In signing a $2 billion deal to supply their experimental coronavirus vaccine to the U.S., Pfizer Inc. and BioNTech SE are setting a price ceiling of less than $20 a dose that will impact how much other companies can charge to protect people from Covid-19.

Pfizer’s $19.50 price-point takes into account the “public health requirements during the pandemic,” said Sally Beatty, a Pfizer spokeswoman. The companies are pursuing a two-dose regimen of one of its vaccine candidates, and the roughly $40 course, Beatty said, is “almost 30% less than what others charge for a seasonal flu vaccine.”

Governments worldwide are seeking to blunt a pandemic that’s killed more than 600,000 people, and dozens of companies are wrestling with how to price future vaccines. Rival drugmakers are unlikely to exceed the $20 price tag unless they can deliver a product that’s more effective, has fewer side effects or that doesn’t need as many doses, particularly those developing candidates based on so-called messenger RNA technology, such as Moderna Inc.

“This definitely sets a base, I think you can even call it a ceiling, for mRNA vaccine pricing,” Brad Loncar, chief executive officer of Loncar Investments, said in an interview. “This price comes right down the middle in what investors think is fair. It will definitely support a profit, and will incentivize companies to continue to innovate further.”

New York-based Pfizer, which is evaluating at least four experimental vaccines with Germany’s BioNTech, reported positive preliminary data from one of its candidates earlier this week. Beatty said Pfizer “will not rely on taxpayer dollars in the development or manufacture of the vaccine candidate,” and thus is shouldering all of the risk in bringing a shot to market.

600 Million Doses
In the Pfizer deal, the U.S. agreed to secure 100 million doses of its vaccine candidate. The payment depends on approval from theU.S. Food and Drug Administration and the ability to successfully manufacture it, Pfizer’s Beatty said. The time line for supply is not yet known.

The U.S. can acquire as many as 500 million additional doses, though Pfizer “will need to separately negotiate the terms for the remaining doses if the U.S. orders more,” according to Beatty.

The U.S. has already ordered experimental shots including one co-developed by the University of Oxford and AstraZeneca Plc., which fell as much as 2.7% in the wake of the Pfizer agreement.

Calculated Windfall
Even with Pfizer setting a moderate price for a shot, the drug giant and its partner stand to profit from its effort.

“If this vaccine prevents disease after one use, we calculate a windfall of more than $15 billion revenue for Pfizer,” Sam Fazeli, a Bloomberg Intelligence analyst, said in a note. “We believe this sets the top price for a vaccine, with lower prices elsewhere. Need for repeated use would be the game changer.”

The agreement has implications for companies like Moderna, whose investors see a significant financial opportunity. The U.S. biotech’s vaccine could generate sales of more than $5 billion a year, according to Jefferies. Shares of Moderna, Inovio Pharmaceuticals Inc. and Novavax Inc. have risen sharply this year.

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