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More than 100 companies around the world are racing to develop a COVID-19 vaccine. A couple of vaccines under development in the U.S. might start clinical trials as early as this month. But how much will people have to pay for it once the vaccine is ready? Cardiff Garcia and Paddy Hirsch from our daily economics podcast The Indicator From Planet Money dig into the economics of vaccine pricing.
CARDIFF GARCIA, BYLINE: Michael Kinch is the author of "Between Hope And Fear," a book about the history of vaccines. And he says that making money on a vaccine is harder than making money on, say, a lifesaving cancer drug.
MICHAEL KINCH: A vaccine generally tends to be a relatively inexpensive, short-term therapy. You immunize everybody, but you really get that patient population once and at a relatively low price point. Compare that, for example, with a drug for metastatic cancer, where you can price that drug at hundreds of thousands - and now we're reaching the point of millions - of dollars per person. And that's much more profitable both in the short term and in the long term.
PADDY HIRSCH, BYLINE: In recent decades, the pharma industry has mostly focused on those lucrative drugs and not on vaccines, which is why Michael argues that pharma companies have been caught flat-footed by having to create a vaccine for COVID-19. And that's also influenced their scientific approach to making that vaccine.
GARCIA: Most of the companies in the United States are taking technologies that were developed for, for example, cancer and repurposing them for COVID-19.
HIRSCH: And this approach by U.S. companies has consequences, Michael says. An American pharma company that develops a COVID vaccine might not actually own the patents on those neurotechnologies. So for every patient that buys the vaccine, the company might end up having to pay a certain percentage to the other companies that do own the patents.
KINCH: There might be three or four or five or six different patents that you have to serve. Each of them may want a percent or two or three or four, and that starts to add up very, very quickly.
GARCIA: Charging a lot of money for a vaccine that the public absolutely needs to immunize itself against COVID would be extremely controversial.
HIRSCH: Especially controversial if the vaccine's developed by one of the companies that's being subsidized by the U.S. government. So far, the government's pledged roughly $2.2 billion to five U.S. pharma companies.
GARCIA: The government and the pharma companies obviously both want a vaccine to be developed. But when it comes to pricing the vaccine, they have somewhat different goals. Pharma companies want to charge enough to cover costs and make a profit, whereas the government and the public want prices to be affordable enough that everyone can get immunized.
KINCH: We don't want to disincentivize the private sector from making a new vaccine. Instead, we want to figure out, how do we balance that incentive with making sure that the drug is affordable and available to everyone?
HIRSCH: Not getting that balance right is one of the reasons there have been so few new vaccines developed in the last few decades. Pharma companies know they'll get lambasted if they charge too high a price, but charging a low price isn't really worth it to them because developing vaccines is expensive.
GARCIA: Aligning the incentives of the public and the pharma companies is massively important because as urgent and terribly important as the fight against COVID it is right now, it probably won't be the last against a threatening pandemic.
HIRSCH: Paddy Hirsch.
GARCIA: Cardiff Garcia, NPR News.
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