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Essay: Has the cost of R & D impacted vaccine development for Covid-19?

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Introduction

This report will be investigating and trying to answer the question of: ‘To what extent have the cost requirements of R&D, structure of the industry and government subsidy affected firms in the pharmaceutical industry in developing vaccines for Covid-19?’. The past two years have been very unpredictable for the pharmaceutical industry regarding the breakout of the COVID-19 pandemic. Despite the fact that the pharmaceutical industry has made major contributions to human wellbeing with regards to the reduction of suffering and ill health for over a century, the industry still remains one of the least trusted industries based on public opinions. It is even often compared to the nuclear industry in terms of trustworthiness. Despite being one of the riskiest industries to invest money into, governments have subsidised billions into the production of the COVID-19 vaccines. Regardless of the fact of the associated risks that come with pharmaceuticals, a big part of the public still thinks pharmaceuticals should continue to be produced and developed in order to provide the correct treatment to those with existing health issues (Taylor, 2015). This along with further aspects affecting the requirements of R&D, structure of the industry and government subsidy and how these have affected firms in the pharmaceutical industry with regards to the development of the COVID-19 vaccines will be discussed further in the report.

The Costs of R&D

Back in 2019, $83 billion was spent on R&D. That figure alone is roughly 10 times greater than what the industry spent on R&D in the 1980s. Most of this amount was dedicated to testing and discovering new drugs and clinical testing with regards to safety of the drug. In 2019 drug companies dedicated a quarter of their annual income to R&D which is also an increase of almost double since the early 2000s.

(Pharmaceutical R&D Expenditure Shows Significant Growth, 2019)

Usually the amount spent on R&D of a new drug by drug companies is based on the financial return they expect to make, any policies influencing the supply and demand for drugs and the cost of developing these drugs.

Most drugs that have been approved recently have been specialty drugs. These are drugs that typically treat issues such as complex, chronic or rare conditions and can require patient monitoring. However, specialty drugs are very expensive to develop, pricey for the customer and hard to remake (Research and Development in the Pharmaceutical Industry, 2021).

Government subsidies for the COVID-19 vaccines

There are two main ways in which a federal government can have a direct impact in supporting vaccine development. This is either done by making a promise to purchase a successful vaccine in advance once the firm has successfully achieved its specified goal with the vaccine, or they can cover any costs associated with the R&D of the vaccine.

(Which Companies Received The Most Covid-19 Vaccine R&D Funding?, 2021)

The Department of Health and Human Services in the month of May 2020, launched ‘Operation Warp Speed’. This was a collaborative project in which the FDA, the Department of Defence, the National Institutes of Health and the Centre for Disease Control and Prevention all worked together to provide funding for the COVID-19 vaccine development. Through ‘Operation Warp Speed’, more than $19 billion was provided in funding by the federal government to help seven different private pharmaceutical manufacturers in the development and research of COVID-19 vaccines. A further five out of seven of those went on to accept further funding in order to help these companies boost the production capabilities of the vaccines. Later a sixth company accepted funding in order to help boost the production of another company’s vaccines as they received authorization for emergency use. Then six of the seven also made a deal for an advance purchase. Two of these companies received additional funding as they sold more doses than they expected to during the advance purchase agreements, in order for them to develop even more vaccines to distribute. Due to the simultaneous execution of combining numerous stages of development that in normal cases would be developed in consecutive order, it allowed pharmaceutical manufacturers to reach their end goal and manufacture vaccines at a rate a lot higher than normal when it comes to vaccines. This was done due to the urgency of a solution to the COVID-19 pandemic, as it was starting to cause public uproar and panic amongst nations. As soon as the first COVID-19 diagnoses was made in the US, two vaccines were already at Phase III clinical trials, and this is immensely quick, as it would usually take around a few years of research in order to reach Phase III in clinical trials for a vaccine. The World Health Organisation claims that there were already over 200 COVID-19 vaccine development candidates in the time period of February 2021 (Research and Development in the Pharmaceutical Industry, 2021).

(Research and Development in the Pharmaceutical Industry, 2021)

The image above shows what vaccines were at which stage of development during what time period. This shows the urgency that was there in order to develop and produce these vaccines to fight the outbreak of the coronavirus. Without these government subsidies, firms would have been nowhere near completing the research and development needed in order to produce numerous COVID-19 vaccines. This shows the importance that government subsidies have on the pharmaceutical industry and the development of new drugs and vaccines.

