COVID-19: Pfizer vaccine deal at $20 a dose sets ceiling for rivals

In signing a $2 billion deal to supply their experimental coronavirus vaccine to the US, Pfizer Inc. and BioNTech SE are setting a price ceiling of less than $20 a dose that will impact how much other companies can charge to protect people from COVID-19.

Pfizer's $19.50 price-point takes into account the "public health requirements during the pandemic," said Sally Beatty, a Pfizer spokeswoman. The companies are pursuing a two-dose regimen of one of its vaccine candidates, and the roughly $40 course, Beatty said, is "almost 30% less than what others charge for a seasonal flu vaccine."

Governments worldwide are seeking to blunt a pandemic that's killed more than 600,000 people, and dozens of companies are wrestling with how to price future vaccines. Rival drugmakers are unlikely to exceed the $20 price tag unless they can deliver a product that's more effective, has fewer side effects or that doesn't need as many doses, particularly those developing candidates based on so-called messenger RNA technology, such as Moderna Inc.

"This definitely sets a base, I think you can even call it a ceiling, for mRNA vaccine pricing," Brad Loncar, chief executive officer of Loncar Investments, said in an interview. "This price comes right down the middle in what investors think is fair. It will definitely support a profit, and will incentivize companies to continue to innovate further."

New York-based Pfizer, which is evaluating at least four experimental vaccines with Germany's BioNTech, reported positive preliminary data from one of its candidates earlier this week. Beatty said Pfizer "will not rely on taxpayer dollars in the development or manufacture of the vaccine candidate," and thus is shouldering all of the risk in bringing a shot to market.

600 million doses

In the Pfizer deal, the US agreed to secure 100 million doses of its vaccine candidate. The payment depends on approval from the US Food and Drug Administration and the ability to successfully manufacture it, Pfizer's Beatty said. The time line for supply is not yet known.

The US can acquire as many as 500 million additional doses, though Pfizer "will need to separately negotiate the terms for the remaining doses if the US orders more," according to Beatty.

Pfizer shares rose 4.1% to $38.20 at 1:50 p.m. in New York trading on Wednesday, while BioNTech's US depositary receipts jumped 8.3% to $99.

The US has already ordered experimental shots including one co-developed by the University of Oxford and AstraZeneca Plc., which fell as much as 2.7% in the wake of the Pfizer agreement.

Calculated windfall

Even with Pfizer setting a moderate price for a shot, the drug giant and its partner stand to profit from their effort.

"If this vaccine prevents disease after one use, we calculate a windfall of more than $15 billion revenue for Pfizer," Sam Fazeli, a Bloomberg Intelligence analyst, said in a note. "We believe this sets the top price for a vaccine, with lower prices elsewhere. Need for repeated use would be the game changer."

The agreement has implications for companies like Moderna, whose investors see a significant financial opportunity. The US biotech's vaccine could generate sales of more than $5 billion a year, according to Jefferies. Shares of Moderna, Inovio Pharmaceuticals Inc. and Novavax Inc. have risen sharply this year.

Earlier this week, Tazeen Ahmad, an analyst with BofA Securities Inc., estimated that BioNTech's vaccine program is worth about $11.7 billion. That's based on an estimated $36 net price per dose in the US, $30 per dose in the European Union and $12 per dose in the rest of the world.

Pricing a Covid-19 vaccine is far different than other products because of the potential demand and value, Pfizer Chief Executive Officer Albert Bourla said in June at a conference.

"If we try to calculate the value of the vaccine for the pricing like any other vaccine," through common market principles, Bourla said, "it would be unethical."

Supply concerns

The US deals have stoked concerns that other countries, especially poorer regions of the world, will be left behind. Other rich countries, such as the U.K. and those in Europe, have also secured deals.

On Monday, Pfizer and BioNTech announced a plan to supply 30 million doses of one of their vaccine candidates to the U.K. this year and next, though they did not disclose what they stood to gain from the agreement. Pfizer's Beatty said on Wednesday that the companies have also engaged the Covax program, a group established by Gavi, the Vaccine Alliance, the Coalition for Epidemic Preparedness Innovations and World Health Organization to launch supply discussions.

The US typically pays "the high water-mark price" when it comes to pharmaceuticals, according to Loncar. It's likely that the UK and other countries are able to secure the still-experimental vaccine for lesser sums, he said.

The US in May pledged as much as $1.2 billion to AstraZeneca to help make Oxford's Covid vaccine, and the government has backed projects underway at Johnson & Johnson, Moderna and other companies.

The Pfizer vaccine would be free to the American people, according to the government. The U.S moves are part of a larger initiative to secure coronavirus vaccines for the US, officially dubbed Operation Warp Speed.

"Expanding Operation Warp Speed's diverse portfolio by adding a vaccine from Pfizer and BioNTech increases the odds that we will have a safe, effective vaccine as soon as the end of this year," Health and Human Services Secretary Alex Azar said in the statement.