Drug Companies Telling Investors Price Raising Opportunities Forthcoming

Drug Companies Telling Investors Price Raising Opportunities Forthcoming

Recent disclosure of Pfizer executives telling investors about the profit potential of its vaccine raises the issue of money in the drug industry. On the one hand, it is capitalism and the profit motive that have enabled our amazing advances in science and medicine. TrialSite advocates for a free market society moreover. On the other hand, at times the profit motive can lead some, e.g., a pharma firm, to lose site of the myriad of legal, moral, and ethical guides (partially agreed to in order to obtain benefits, such as tort immunity) that temper this motive in the human services fields. The line between distasteful and inappropriate is not always well-demarcated. Yahoo news offers an overview of this story: “Pfizer execs say there’s a ‘significant opportunity’ to hike prices of its COVID vaccine.” Noting that execs told investors of a major opportunity to “hike” vaccine prices, Yahoo also points out that these same Pfizer leaders offered that, “with emerging COVID variants, people may need a third dose of the vaccine.” They also told investors that going from a “pandemic” to an “endemic” will make opportunities to raise prices. The entry notes that yearly boosters and other vaccinations, “may become part of the new normal. “We believe it’s becoming increasingly likely that an annual re-vaccination is going to take place,” offered one expert, adding “that the company did not see the pandemic or the resulting vaccination drives as a ‘onetime event.’”

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As reported, Pfizer executives are on record explaining to investors how the company can capitalize on conditions once the “pandemic state” passes, back to a resumption of what purportedly will be a resumption to normalcy. They assured them that at that juncture, demand and pricing factors would be certainly factored into pricing in a way that favored greater investor return. CFO Frank D’Ameilio and VP of investor relations Chuck Triano had to educate sophisticated investors at the recent virtual Barclays Global Healthcare Conference that due to the obvious confluence of factors and forces (e.g., pandemic, mass government financing and supported vaccinations, over half a million deaths already, and nasty variants circulating the globe,  etc.) a pandemic state arose that countered normal market conditions. 

That’s because the agreements between governments and their vaccine suppliers are part of the many billions of dollars of taxpayer money that governments allocate to combat  COVID-19, including the mass purchase of vaccine product. Pfizer, is an exception in the industry in that it refused to accept government money, at least for the clinical trials. But they did benefit from government “rationalization” of clinical trials: organizing and mobilizing NIH-funded trial site networks to improve and optimize volunteer recruitment and enrollment, for example.   

Pfizer made a brilliant move in partnering with Germany’s BioNTech to access what turned out to be a superior mRNA-based vaccine product, although as TrialSite has identified considerable stumbles occurred during fulfillment. From manufacturing and delivery to the commitments made to European governments, for example, various slowdowns occurred. Now, BioNTech has inked deals with Pfizer competitors in Europe to bolster production and supply of product in Europe. How will this impact investors? 

Undoubtedly something has to give if Novartis, Merck KGaA, and Sanofi are now aiding the production of BNT162b2. In this context, somehow the topic of price increases found its uncomfortable way into the discussion, and the Pfizer executives said there was a “significant opportunity” to hike the price of its vaccine during a transition from the “pandemic state” back to a normal market state. What with ongoing variants and needs for boosters on an annual basis, for example, this represents tremendous opportunity for investors to yield greater return, that is a price higher than $35.41. While Pfizer’s stock price is higher than a year ago, many think it should be quite a bit higher still given its market leadership position with the vaccine. Does somebody know something we don’t?

The Context

A pandemic rages, and over 2.6 people have died worldwide, involving 540,000 deaths in America alone. A horrific year has gone by, one that all would like to forget. One where many families lost grandparents, parents, uncles and aunts, even siblings and adult children. This loss is magnified by the impact of lockdowns, massive job loss with what was a shutdown of the entire economy –frankly just unprecedented conflation of economic and health crisis. And it will not be soon forgotten, as the pandemic continues to rage. With a precipitous decline of cases in America, many now seem to have a false sense of excitement, with summer around the corner, that the crisis is somehow, someway over. 

