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The US pharmaceutical company Pfizer made the surprising announcement on November 9 that its COVID-19 vaccine, developed jointly with the German biotech company BioNTech, is more than 90 percent effective in preventing the disease. The announcement was made amid a relentless rise in coronavirus cases in the United States, in many parts of Europe, and in other parts of the world.
This announcement was followed in the following week by an equally surprising revelation from biotech firm Moderna that its vaccine is nearly 95 percent effective in overcoming the deadly virus and 100 percent effective in preventing serious cases.
The reaction from the stock markets was immediate and overwhelming.
The value of the leading companies on the FTSE 100 rose 6,186 points, or 4.7 percent, to 70 billion pounds, or roughly 93 billion dollars.
On Wall Street, the benchmark S&P 500 index rose to a record 3,645.99 points; and the DOW index ended the day up 2.95 percent.
Pfizer shares were up nearly 15 percent on the day the announcement was made, increasing its market cap to $ 214.67 billion as of November 16, and BioNTech’s market capitalization was up nearly 20 percent, from $ 92 per share to $ 112.76.
The increase in the market value of Pfizer and BioNTech shares as a result of the COVID-19 vaccine means a substantial increase in shareholder wealth (also known as producer surplus). However, it vastly underestimates the increase in total economic value resulting from vaccine development because it does not reflect the corresponding increase in consumer value, which could be enormous considering the drug’s potential to prevent the deadly disease and save lives. Clearly, the development of the vaccine has been a source of considerable new wealth for the shareholders of Pfizer and BioNTech.
Does this select group of investors have the exclusive right to this newly created economic value?
Following a long tradition in business financing, which views profits as the financial reward for business risks assumed by business owners, the windfall gains made by Pfizer and BioNTech to develop the COVID-19 vaccine rightfully belong to their shareholders for having invested money. in companies.
We note, in particular, Pfizer’s strategic move in investing heavily in its effort to develop a coronavirus vaccine despite the slim chance of succeeding with one, and in deciding to expand production and distribution facilities well in advance of its availability. for distribution.
The increase in shareholder wealth earned by corporate stock owners is a residual that remains after all contractual obligations to other stakeholders have been fulfilled. These include the agreed share of profits between Pfizer and BioNTech resulting from their joint efforts, pay-for-performance commitments with corporate executives and managers, bonuses for company employees, etc.
We pay particular attention to the role played by the two scientists credited with having been largely responsible for the development of the vaccine: Ugur Sahin and Ozlem Tureci, the husband and wife team that co-founded BioNTech in 2008. Countless others Scientists at both companies – corporate managers, suppliers and distributors, even the humblest lab technicians – are part of a high-value network that created the vaccine, touted by Pfizer CEO Albert Bourla, as “the greatest medical advance in the last 100 years. “
Sharing value with all stakeholders
From a long-term strategic perspective, both companies and all others actively involved in the development of COVID-19 vaccines must appropriate part of the value derived from their inventions to all those who collaborated in the development of the vaccine, not to voluntarily. gesture of benevolence or gratitude, but as part of a strategy of providing incentives to stimulate the creation of value in the future.
These incentives take the form of spending on human capital to improve productivity, largely in terms of new knowledge and current information, and as part of their compensation systems that reward their scientists, managers, and workers to encourage superior performance. These expenses are investments to improve value in the future and not short-term costs that must be minimized.
Not to be forgotten are the tens of millions of potential vaccine users across the COVID-ravaged world, a good number of whom are too impoverished to pay for the life-saving drug. Long-established pricing strategies require pricing new products at the highest possible prices to recoup the huge initial investment and ensure a high return on investment for shareholders. These predatory pricing strategies leave countless potential consumers unattended or unattended and result in the loss of enormous economic value (referred to as “deadweight loss” in economics textbooks). The progressive strategies that are emerging today require more consumer-centric approaches to product and pricing development. While these strategies may involve short-term drops in net income, they help expand markets and ensure long-term sustained income streams. INQ
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