End of government purchases may make COVID drugs less lucrative

Driving the news: Sometime next year, health providers will take over purchasing COVID treatments and vaccines, and Americans will start accessing COVID care the way they do other medical needs.

• One of the first questions will be how much vaccine to buy, and at what price. Because doses routinely go unused, there will be pressure to bring supply more in line with demand.
• That will eat into Pfizer and Moderna's revenue, unless they can negotiate much higher payment rates per dose.

The big picture: Vaccines account for all of Moderna's sales and have swelled Pfizer's.

• Moderna last month reported $10.5 billion in sales for the first half of the year, and said that expected delivery of doses purchased in advance will generate $21 billion this year.
• Pfizer said in its Q2 earnings that it predicts vaccine sales will generate $32 billion in fiscal 2022 and brought in $22.1 billion during the first half of the year.
• Pfizer's COVID antiviral Paxlovid generated $9.6 billion in the first half and is projected to bring in $22 billion for the full year. Together, the two products accounted for well over half of the company's revenue, and Pfizer reported that its free cash flow increased by more than $19 billion over the last three years.

What they're saying: "These companies, for one, are not going to get paid for wasted doses, which they are now. Two, the idea that the commercial market is going to accept how much the government was paying per shot — I think that's an ambitious goal for Pfizer and Moderna," said Raymond James analyst Chris Meekins.

• "The commercial market isn't just going to write blank checks the way the government did," Meekins added.
• Pfizer and Moderna both declined to comment for this story. Moderna recently estimated potential U.S. sales once COVID becomes endemic.

Yes, but: The U.S. is, of course, just one country, and the demand for vaccines is global.

• U.S. sales made up only an eighth of Pfizer's Q2 vaccine sales.

State of play: Many primary series doses and boosters the government bought are going unused: Around three-quarters of the shots distributed to states during the pandemic have been administered, according to CDC data, with demand dropping over time.

• Around 110 million Americans — or a third of the population and less than half of those fully vaccinated — have received a booster dose, which has been widely available to adults since November.

• For reference, less than half of adults typically get flu shots each year, per the CDC.

How it works: In the new system, once federal purchases end, distributors will purchase vaccines from manufacturers and then distribute them to entities like hospitals, physicians offices and pharmacies.

• Because there's so much cost pressure on the system, distribution centers often have only a "just-in-time" inventory, Healthcare Distribution Alliance CEO Chip Davis told Axios. Historical purchasing patterns help predict ordering patterns and how much inventory to buy.
• In the private sector, pricing "will become an issue for an entity that thus far hasn't been that directly involved, which is insurers and commercial plans," Davis said.

The intrigue: Cost pressures won't be confined to vaccines: Some experts think insurers may put limits on who can access Paxlovid, as there are still questions about who it benefits and how much.

• That could significantly reduce sales of the drug.
• "Plans will look at which Americans are most likely to need it based on the higher cost Pfizer has chosen to charge for this drug," Meekins said. "So many Americans may not have the same access they would have had if the government had continued buying in bulk."