On April 27, the Supreme Court asked the central government to explain the rationale
and basis for differential pricing of COVID-19 vaccines. He also asked the Center to
how he was going to respond to the sudden surge in demand for vaccines from May 1
vaccination of all over 18s would begin.
The main issues raised were: the basis of the differential pricing for the Center, public and private hospitals, and how the Center would meet the demand of 18 years and over.
The vaccine is currently produced by two companies in India, Serum Institute and
Serum Institute is a contract manufacturer for AstraZeneca producing under the technology
transfer / license. The vaccine is not developed by him, so he pays 50% royalty to
AstraZeneca. Thus, the costs borne by Serum Institute are raw materials to produce C19V,
capital expenditures for plant installation, overheads, cost of clinical trials and royalties. He has no control over the price AstraZeneca sells in the world.
Conversely, the Bharat Biotech vaccine is developed in collaboration with the Indian Council
of Medical Research and the National Institute of Virology. Thus, Bharat Biotech must bear costs similar to Serum Institute, except that research and development costs replace royalties.
The nature of the agreement between Bharat Biotech and ICMR-NIV is not public
field. The cost for Bharat Biotech could be co-development or royalty-based.
It usually takes years to develop a vaccine. And there is no guarantee that the developed version of the vaccine will be successful in curing the disease. This is a high risk and a capital-
intensive business. This could be one of the reasons why global pharmaceutical companies mainly do it.
To make drugs affordable around the world, Indian pharmaceutical companies have gone the other way
engineer’s route. The story of Cipla providing Africa with an anti-HIV drug is well known.
Corresponding example – a lawyer who becomes a judge gives up a lucrative practice for status, power and satisfaction. If after a year he is unhappy, he can become a
But this freedom is not offered to a pharmaceutical company. Once it invests in R&D, it doesn’t
have known the results for years. There is little chance of going back without a huge write-off.
It is possible, although unlikely to be in the public domain, that the Serum Institute and Bharat Biotech are using their existing capacity to produce C19V. There could be an opportunity cost to this.
Better to have the big picture and not recommended for the public or the courts
details of how private companies are optimizing their assets, particularly during a pandemic.
In order to reduce costs, Serum Institute and Bharat Biotech can produce vaccines at a cost
plus the base?
Serum Institute is a contract manufacturer, so the increased cost has little impact. If the
Government insists that Bharat Biotech works on cost more, it will kill the spirit of innovation
in all industries of India and we will continue to import technology from the West.
+ We must be delighted that this public-private partnership has developed
Vaccine against covid19.
Should Bharat Biotech’s price be lower because the vaccine is co-developed with two
government organizations, ICMR and NIV?
Does this mean that these organizations should not be entitled to financial rewards for their efforts? The income earned can be used to pay better – to attract talent and undertake innovative research that will ultimately benefit India. The arrangement
between Bharat Biotech and government institutions should not be the subject of debate.
Why are some people reluctant to pay Rs 600 / 1,200 per dose? After all, a newborn is
given DPT (diphtheria, pertussis, tetanus) and polio vaccine, etc. which cost much more in private hospitals! Regardless, most states have announced free COVID-19 vaccines for all.
Indians must learn to pay for quality service. We need a change of attitude!
Note that Shobha Kamineni told CNBC TV18 that the Apollo Hospital would charge a
inoculation costs of Rs 200 for Serum Institute and none for the Bharat Biotech vaccine.
So why differentiated pricing for vaccines?
It is not uncommon. At first, the Serum Institute and Bharat Biotech probably agreed on a
lower price because no one knew how effective the vaccine would be.
Low prices are initially billed by many manufacturers to a large customer, much like a mall owner charges low rates to a primary tenant in the hope of attracting others.
It can be difficult to identify with such business practices unless you have worked in a
business or run a business.
The Center also paid Serum Institute an advance of Rs 1,732.50 crore (Rs 17.32 billion) for 11 crore (110 million) doses and Rs 787.50 crore (Rs 7.87 billion) to Bharat Biotech for 5 crore (50 million) doses, for April-June. Money has a time value and states can emulate that.
These commercial transactions should not be viewed solely through the prism of law.
How does differential pricing work?
Typically, a business estimates sales volumes and net price achievement through each sale.
channel. This would give gross sales estimates from which the manufacturing cost would be
reduced to give the net profit figure. Profits are reinvested to develop business, donated to
government in the form of taxes or and to shareholders in the form of a dividend.
The price per channel is also based on the ability and willingness to pay. There are a lot of Indians, poor and rich, who would only go to a private hospital. The poor are aware that longer queues at public hospitals can also be a source of infection and take time. Tariffs give Indians options, so let them decide.
However, since sales are direct to consumers, the selling costs and
commission to be channeled are lower. States can easily negotiate lower prices. States can also opt for imports, which will be used entirely by them, but this can be expensive.
Now, why does the Center not fund the vaccination program?
The Center said it would continue to fund fees for people over the age of 60 and 45 and over with co-morbidities. This vaccination will be part of the national vaccination program.
In addition, the Government of India, from its part, will allocate vaccines to the States / TUs at its own expense.
based on the extent of infection (number of active Covid cases) and performance criteria
(speed of administration).
It is not because the Center has budgeted Rs 35,000 crore (Rs 350 billion) this year
means that a financial commitment must be made now. It is May and there are still 10 months left in the fiscal year. Everything can happen!
Can India now produce vaccines for people 18 and over?
Producing vaccines for the population aged 18 and over, estimated at 940 million, is not like making 2-minute noodles. Setting up a particular factory in a controlled environment takes time and money. Ask someone with manufacturing experience for a reality check! When opening
registrations, state governments would have an idea of the demand and would be in a better position to
decide on the quantity of vaccines ordered.
Restrictions on patents can be circumvented. The Center may ask other pharmaceutical companies to produce Covaxin. It would take months. The Haffkine Institute in Mumbai first said it would take a year, now it says six months.
Although Serum Institute and Bharat Biotech have managed to speed up production
overnight, what happens to capacity once India’s demand is met? After all, India is the second most populous country in the world, and China won’t buy C19Vs from India. This approach would result in an even higher cost per dose.
Evaluate Serum Institute / Bharat Biotech vaccines for efficacy, side effects and liability, storage temperature and total cost to government instead of just focusing on price.
Every country wants their country to make the COVID-19 vaccine for export. Conversely,
White House medical adviser Dr Anthony S Fauci said Covaxin is known to neutralize
COVID-19 variant 617. Please be aware of the challenges of global pharma and geopolitics!
Reward innovation and risk taking, as this will generate economic growth, jobs and
benefits for India.
Sanjeev Nayyar is a Senior Chartered Accountant and Founder, www.esamskriti.com