The asymmetric public-private bet on Covid 19 vaccines

Every research project is by definition a gamble. You cannot know in advance whether it will be successful. You run the risk of a bet. This was also the case for the vaccines against Covid-19, with respect to which a recent study for the European Parliament that I coordinated with the economists Chiara Pancotti and Simona Gamba, reaches surprising conclusions: the US governments and some European countries (especially UK and Germany) assumed practically all the risk, while the investments of the main pharmaceutical companies were largely covered by public incentives. Through the reconstruction of the financing and investment flows for 9 vaccines submitted to the European Medicines Agency and the Food and Drug Administration, we concluded that there were two public incentive mechanisms: 9 billion euros of non-repayable grants for research costs and pre-production and 21 billion lire for pre-authorisation “blind” purchase contracts, in some cases accompanied by substantial cash advances.

Firms initially invested around 5 billion in research and around 11 in productive investments (although accounting for these estimates clashes with the commercial secrecy surrounding investments and contracts). The variability between firms is also surprising. Moderna received about $1 billion in grants and $9 billion in pre-authorization contracts from the US government, reportedly resulting in a price per dose of over $20 that it recently announced it would raise to over $100, starting from a production cost per dose of around 2 dollars, creating an enormous extra profit in a few months. Pfizer has renounced public subsidies, making substantial productive investments, but the vaccine it has registered was developed by the German BioNTech, which obtained about 700 million non-repayable mainly from the German government and important loans from the EIB. Pfizer has also obtained around 6 billion euros in advance contracts between the US and the EU. Curevac won more than $300 million in grants before being withdrawn after it proved ineffective. Oxford-AstraZeneca, the world’s most popular vaccine based entirely on public research, has received grants of more than 1.8 billion and upfront contracts of 2 billion. Sanofi and Novavax each received roughly $2 billion in grants.

In the face of this massive mobilization of public funds, the renunciation of governments to negotiate with the beneficiary companies on three aspects is open to criticism: prices in the short and medium term; knowledge sharing; international distribution policy. In practice, the States have given up governing a process of which they have been the decisive sponsors.

Our study, to the attention of the COVI inquiry commission of the European Parliament which will soon have to formulate its conclusions, recommends that legislation be changed which in the event of a health emergency allows negotiating in a less unbalanced and more transparent way with companies. We have also relaunched the proposal to create a European public infrastructure for the research and development of drugs and vaccines (“Biomed Europe”) which, on the model of ESA or CERN, supports a European industrial policy in the field of health: an idea initially developed in the Inequalities and Diversity Forum and which would allow us to face the next inevitable pandemic with a new approach.

*University of Milan. Full Professor of Science of Finance. Member of the Inequality and Diversity Forum