Here's an interesting column about the financial considerations of a vaccine, by my favorite money guy Matt Levine:
Quote:
Executives from four companies in the race to produce a coronavirus vaccine — AstraZeneca, Johnson & Johnson, Moderna Therapeutics and Pfizer — told lawmakers on Tuesday that they are optimistic their products could be ready by the end of 2020 or the beginning of 2021. All four companies are testing vaccines in human clinical trials.
Three of the firms — AstraZeneca, Johnson & Johnson and Moderna — are getting federal funds for their vaccine development efforts. AstraZeneca and Johnson & Johnson pledged to the lawmakers that they would produce hundreds of millions of doses of their vaccines at no profit to themselves. Moderna, however, which has been granted $483 million from the government to develop its product, made no such promise.
“We will not sell it at cost,” said Dr. Stephen Hoge, the president of Moderna.
At the Congressional hearing on Tuesday, some House members raised concerns about Pfizer’s decision to reject federal funds, suggesting it could lead to price-gouging and a lack of transparency.
Don’t worry, the thing I am going to explain is not Econ 101. I’m not going to go to Congress and be like “if you don’t let pharmaceutical companies make a profit on a vaccine that billions of people need, they will have no incentive to make it, so you will not get a vaccine and people will die.” I don’t know if that’s true—the federal funding is itself an incentive, as is the desire to save lives, etc.—but more to the point, you can get tons of people to explain it to Congress, there are people whose whole careers are just explaining Econ 101 to Congress, that one is boring and easy.
No, the thing I am going to explain to Congress is that almost 30% of Pfizer Inc.’s stock is held by Vanguard Group, BlackRock Inc., State Street Corp., Capital Group Cos. and Wellington Management Group. All of those are giant institutional investment firms that own shares of hundreds or thousands of companies, and those are just Pfizer’s biggest holders; lots of investors lower down the list are also huge diversified institutions. If Pfizer finds a coronavirus vaccine and distributes it as widely as possible—even at cost, even below cost, even for free, even at an enormous loss—it will make its owners richer by many many billions of dollars. BlackRock, for instance, owns about $16 billion of Pfizer stock. If Pfizer went to zero—if it bankrupted itself, selflessly producing and distributing vaccines—BlackRock (really its clients) would lose $16 billion. BlackRock owns about $2.9 trillion of other stocks; if a coronavirus vaccine allowed businesses to reopen and normal economic life to resume, and as a result those other stocks went up by 1 percent, that would more than make up for bankrupting Pfizer.
For BlackRock, I mean. BlackRock would be happy with that tradeoff, as would its clients, as would Vanguard and State Street and, in all likelihood, a majority of Pfizer’s shareholders, many of whom are diversified investors who own a lot of companies that aren’t Pfizer and are struggling. Presumably Pfizer’s executives would be sad about it. Right now they have prestigious jobs where they get paid a lot; if Pfizer went bankrupt then they would be embarrassed and probably stop getting paid. And they’re the ones who set the prices.
But there is a trade there, you know? That is the thing that I want to explain to Congress. The shareholders, in some loose sense, own the company; in some loose sense, Pfizer’s executives are getting paid with the shareholders’ money; in some loose sense, the shareholders are the executives’ bosses. If the shareholders were to call up the executives and say “look, if you find a working vaccine and give it away for free, we will give you a bonus pool of one billion dollars to share with each other and your scientists,” then … presumably that would be an incentive? Like, the executives would think “if we find this vaccine and make a big profit I’ll probably get like a $17 million bonus, but if we find it and make no profit I’ll definitely get like a $100 million bonus,” and they will have strong incentives to (1) find it and (2) give it away. Econ, like, 101.5, really.
One way to think about this, if you’re Congress, is that we’ve got a whole great big economy, and a vaccine will be very very good for the economy as a whole, and what you want is to find some mechanism to transfer some of that value—enough to incentivize vaccine research and development and production—from the rest of the economy (the households and restaurants and retailers and everyone else who will benefit, economically, from a vaccine) to the people researching and developing and producing the vaccine. You want the people who benefit from the vaccine and are happy about it to send some money to the people who make the vaccine, so that those people will be happy to make the vaccine.
There’s a super traditional Econ 101 way to do that, which is pricing; the people who make the vaccine can charge a lot of money to the people who want the vaccine. There are problems with this method, which I will not dwell on here because Congress is obviously well aware of them. (Some people don’t have the money to pay for the vaccine, etc.)
All I am saying is that now there is a new way! Now the whole great big economy is knitted together not only by pricing in product markets but also by common ownership of all the stocks by the same investors, and so you can think of all of the companies—Pfizer, American Airlines, Carnival Cruises, The Gap, whoever—as divisions of one giant company, and the one giant company has an executive committee (Larry Fink and the other heads of big investment firms), and the executive committee can tell the divisions (Pfizer, etc.) what to do and how much to charge, and if the giant company’s executive committee says “we are going to have our Pfizer division try to find a vaccine and give it away as a loss leader to improve the performance in our other divisions” then, you know, fine, that’s how divisions operate, that’s how corporate hierarchies go, it’s fine. It’s not quite like that—there is no giant company, there is no hierarchy—but it is kind of like that, it is enough like that that you ought to start thinking about it, that you ought to think of giant public corporations not as acting on their own pure selfish self-contained profit motives but as part of a vector of interests of their diversified investors, and that you could maybe use that. “Sure, pharmaceutical executive, you say you want to make a big profit on this drug, but what if we asked your owners what they want?”
To be clear, Pfizer doesn’t say it wants to make a big profit. It says … what you’d expect it to say, in its owners’ interest:
“We didn’t accept the federal government funding solely for the reason that we wanted to be able to move as quickly as possible with our vaccine candidate into the clinic,” said John Young, Pfizer’s chief business officer.
“We’ll price our potential vaccine consistent with the urgent global health emergency that we’re facing,” Mr. Young said, adding that “a vaccine is meaningless if people are unable to afford it.”
Plenty of drug companies sell plenty of drugs that plenty of people aren’t able to afford, not because they are meaningful but because they are profitable; this is a different situation.
Moderna has more concentrated owners than the bigger companies, though. If you don’t like drug profits maybe you have to regulate them or nationalize them or whatever, that’s not my problem, that’s Congress’s problem.
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To IkeSouth, bigfan wrote:
Are you stoned or pissed off, or both, when you create these postings?
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