The Economics Behind a COVID-19 Vaccine

By Jake Willms, Quantitative Analyst

In the wake of this once-in-a-lifetime pandemic, we can’t help but look onward to the eventual release of a COVID-19 vaccine that will finally allow people everywhere to return back to normal lives. Since everyone in the US is going to need a vaccine, the cost of this vaccine is a very important detail yet to be determined. When the responsibility of maintaining public health clash with that of incentive and profits, interesting economic circumstances arise.

To better understand the cost of a vaccine, its important to know some key details about pharmaceutical research and development. R&D is often times slow, taking years of careful planning and testing in order to make progress on a vaccine. Due to government and social pressures from the ongoing pandemic, companies have had to work faster than ever in developing the eagerly-awaited COVID-19 treatment. Moreover, developing a vaccine in normal conditions is considered by industry experts to be a financial gamble, as approximately 66% of vaccines are doomed to fail, resulting in massive losses in R&D funding. On top of this, vaccines have also proven to be challenging for pharmaceutical companies to turn a profit on, so this further diminishes potential interest in finding one.

The US government took these challenges head on through the use of government subsidy and preorders. By funding major pharmaceutical companies and promising to purchase doses ahead of time, a lot of the financial pressures were lifted, which helped facilitate record-breaking development speeds for a COVID-19 vaccine.

Still, what does this mean for cost? Thankfully, initial doses of the vaccines are expected to be free of cost, as the US has already purchased over 200 million doses. This is likely not going to be enough for everyone, so questions still remain over how much of an up charge pharmaceutical companies are going to place on their vaccine, if any at all.

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