Question

After listening to the broadcast for the vaccine pricing of Covid-19, it seems to me that it is complex, and it will be controversial throughout the globe. NPR only discusses the situation in America; however, I think the problem will be more intense in developing countries and poorer countries with low government income.

                The first question is, how should the vaccine be priced so that the companies still have the incentives and motivation to develop the vaccine, and in the meantime, affordable for everyone?

   Another question is, what should be the role of the government in this stage of vaccine development?

Answer 1

The first question is, how should the vaccine be priced so that the companies still have the incentives and motivation to develop the vaccine, and in the meantime, affordable for everyone?

• It must be ensured that every such company must be able to recover (i) its marginal cost (MC) with every unit of vaccine sole; + (ii) the research and development costs incurred by it over a period of time; + (iii) A healthier profit to keep the motivation high.
• Vaccine companies invest a lot in researching and developing the medicines. Sure, they must not aspire for recovering the entire R&D cost in just one or two years from the launch of vaccine, yet, recovery in a reasonable period of time remains important to keep them motivated about developing more vaccines in the future.
• One favorable factor for these companies is - HUGE DEMAND for the vaccine. The expected large scale is expected to make them recover the R&D costs faster and easily.
• Getting patents on Covid 19 vaccines seems to be unlikely allowed by the government (considering the severity of the pandemic all around), therefore in most likelyhood, the pricing of vaccine, whenever that is coming, is not expectedc to exorbitantly high and unaffordable for general masses.
• Companies that are working day and night for an early launch of vaccine, in several countries, have been assured by their respective governments about the reasonable pricing and not harming companies' long-term strategy on vaccine development.
• Typically every company developing the vaccine must get the minimum price calculated as below:
  
  Fair Price of Vaccine = MC + (Total R&D cost / no. of amortization years as allowed by govt) + Healthier than 'normal profits'

Another question is, what should be the role of the government in this stage of vaccine development?

• No doubt. Government's role is crucial and sensitive in this matter. Most of the companies racing with each other for an early development and launch of vaccine, actually belong to private sector, where in general legal terms the government cannnot regulate their prices. Yet, government cannot escape the responsibility of keeping the vaccine affordable for all.
• Government has to ensure that no vaccine company tries to create a monopoly for itself in the market. You see in medical research, the early comers are like kings, especially with the support of patent laws.
• Government will also have to avert a situation of 'Cartels' being formed amongst the vaccine companies in the market.
• Government will have make sure that no vaccine company (especailly an early-comer) tries to recover its R&D cost too fast. Because, a faster recovery of R&D cost will make the price rise and go affordable.
• Government should fix a fair price for the vaccine which is enough to rocover MC + (Total R&D cost / no. of amortization years as allowed by govt) + Healthier than 'normal profits', on part of the company. However if such fair price is found to the unaffordable to a certain section of society (say those living below poverty line), then government must itself come forward to help them.
• Subsidising the vaccine for targetted segment of society seems to be the good wayout in the present pandemic times. This process of handing out subsidy on COVID 19 vaccine is better to be in other than money form. Remember, how Polio vaccination program has been run by WHO in various parts of the world, including India, a typical example of developing country? Similar or little modified model may be evolved and implemented for the benefit of those cannot really afford the vaccine prices prevailing in the market.