Covid-19 underlined the critical importance of vaccines. The pandemic caused 16 million global deaths, and the current scare surrounding Mpox emphasises how citizens remain fearful of fresh outbreaks. That suggests Big Pharma groups should be ploughing resources into a vaccine arsenal to tackle the next big virus. Yet right now they’re not, and it’s far from clear that they will.
The World Health Organization says the world should prepare for a virus that could be 20 times deadlier than Covid-19. Scientists call this hypothetical virus Disease X, and reckon the next outbreak could come from an unknown pathogen rather than an established virus like flu. This forecast is all the more troubling given pandemics are already becoming more frequent.
Five out of the past 12 pandemics occurred in the 20th century, according to the National Library of Medicine. Another two occurred in the 21st. Increased travel and more urban living are often cited as the causes for more regular outbreaks: given the frequency of travel, scientists estimate a deadly pathogen can spread around the world in a matter of hours.
This elevated risk poses a significant threat to the world economy. The International Monetary Fund estimated the global cost of the last pandemic was close to $13 trillion, reducing global GDP by 3% in 2020 alone. Health systems around the world are still battling to clear record waiting times for essential services. With the threat of another crippling health emergency on the cards, it stands to reason that Big Pharma companies would be investing in vaccines to deal with such an emergency.
Drugmaker bosses don’t have to be nice guys to think this a good idea. If a company produces a winning vaccine for a deadly virus, it stands to make a fortune. Pfizer’s PFE.N market value increased by 80% to $337 billion between 2019 and 2022 thanks to its MRNA jab for Covid-19. Its operating profit more than doubled to $40 billion in the same period. Meanwhile, Moderna’s MRNA.O share price increased 11-fold on the same technology and it went from a more than $500 million operating loss to nearly $9.5 billion of profit in 2022.
Despite all this, drugmakers are not future-proofing against pandemics. Pfizer and AstraZeneca AZN.L, the $257 billion drug giant which also produced a Covid-19 vaccine during the pandemic, are spending their cash on boosting their oncology franchises rather than churning out inoculations. Pfizer spent $43 billion on Seagen in an effort to double its cancer drug pipeline late last year. It has made no similar investment in battling future Covids. Meanwhile, AstraZeneca splurged $39 billion on Alexion in the height of the pandemic in 2021 in order to build up its rare disease portfolio, which positions it to win big if it comes up with a breakthrough for diseases that affect a small number of people. With little investment, there’s little hope that AstraZeneca’s vaccine and immune therapy business will grow beyond the 2% of sales it accounted for last year.
At first blush, this reticence is peculiar. Investors add a 50% premium when valuing vaccine businesses versus other pharma units, one investor told Reuters Breakingviews. Historically, that means GSK’s GSK.L relevant business would have been valued at around 15 times its expected EBITDA while its remaining pharma unit would only fetch about 9.5 times. Similarly, investors valued Sanofi’s SASY.PA pharma unit on 10.5 times while its vaccine business – which generates sales of nearly 7.5 billion euros, around 17% of the French group’s total – is pencilled into models at 14 times EBITDA.
Yet this premium is not as helpful as it looks for helping the world face down a new Covid. The stability favoured by shareholders is largely reserved for vaccines where there will be steady demand, like flu jabs. Lower-frequency but high-impact diseases – the type likely to cause pandemics – are less likely to be prized as highly by the market.
Mpox, as it happens, offers a live example of this. Denmark’s $3.1 billion Bavarian Nordic BAVA.CO, which makes a jab for the condition, has seen its shares jump by over 50% since the beginning of the year versus a 15% rise for the S&P Pharmaceuticals Select Industry Index .SPXSPH. Before that, investors gave the company little credit for having an effective treatment for a deadly disease. Last year, the Copenhagen-based business traded on just 2 times sales, whereas it now trades at over 4 times.
The post-Covid fates of stars like Pfizer and Moderna tell a similarly volatile story. Over the last three years Pfizer shares have fallen 40%, while Moderna’s are off 80%. CEOs have little cause to make big vaccine punts if the valuation sugar-rush is so brief.
Rolling the dice on a niche-condition inoculation is, in any case, a risky step. In order to get approval from regulators like the U.S. Food and Drug Administration, pharma groups need to display evidence that the drug works in most cases. Yet those sorts of threshold make it harder for other drugmakers to compete with new products. That’s because regulators tend to frown upon enrolling patients in trials for vaccines when an already effective jab is on the market.
On the face of it, governments could step in where the private sector is failing. A comprehensive global strategy would see countries cooperating on a plan to provide joint funding for new vaccines, meaning there could be some sort of strategic jab reserve against future pandemics. A version of this in train: health officials around the world have been working towards the so-called “100 day challenge” which would in the same timeframe see an unknown pathogen identified, an inoculation created and manufactured, and a public rollout.
Yet the public sector’s hopes of nailing a robust pandemic response seem just as forlorn. At the World Health Assembly in May, countries couldn’t agree on how vaccines would be doled out in a future pandemic, and plans for a treaty outlining a pandemic response protocol came to nought. The world’s hopes of devising a rapid jab in future therefore rest on ad hoc public support for individual projects. This is not nothing – U.S. state funds helped Bavarian Nordic advance its Mpox treatment, for example. But given Covid-19 is less than five years old, taxpayers might find it odd that the main strategy to avoid future equivalents is basically just to hope they don’t happen.
