Steve McGarry, Global Head of Healthcare Research, HSBC
Vaccines could need government help
The coronavirus pandemic is a reminder that vaccines cannot be produced quickly or cheaply. The world’s pharmaceutical companies have little financial incentive to prepare for the possibility of multiple pandemics.
We see a case for governments to use these companies’ expertise but fund vaccine manufacturing capacity ready for future epidemics. Such government co-ordination may be too late for COVID-19, but it would be prudent to plan for further outbreaks caused by other viruses.
Pharmaceutical companies need to invest for relatively certain financial returns, not for uncertain events that might result in losses or highly uncertain returns. So although the private sector has the capabilities to deal with multiple pandemics, it may not have the financial incentive.
Producing more than 200 million doses of vaccine a year for seasonal influenza can be cost-effective. But a vaccine against a pandemic virus may require a much lower level of dosing, making it economically unviable for pharmaceutical companies to build manufacturing capabilities for such scenarios.
Vaccine manufacturing is complex and usually takes more than five years to put in place. Added to which, developing a safe and effective vaccine in the first place is often highly challenging – there is still no vaccine against SARS or HIV after two or three decades.
The upfront capital expenditure is significant and the ongoing costs much higher than for traditional drug manufacture. The 100 or more quality and safety checks required before any vaccine can be administered to a patient can account for most of the development time, but even when manufacturing processes are in place production can take 18 to 36 months.
There is little spare capacity in the industry and existing facilities cannot be repurposed for making a pandemic vaccine. Manufacturing capabilities for such a vaccine – especially at scale – would need to be built.
Given the uncoordinated private-sector response to COVID-19, we think governments should consider funding the building of that capacity as part of a harmonised global effort to mitigate the medical, social and financial consequences of future pandemics – possibly even the current coronavirus. We estimate at least two sites would be necessary and the cost could be USD20 billion over 20 years.
Ideally, such manufacturing facilities would be built and run by vaccine companies since they have the expertise and know-how. Although the construction and running costs might be paid for by multiple governments, the companies could utilise the capacity to produce everyday vaccines but would switch to producing the pandemic vaccine when required.
The facilities would have to be capable of manufacturing sub-unit vaccines, antibodies, inactivated vaccines plus live attenuated vaccines, and have all the necessary downstream processing as well as fill-and-finish capabilities – that is the whole range of potential vaccine therapeutics that might be developed in due course.
The incentives for governments to act, given the global economic damage demonstrated by COVID-19, are significant. The costs pale into insignificance relative to the economic and social costs of not being prepared for further pandemics, especially if those costs are shared multinationally.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Steve McGarry
Equities: Stock ratings and basis for financial analysis
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