The Tuesday before last, the House Energy and Commerce Committee held a hearing with executives from the major pharmaceutical companies AstraZeneca, Johnson & Johnson, Merck, Moderna, and Pfizer about the promise of a COVID-19 vaccine.
A great deal of the hearing focused on the safety of a potential vaccine with comparatively little attention paid to the price of a vaccine and the terms of government support for development.
Of the five firms testifying, only Johnson & Johnson and AstraZeneca agreed to sell the drug for no profit. All but Pfizer had taken some form of government support for R&D. Pfizer declined support citing the need to move quickly, implying that such support would prevent this.
Jan Schakowsky (D-IL) was the most forceful in addressing the issue of pricing, particularly as it relates to monopolies in the pharmaceutical industry. In a Twitter thread, she goes after all of the firms who have benefited from government support (in one form or another).
In a recent ad, @PhRMA claimed their companies would sell #COVID19 vaccines at no profit to ensure affordability. But at today’s @EnergyCommerce hearing, I got each company to admit they would not do so or only do so in a limited manner: pic.twitter.com/EMY1RIpSxq
— Jan Schakowsky (@janschakowsky) July 21, 2020
The most important thing to emphasize here is that AstraZeneca and J&J’s commitments to not selling the drug at a profit come with a caveat. AstraZeneca has agreed to only sell the first 300 million doses at cost, while J&J will only sell at cost during the pandemic. So, while the nonprofit commitments are more modest than they appear at face value, they do represent a significant concession on the part of these drug makers.
Significant government support should come with strings, not just in the form of basic oversight and accountability but also with conditions that guarantee taxpayers a reasonable return on their investment. Both of these are lacking, if not totally absent, with Operation Warp Speed, the program providing this support. But I am of two minds when it comes to the focus on these firms not making a profit on the vaccine.
On the one hand, the pharmaceutical industry’s capture of policy (especially patent policy) means it has some atoning to do and providing a vaccine at cost is a good start. On the other, a windfall isn’t necessarily a bad thing, especially if the blockbuster drug in question is provided relatively cheaply with tremendous social value. It’s the Schumpeterian “big prizes” that encourage the big swings necessary for progress.
The best way to guarantee these big prizes while limiting the potential for abuse is probably through advanced commitments by the federal government to purchase a certain number of doses at an agreed upon price, as reported by Bloomberg the day after the hearings. The federal government’s $2 billion contract with Pfizer for the purchase of 100 million doses will (at first) make the price-to-beat just shy of $20 per dose.
This model, called an Advance Market Commitment (AMC) in the context of vaccines for the developing world, has been employed with significant success. As with any major purchase by the government from a well-entrenched industry, there’s bound to be some degree of profiteering, but this form is by far the least destructive.