Some of the world’s biggest drugmakers are making unusual deals to get more medicine to more people at a lower cost. Not a bad idea
Pandemics make for strange bedfellows and behavior in the pharmaceutical industry.
The world is relying on drugmakers' expertise to get us out of the Covid-19 crisis — initially with treatments to help lessen the risks from contracting the virus, and then ultimately with a vaccine. The high pressure, enormous need, and global attention are leading companies to try new things on the fly. Just last week, Regeneron Pharmaceuticals Inc. signed a pact with its erstwhile rival Roche Holding AG aimed at substantially boosting supplies of a potential treatment for Covid-19; it even made some monetary sacrifices to do so. And that's only the latest example.
Much of what's happening represents a war-time type response to a unique situation, and it may not be repeated. These are for-profit companies, after all, and they will act accordingly. But from an unprecedented vaccine hunt to international manufacturing deals, the drug industry's response shows the possibilities of what a more collaborative medicine market could bring.
Take the Regeneron-Roche deal, under which Regeneron will sell its promising antibody therapy in the US, and Roche will handle the rest of the world. The companies will carry their own manufacturing and distribution costs and divide development expenses and profit. Roche's muscle could more than triple capacity, according to Regeneron.
Typically, Roche would pay a hefty price for a cut of a promising drug's potential sales. In this case, Regeneron is forgoing that customary upfront payment and surety in favor of maximizing supply during the pandemic. Regeneron won't be able to satisfy global demand on its own, and Roche is a giant in the field of antibody drugs. The bigger company has a lot of incentive to scale up manufacturing; it will receive between 40% and 50% of gross profit.
Regeneron will get nothing but some of its costs covered if it doesn't pan out. However, the company can't sell medicine that it can't make. Picking volume and patient access over a higher profit margin — a tactic drugmakers too rarely embrace — makes sense from a humanitarian and business perspective.
While the Regeneron-Roche deal focuses on antibody manufacturing, uncommon partnerships and arrangements are forming in other areas as well to meet various pressing needs. Here are just a few:
- Ensuring worldwide supply: Gilead Sciences Inc., the company behind remdesivir — one of the few Covid treatments available — freely gave away a license so that several generic drugmakers can make a low-cost version for developing countries, something that generally doesn't happen for a brand-new medicine and will dramatically boost the drug's availability.
- Collaborating on a vaccine: Fierce competitors Sanofi and GlaxoSmithKline PLC formed a historic partnership under which one will provide the core of a vaccine, and the second a type of booster called an adjuvant.
- Pricing for access: Instead of leaving prices to the free market as it often does, the US is behaving like other countries that manage to keep drug costs at a reasonable level by negotiating the price of hundreds of millions of doses of vaccine before they reach the market. It's been helped by non-profit pledges from AstraZeneca PLC and Johnson & Johnson, who are developing two leading candidates. However, the prices negotiated with companies that aim to make a profit are lower than the private-market norm for new shots. Uncle Sam is buying the doses and the first wave of vaccines will be free for Americans. It's a sharp contrast to ordinary times, where the world's highest drug prices lead to financial hardship and skipped treatments.
- Risk-sharing: At least one of the US government's Operation Warp Speed vaccine deals includes risk-sharing structures I've never seen in a government contract. The US will pay less for Moderna Therapeutic Inc's vaccine if the company is slow to deliver it. The company also has an opportunity to get a $600 million chunk of money early if it can meet ambitious manufacturing timelines.
- Fixing a broken market: Infectious disease research, the neglected and unprofitable stepchild of drug development, is being lavished with money and attention. The US alone has committed or promised over $10 billion to six companies and many more are working on novel vaccines. Hopefully, the large sums will convince companies to continue to invest.
It's great that companies and the government are stepping up. But the moment will be wasted if everything snaps back post-pandemic. Better pricing, more focus on patients and public health, and less duplication of effort are all possible and should be the expectation even when there isn't a crisis.
Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement