don't want to use market-based prioritisation,

it's got to be vaccines.

There's no technology known to man now

that is faster than mRNA.

Because of this monopoly or duopoly position

that the sellers are in, it tends

to have a high amount of market power and ability

to get higher prices.

Vaccines save two to three million lives every year.

But bringing them to market involves huge investments,

complex science, and secretive contracts.

Before the Covid-19 pandemic, few people

paid attention to the business models behind vaccines.

The global pharmaceutical market was worth $1.3tn in 2019.

Vaccines made up just 3 per cent of that,

generating around $33bn of revenue.

That compared to $142bn from cancer drugs.

So how do the economics of vaccines work?

Who funds them?

How profitable are they?

And will the Covid-19 pandemic and new technology

disrupt the vaccine market forever?

Until recently, there have really

only been four main players in the vaccine market -

GlaxoSmithKline, Merck, Pfizer, and Sanofi.

They represented 90 per cent of the vaccine industry revenues

in 2019.

Even for these market leaders developing a vaccine

is a costly and time-consuming gamble.

The process often takes a decade.

Work on infectious diseases is often very obscure

because the burden is so much out of sight

in the rich countries and where the deep scientific

and manufacturing power is.

Government is the main funder of the science.

And that's critical.

And in all of the benefits we have today,

if you think about the sequence analysis or the mRNAs

and the biotechnology, the new manufacturing, all of that

came out of investments in basic science.

As you go into phase 1 trials these

are taken over by industry.

Maybe one in every 10 vaccines and a phase 1 trial

goes on to be approved, while 50 per cent

to 70 per cent of vaccines in phase 3 trials

end up being approved.

They will only invest once the market and the chances

of success are well known.

This doesn't mean there's zero risk.

But largely what we see is that the public sector

takes on most of that.

But indeed, this is what allows the business of vaccines

to operate.

The cost of creating a vaccine varies widely.

On average, it ranges from several million

to a few billion dollars.

Supply, demand, and pricing for vaccines

are determined by a small number of actors.

On the buyer side, national governments and organisations

like Gavi, the Vaccine Alliance, and Unicef are among

the biggest purchasers.

On the seller side are the pharma companies.

Because the development costs and regulatory barriers

for vaccines are high, companies can maintain their monopolies

for longer.

It tends to have a high amount of market power and ability

to get higher prices than, let's say,

a generic small molecule drug, or even a vaccine for which you

have lots of competitors.

Up until Gavi was created, the global alliance for vaccines,

in the year 2000, there was no purchasing power

to get those new vaccines to the kids who needed them most.

So that was this great irony that, for example, rotavirus

and pneumococcus vaccines that now save millions

of young children's lives, they weren't getting out

in these countries.

Normally, what happens is when vaccines come out,

they come out at a high price in a low volume.

And over time, as the yield goes up,

as other manufacturers begin to produce it,

prices come down dramatically.

To give an example, our vaccines that are the WHO

approved vaccines cost over $1,300

if you look at it in the US model.

And we pay $27 for those.

So it's a pretty dramatic difference.

Gavi typically negotiates procurement

on behalf of 60 per cent of the world's children.

They try to ensure low and middle income countries pay

significantly less for vaccines than rich countries do.

If the disease is in the rich world,

one of the western companies will invent a new vaccine

with huge R&D investments.

They'll charge a reasonably high price as much as, say,

$100 in western markets.

And then eventually, either they'll

make a cogs-oriented version or the Indian or other developing

country manufacturers will come in.

By prioritising high volumes at low prices,

the Serum Institute of India has become the world's largest

vaccine manufacturer by volume.

It typically produces more than 1.5bn doses of vaccines every

year, which are used in 170 countries.

This year it has increased capacity

and is aiming to manufacture at least one billion doses

of Covid-19 vaccines alone after signing deals

with AstraZeneca and Novavax.

It is more expensive to make a vaccine in the US and Europe.

Traditionally, those companies haven't had large facilities

because the volumes that they sell at are much lower,

but at a very high price.

Well, these are proprietary products

that the companies have spent lots of money in high risk

in order to go through trials.

They have to recover all of those

and make their profit from the rich world

market and the middle income market,

knowing that those Gavi markets are not going to give them

any meaningful margin.

But returns on investment are not straightforward.

The lack of transparency around each company's production costs

makes it difficult to assess a vaccine's profitability.

We do know that at the top end Pfizer's pneumococcal vaccine,

Prevnar, which works against pneumonia,

generated $5.8bn in revenue in 2019.

If you've invested maybe a few hundred million dollars

in the R&D 10, 15, 20 years ago and you have a captive market,

then you're going to make a pretty good profit.