After all,  by January 8 there were over 300,000 cases reported in one day, and presently  the country fluctuates between 40,000 to 60,000 cases per day. So yes, daily average cases have gone way down, but America is still in a precarious position, not to mention Europe. For example, during the first wave of the pandemic back in the Spring of 2020, 30,000 cases in a day was considered a lot.   

That we are not out of this pandemic, anywhere near out, should be clear to any rational thinker. Of course, there is lots to be thankful for, and with what appear to be highly efficacious vaccines and well-established protocols to better protect people, the unfolding situation most certainly include ups and downs, twists and turns. And enormous sums of  money (public taxpayer money and private investment) will continue to pour into vaccines and therapies and other kinds of sectors that are expected to prosper moving forward (e.g., tech). Developing pharmaceuticals is a high risk, high reward affair, especially for small biotechs pushing the envelope of science, as were BioNTech, Cueva, Modena, and others.  As a company moves up the food chain and develops cushions, such as the case of Pfizer with a $193 billion market capitalization based on turnover of $42 billion and profits totaling $14.9 billion, certain expectations are in play, especially in a pandemic state where literally dozens of billions of taxpayer funds are injected into the research and financial systems.

The Setting

Pfizer smartly partnered up with BioNTech to access the mRNA-based technology developed in Germany. A broad-based agreement between the two would co-develop, manufacture, and commercialize the vaccine product known as BNT162b2 worldwide. Achieving a historical feat, Pfizer’s CEO even resisted the temptation of taxpayer money, at least for the clinical trials activity, opting to have less burdensome reporting and control and letting the company’s scientists and support professionals execute. He made a gutsy call that earned a lot of respect. By August 9, 2020 Pfizer finalized supply deals with European nations targeting 200 million doses and an option for another 100 million doses, with deliveries starting by the end of 2020, assuming regulatory milestones are met.  Back then, they targeted up to 100 million doses for delivery by the end of 2020 in Europe alone and possibly 1.3 billion doses by end of 2021 as reported in a press release. But since then, things haven’t gone according to plan. 

As mentioned in Europe BioNTech now inks deal after deal with Pfizer competitors to bolster supply under pressure from European governments. Pressure started back in America in December, as the feds accused Pfizer of production problems, while the latter declared plenty of supply was in stock waiting to be shipped. What was the truth? Distribution hurdles appear to have been overcome in America, but the topic of monetization ultimately becomes a top concern for investors. And with a recent virtual Barclays Global Healthcare Conference, they undoubtedly were going to bring it up. For purposes of context, Yahoo Finance reports that the top five holders of Pfizer stock own just under 30% and that includes the Vanguard Group, Blackrock, State Street Corp., Capital World Investors, and Wellington Management.

Conclusion: Balancing Profits and Progress

That Pfizer executives found themselves having to explain to very sophisticated investors the difference between pandemic times and “normal” times makes one question who is managing the wealth. Declaring, “if you look at how current demand and current pricing is being driven, its clearly not being driven by what I’ll call normal market conditions or normal market forces…it’s been driven by the pandemic state we’ve been in; and the needs of the governments to secure doses from vaccines suppliers,” Mr. D’Amelio informed the investors. Then, in an apparent attempt to assure them, he continued that “normal market conditions” should over time come back and that it was at that juncture that the company would capitalize on market conditions, from “a demand…and pricing perspective.” 

Drug prices are in fact too high for most people, based on income distribution in countries like America. However, the logic of the system is growth and returns as a law of nature. The funds that investors manage cut across asset and investor class, from conservative to the growth-minded. The logic and force of returns build unmanageable pressure for the removal of any constraints, or restraints. That such a topic would surface at this point is distasteful to say the least, but not surprising. That the companies have something special, in some cases incredible medicinal breakthroughs, sophisticated technology and infrastructure, and incredibly talented people represents the true opportunity to find that balance serving both shareholder and patient and by extension, society.

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