Impact of the structure of the pharmaceutical industry on vaccine development

When it came to the development of the COVID-19 vaccines, many different names in the pharmaceutical industry took part. Now as far as the majority of society is concerned, the pharmaceutical industry is just a small group of large multinational corporations such as GlaxoSmithKline, Novartis, AstraZeneca, Pfizer and Roche. These are frowned upon by the public as they are stereotyped to be the ‘Big Pharma’ and so they can be misleading. Many people have their if’s and doubts about these big multinational corporations especially when they have such an influence on their health and the drugs they develop. It becomes hard for the public to rely and trust these companies because at the end of the day it is their health that they are trusting these companies with. So therefore it is logical that a lot of people will have had and still do have their suspicions about the COVID-19 vaccines developed by a handful of these companies. If you were to ask someone whether or not they have ever heard of companies like Mylan or Teva, they would probably have no clue about them even though Teva is the world’s 11th biggest pharmaceutical company and probably produces the medicine that these people take on a regular basis. The fact that over 90% of pharmaceutical companies are basically almost invisible to the general public obviously means that when it does become known to the public who has manufactured a medicine they are considering taking, for example the Pfizer vaccine, people are going to be careful and suspicious about taking this vaccine as they have probably never heard of the company Pfizer before. All this, despite it being that these companies are responsible for producing a majority of the medicines that everyone takes.

Most new drugs that are produced never even make it onto the market as the drug is found to not work or to have serious side effects, making it unethical to use on patients. However, the small percentage of drugs that do make it onto the market are patented, meaning that the original manufacturer only holds temporary rights to sell the product. Once this has expired, the pharmaceutical is free to sell and manufacture by anyone, meaning it is now a generic pharmaceutical (Taylor, 2015).

This again does not help research pharmaceutical companies, as their developments which are now out of patent, are just being sold by generic pharmaceutical companies where everyone goes to buy their pharmaceuticals. This means generic pharmaceutical companies basically never have a failed product and the research companies are barely able to create a successful product to make it out onto the market. This again causes the public to not even know that the majority of drugs they buy come from these research companies and are not originally procured by the generic pharmaceutical company they buy them from.

As seen with the COVID-19 vaccines, this caused a lot of uncertainty and distress amongst the public as most people had never even heard of companies like ‘Pfizer’ or ‘AstraZeneca’. This in turn made it more difficult for pharmaceutical companies to successfully manufacture and sell their vaccine, prolonging the whole vaccination process.

Due to this structure of the pharmaceutical industry, it has affected firms greatly in their ability to successfully and reliably manufacture vaccines against COVID-19.

Conclusion

Looking at the three factors combined: cost requirements of R&D, structure of the industry and government subsidy, it is clear that these have all had a great impact in the development of the COVID-19 vaccines. The costs associated with R&D in the development of the COVID-19 vaccines, essentially determines how successful the vaccines would be and whether or not they would have enough to first of all do the needed research and then to finally produce and sell them. Without the large number of costs that go into the development of vaccines and other drugs, the COVID-19 vaccines will have never been able to be manufactured and sold. This will have left the world in even more panic and uproar than it was/is. If this would’ve happened, it can easily have a ripple effect on economies, social factors and maybe even potentially other factors such as environmental factors.

One of the biggest impacts on the successful manufacturing and sale of the vaccines was to do with the structure of the industry. With big research pharmaceutical companies putting in all the work and effort to develop these COVID-19 vaccines but with most of the general public not ever even having heard of them before, it made it very hard for pharmaceutical companies to come across as reliable. People didn’t trust the vaccines as they had never heard of the company who developed it, such as Pfizer. This caused debate and protest against these vaccines, making it harder for companies to produce and successfully sell their vaccines to the public who were in need of them and demanded them. This was due to one major flaw in the pharmaceutical industry, which is the fact that companies such as Pfizer and AstraZeneca are kept under the rug and are barely even known by the public as all their products are just taken and sold on by generic pharmaceutical companies where people can buy them from. It also has to do with the fact that research pharmaceutical companies specialise in advanced drugs and not in more generic drugs which are more likely to be successful as they are easier to develop. So naturally the lack of successful products produced will reflect negatively on these companies although the one product they do successfully produce will also be frowned upon due to its previously non viable products.

Then finally, probably the second or joint most important factor is government subsidies. It is quite clear that without the correct government funding and without ‘Operation Warp Speed’ we’d still be in the process of trying to develop even the first COVID-19 vaccine as there will have been nowhere near enough funding for the R&D of the vaccines. This would’ve resulted in the death rate of coronavirus infections to spike, and will have probably put the economy on a complete standstill putting a large number of people out of work. All of this has numerous ripple effects, as just the one issue of loss of work could spike the poverty rate immensely, leaving economies broken. So overall, these three factors have had a huge impact on firms in the pharmaceutical industry in developing the COVID-19 vaccines.

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