A very, very healthy profit.

Some would even say an excessive profit.

At the other end of the spectrum are well-established,

low-cost children's vaccines, like measles.

Low profits drove several producers out

of the market in the 1970s and 80s.

In the past decade an increase in vaccines for adults

and those taken annually, like the flu vaccine,

have helped make the market more profitable.

But for governments, the health, societal, and economic returns

are much greater.

Gavi estimates a $21 return for every dollar invested

in vaccine programmes for the 73 countries it typically

supports.

Well, the most salient number is that in the year

2000 over 10m children under the age of five died every year.

By 2016, that number was under 5m per year.

That's per year.

That's millions.

This is the way things work.

Then came the pandemic.

The outbreak of Covid-19 brought China and then Europe

to a standstill.

As the novel coronavirus spread to the US and across the globe,

it wasn't long before governments

were betting billions of dollars on developing vaccines

to fight the pandemic.

A new vaccine market was about to emerge where demand

was unlimited, and governments would do everything

in their power to secure doses.

The total amounts involved relative to normal vaccine R&D,

it's tens of billions of dollars, maybe

a total of $25bn or so.

That's gigantic in the world of vaccines.

Now relative to the economic damage of the pandemic,

which is in the trillions, it's truly a rounding error.

This is the best money that's been spent by governments

during this pandemic.

The public sector, governments collectively,

have really de-risked and subsidised

the R&D process every step of the way from the earliest

stages of R&D, oftentimes to the scale-up of manufacturing

and, of course, purchasing.

Other big funders include the Bill and Melinda Gates

Foundation and CEPI.

The Coalition for Epidemic Preparedness Innovations

is a public private partnership that

supports vaccine development to stop future epidemics.

One recipient of a small grant from CEPI

at the start of the pandemic was Moderna,

a biotech company that had yet to bring a product to market.

By the end of 2020, US federal funding for Moderna's vaccine

had swelled into the billions, and it was approved for use.

So Moderna took a huge amount of public money - up to $4bn

from the US government.

And that helped them build this proof of concept.

The vaccine uses messenger RNA technology which the company

spent a decade developing.

We invested around $3bn in the last 10 years

to get the technology to this place.

The pandemic has accelerated the company

turning into a commercial company by three

to maybe four years.

The first vaccine approved in a western country also used mRNA.

It was made by US pharmaceutical giant Pfizer

and Germany's BioNTech.

While Pfizer did not take public funding to develop

and manufacture its vaccine, it did have an initial $1.95bn

advance purchase agreement through Operation Warp Speed.

The US government's COVID-19 investment programme has

surpassed $10bn, most of which has been spent on vaccines.

It's not the only country that placed huge bets on vaccines.

China and Russia funded their own vaccine candidates.

And the German government gave BioNTech $445m.

The UK government contributed £65.5m to Oxford university.

And its vaccine manufacturing partner, AstraZeneca,

received up to $1.2bn for trials in manufacturing from the US

government.

Well, there was no point in us generating a vaccine in January

of last year if it wasn't going to be able to take it

all the way through clinical development

and into emergency use licensure.

And as a university we are able to do

much of the early clinical development

and get that taken quite a long way,

but we were never going to be able to manufacture

a vaccine that was going to be used as a licenced product.

The unprecedented public funding helped these companies develop

vaccines in less than a year.

Until now, the fastest vaccine ever created

was a mumps vaccine developed by Merck in four years.

The pandemic demanded an urgent response,

but that also led to questions about the prices

of Covid-19 vaccines.

We have a high degree of secrecy.

We have governments really desperate for access

to vaccine supplies and willing to sometimes

pay very, very high prices.

And things are happening very quickly

under emergency conditions.

So it's, unfortunately, a perfect storm

where the risk of abusive pricing or unfair pricing

is quite high.

I think pharma did hold a lot of power in this negotiation.

But I also think that they could have gone higher.

Plenty of investors actually would

have liked them to go higher and didn't make a secret of that.

Prices for Covid-19 vaccines very widely.

The Oxford-AstraZeneca vaccine is about $3 to $4 a dose.

Along with Johnson & Johnson they

have committed to selling their vaccine on a non-profit basis

during the pandemic.

AstraZeneca say they will do so in perpetuity

for low and middle income countries.

Moderna said it has charged the US government as little

as $16.50 per dose to return some money to taxpayers.

But smaller orders for other customers range from $32 to $37

per dose.

We invested $3bn in this technology since the beginning.

We've never made a penny of profit.

We thought it was not appropriate not

to make a small profit.