks to have been a critical mistake; the wealthy countries could afford it, but the vaccines were unaffordable for many others, and countries have relied on home-grown alternatives, or opted for herd immunity instead. Even worse, it fuelled demands for the companies to be stripped of patent protection. It would have been far better to charge just two or three dollars per jab and make sure the whole world was vaccinated. Instead, the companies put short-term profits over building a long-term business. 

The virus might bounce back. Hong Kong is in the middle of a full-blown epidemic and there are signs it is spreading across mainland China. If China were willing to admit its own vaccines were not very effective, and ordered the Pfizer or AstraZeneca jabs instead, that would revive the market. Otherwise, the boom has fizzled out. The pharma industry may have imagined it was going to make a fortune from the virus and start a new golden era of innovation. It has not worked out that way – and the industry looks stuck with modest growth at best for a long time to come. 

Recommended

Avoid easyJet shares – there are better airlines to invest in
Share tips

Avoid easyJet shares – there are better airlines to invest in

EasyJet used to be one of Europe’s most impressive airlines. But now it is facing challenges on all fronts and losing out to the competition. Rupert …
19 May 2022
Despite the crypto crash, bitcoin still has a bright future
Bitcoin & crypto

Despite the crypto crash, bitcoin still has a bright future

Cryptocurrencies have crashed hard, with bitcoin down by more than 50% from its peak. But, says Dominic Frisby, bitcoin still has a future – it is the…
19 May 2022
Do Kwon: the King of Crypto Lunatics
People

Do Kwon: the King of Crypto Lunatics

Cryptocurrency entrepreneur Do Kwon liked to ruffle feathers and stir things up in his industry. But the collapse of his empire has left investors des…
19 May 2022
Tech stock crash – dotcom bust 2.0 is upon us
Tech stocks

Tech stock crash – dotcom bust 2.0 is upon us

It’s carnage in the tech sector as the market crashes. But that spells opportunity for canny investors, says Matthew Lynn
19 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022