Pricing the COVID jab: Covishield cheaper than earlier indications by the company

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The COVID-19 vaccine market in the country is opening up and the first announcement of prices by the bigger of the two Indian manufacturers, Serum Institute of India (SII), has started the ball rolling after the Centre announced decontrolling the market on April 19.

SII has announced that it will charge Rs 400 for each shot of Covishield that it will sell to the state governments and Rs 600 for those sold to private hospitals.

In January, SII CEO Adar Poonawalla said that the vaccine can sell for Rs 1,000 in the private market. He also said that Rs 200, the price at which the company is selling the Centre 10 crore doses, is their cost price.

In retail market after five months

The company has also stated that after four-five months the vaccine will be put out in the retail market and free trade.

Though the statement signed by Poonawalla did not mention at what price will the vaccines be available at the retail level, it is expected that the price of the vaccine would gradually come down as productions are ramped up.

Pricing of essential items such as a vaccine during a pandemic is as much about strategy as about quantum. The Centre itself indicated it on Monday when it spoke about “liberalised vaccine pricing and scaling up of vaccine coverage”.

It is clear that the manufacturer is following a tiered pricing, an approach commonly adopted by drug manufacturers globally. While the company is charging the Centre Rs 200 for a vaccine, it would charge state governments Rs 400 for the same and the private hospitals Rs 600 for each shot.

Super profits?

According to the SII CEO’s earlier statements, the company would be making a margin of Rs 200 on each vaccine sold to the state governments and Rs 400 on those sold to private healthcare institutions.

At that rate, the company would be making a profit margin of 100% on the vaccines sold to the different states and 200% on those being sold to the private sector.

Poonawalla earlier said that they were straying away from the lure of making “super profits”. Bharat Biotech Chairman Krishna Ella had said that the price of vaccines might go up initially but would later come down as competition builds up in the market and capacities ramped up.

Though the margin might appear to be a bit more high than is acceptable in these times of crisis, it is also a fact that the company would need funds to build new capacity and appoint more workers and set up quicker distribution methods to rise up to the challenge.

Bharat Biotech, that is manufacturing Covaxin, is yet to come out with price. But they would do so shortly since the policy adopted by the Centre says that the companies have to announce the price ahead of the new phase three inoculation that would begin on May 1, when everyone who is above 18 will be eligible for a jab.

Benchmarking against global prices

However, the prices that SII announced are considerably lower than the priceline of other vaccines, which might enter India after the Union government fast-tracked the approval of those that are being sold in the US, the UK, European Union and Japan.

SII has pointed out that American vaccines are priced more than Rs 1,500 per shot, the Russian and Chinese made ones too are in excess of Rs 750.

According to reports, vaccines available in countries like the US and the UK  are priced between $10/dose up to $32-37/dose. Sputnik from Russia that has been given approval is to be priced around $10, or Rs 754.

Pfizer’s vaccine is priced at $19.50 (Rs 1,471); Moderna’s $32-$37 per dose (Rs 2,415-Rs 2,792); Johnson & Johnson’s $10 (Rs 754); and Chinese firm Sinovac’s vaccine $14 per dose (Rs 1,056).

Beware of the black market

A debate has already erupted over the moral element where a company (SII) should sell a life-saving item to two elected governments at widely varying prices — Rs 150 and Rs 400, but that’s a different question altogether.

However, given the announcements by some state governments such as Uttar Pradesh and Assam, it seems likely that the pressure of competitive politics and welfare economics will prompt all states to announce that they will pay for the jabs for anyone who would take it at state healthcare units. In that case, the pricing won’t matter for a large section of the population.

Though the Centre has lifted its control from the COVID vaccine market, both the Union and state governments can’t shake off one responsibility, that is preventing a black market of the vaccine.

If middlemen make money over and above the stated price, it would be an unfortunate eventuality to a historic exercise.

But for that to happen manufacturers must ramp up capacity quickly and offer sufficient quantity that was one of the avowed decisions of the government in the Monday pronouncement of the Centre.