[Ip-health] Barrons op-ed: Should Covid-19 Investors Leave Money on the Table?

Suerie Moon suerie.moon at graduateinstitute.ch
Tue May 5 23:23:41 PDT 2020

Barrons: Should Covid-19 Investors Leave Money on the Table?
Suerie Moon and Nadya Wells
Updated May 5, 2020 10:40 am ET / Original May 5, 2020 9:56 am ET

The critical importance of drugs and vaccines to the most basic functioning
of society has never been so clear, nor received such high global political
Markets have reacted with exuberance to the possibility that the drug
remdesivir may effectively treat Covid-19, lifting not only developer Gilead
<https://www.barrons.com/quote/GILD>’s share price but the outlook for
the economy
If that optimism is to be borne out, we not only need to develop drugs and
vaccines, but also to ensure everyone who needs them, gets them
Doing so will require rethinking the status quo relationships between
investors, pharmaceutical companies, and the public.

Institutional investors holding over $2 trillion
 in assets recently told their pharmaceutical industry investees: Now is
not the time for business as usual. Signals like these need to get
stronger. Last week, Gilead CEO Daniel O’Day spoke
 of the tough balancing act the firm faces between patients
 and shareholders
Executives will struggle to find Covid-19 solutions if they are handcuffed
 to quarterly earnings. Investors can do their part by sending companies
two simple messages: First, forgo short-term profits on Covid-19 products,
and, second, fully disclose relevant cost data
 to build public trust. It may not be obvious, but firms can afford to do
Pharmaceutical CEOs have rightly pointed out
 that the business of pandemics entails significant investment risk. Demand
for technologies spikes when a pathogen is spreading, but can fall quickly
once it’s contained; this can happen while production is in high gear or
even before research and development is complete.

For these very reasons, governments have adopted different business models
for outbreak-related technologies, substantially derisking and subsidizing
costs. For example, the U.S. government’s Biomedical Advanced Research and
Development Authority
<https://www.phe.gov/about/barda/Pages/default.aspx?mod=article_inline> was
created after 9/11 to ensure the development and stockpiling of health
products for biosecurity. Barda accompanies firms
step of the way. It identifies missing technologies, issues competitive
calls for contracts to develop those technologies, pays for the R&D, in
some cases provides technical support, and then purchases the final
products for national stockpiles. Since 2007, over 50 technologies
vaccines, drugs, diagnostics, ventilators, and antitoxins for influenza,
Ebola and Zika, among other pathogens) were successfully developed and
produced in this way

Large-scale public support has similarly been mobilized for Covid-19.
and philanthropies
<https://www.knowledgeportalia.org/covid-19?mod=article_inline> have
already committed over $2 billion to pay for pharmaceutical R&D. Yesterday,
an international pledging conference led by the European Union mobilized
over $8 billion
<https://global-response.europa.eu/pledge_en?mod=article_inline> in public
funds to further develop and purchase drugs, vaccines, and diagnostics
to ensure
globally equitable access
 to them.

Governments are boldly taking on significant risks and costs. Companies can
afford to adopt new business models as well. Broadening global access to
medicines will require private firms to depart from standard commercial
practice, and share knowledge, transfer technology, and license patents as
quickly and widely as possible. Why? Product development moves much faster
when private, public, and academic researchers share information and
research findings <https://opencovidpledge.org/?mod=article_inline> in real
time and pool intellectual property
rather than compete in secrecy. The sheer volume of goods needed and the
likelihood of export restrictions means that multiple firms in multiple
countries need to simultaneously scale up manufacturing. And competitive,
efficient production drives down prices. Fair profits are justified to make
production sustainable, and postcrisis earnings may grow out of R&D done
today. But overall, firms and their investors will need to renounce
maximizing Covid-19 profits.

Why should industry leave money on the table? One reason is reputation and
public trust. Prior to this crisis, the skyrocketing prices of medicines
had eroded the pharmaceutical industry’s reputation in its largest markets
in the U.S., Canada, the U.K., and the EU. A 2019 survey across 78
countries found that only 9% of patient organizations
 thought the industry had fair pricing policies.

Indeed, what is a fair price for
<https://www.bmj.com/content/368/bmj.l4726?mod=article_inline> a medicine?
It’s complicated. For example, should Gilead price remdesivir at $10, an
independent estimate of the cost
 to manufacture the treatment? Or between $400 and $4,500
reflecting the range of benefits it may offer American patients (about
which considerable scientific uncertainty remains)? Lower prices will allow
for far broader global access. But how should we weigh the costs and risks
borne by public research organizations like the National Institutes of
Health, academic researchers, and Gilead—all of which
 contributed to developing this drug? Should one firm have a monopoly? What
price is fair in the United States—or in Ecuador or India? How will prices
be perceived in countries under unprecedented fiscal pressure, where
millions have lost their jobs overnight and many are struggling simply to

Some industry leaders have been listening. Barda grantee Johnson & Johnson
<https://www.barrons.com/quote/JNJ> committed to supply Covid-19 vaccines
on a no-profit basis
 of $10 per dose. Some vaccine firms have agreed to technology transfer,
data sharing, and equitable access
as conditions
 of receiving grants from global public pandemic vaccine R&D fund the Coalition
for Epidemic Preparedness Innovations

The details of these arrangements will matter. Given the high stakes, it
will be important, in Ronald Reagan’s terms, to trust, but verify.
Disclosure of adequately detailed information on how much public and
private money has been invested in the development of drugs and vaccines
will be critical. So will data on production sites, volumes, and costs.
Sharing the relevant numbers with the public will enable informed debate on
what is a fair price and what is a fair profit—and thereby also protect
pharmaceutical and financial firms against accusations of profiteering.

Beyond reputation, investors have seen that taking into account
environmental, social, governance, and health concerns (“ESG+H
<https://gh.bmj.com/content/3/Suppl_1/e000597?mod=article_inline>”) is
conducive to financial performance. Investors and pharma have a clear
economic interest in accelerating the global containment of this virus.
Sales are down as people avoid
 seeking health care or lose insurance. Research
 has slowed or stopped
. Supply chain disruptions
 have hobbled production. And employees and their families everywhere are
feeling the economic and psychological strains of lockdown. The faster the
pandemic can be controlled, the faster economic recovery can begin.

Investors have good reason to look beyond the short-term profits of one
firm or even one industry, and both urge and enable pharma to act in the
interests of all. Relinquishing (some) profits and disclosing in-depth cost
data would be a significant departure from current commercial practice. But
if ever there was a moment for investors, the pharmaceutical industry, and
society to test an alternate business model, surely it is now.

*Suerie Moon co-directs the Global Health Centre at the Graduate Institute
of Geneva and conducts research on innovation and access to medicines,
including a five-year research project on new business models of
pharmaceutical R&D. Nadya Wells is senior research adviser at the Global
Health Centre, an independent non-executive director in the financial
sector, and a former institutional investor with 20 years experience as a
portfolio manager in large, global asset-management firms.*

Suerie Moon, MPA, PhD
Co-Director, Global Health Centre, Graduate Institute of International and
Development Studies, Geneva
Adjunct Lecturer, Department of Global Health and Population, Harvard T.H.
Chan School of Public Health
suerie.moon at graduateinstitute.ch   Tel: +41-22-908-5845   Skype ID:
Office:  Bureau P2-712, Maison de la Paix, Chemin Eugène-Rigot 2, 1202
Geneva, Switzerland.

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