Alternative Policies for Pricing Novel Vaccines and Drug Therapies for COVID-19

ICER’s white paper provides a brief overview of approaches to manage the pricing of novel vaccines and treatments in times of public health emergencies. After summarizing the experiences and lessons learned from previous epidemics and the annual flu vaccine, the paper analyzes the potential advantages and disadvantages of six alternative approaches to pricing that policymakers from around the world must now confront:

1. Status quo: unrestricted pricing. Private companies develop vaccines and treatments, are rewarded with patent rights, and are allowed to decide how much to charge for the resulting products within a monopoly pricing paradigm.
2. Cost-recovery pricing. Private companies develop vaccines and treatments, are rewarded with patent rights, but government and/or private insurers use an analysis of the cost of development and production to set a ceiling price.
3. Value-based pricing. Private companies develop vaccines and treatments and are rewarded with patent rights, but government and/or private insurers use some form of cost-benefit analysis to set a ceiling price based on the degree of added benefit for patients and society.
4. Monetary prizes. Government establishes a specific prize amount to incentivize discovery, with the first private company to discover a successful vaccine being awarded the prize. The government keeps the intellectual property and contracts separately with entities to manufacture and distribute the vaccine at cost.
5. Compulsory licensing. In exchange for royalties paid to the innovator, government permits others to make, use, sell, or import patented pharmaceuticals without the patent-holder’s permission. This approach includes the possibility of exercising “march-in” rights to mandate licensing of the product directly to the federal government.
6. Advanced market commitments and subscription models. Advanced market commitments (AMCs) are designed to incentivize the development of novel treatments and vaccines by subsidizing the research and development costs through a commitment by the funder or a pool of funders to a future purchase price, if the development is successful.  Subscription models can work somewhat similarly, with funders and innovators agreeing on a price for a treatment in a way to provide a guaranteed minimum return on investment and a cap on total costs no matter how many patients need treatment.

Date of review: July 2020

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