In late December, 2020, the Trump administration reached a $1.95 billion deal with pharmaceutical company Pfizer to purchase 100 million doses of the Covid-19 vaccine it had developed in partnership with German drugmaker BioNTech, enough to immunize 50 million people. It was the second such deal the parties had reached since the pandemic began to ravage the United States. But despite how desperately the vaccines are needed, both government negotiations were rocky. We revisit the barriers that Pfizer faced in negotiating government contracts to sell its vaccine.
A Flurry of Government Negotiations
In the spring of 2020, as Covid-19 took root in the United States, the Trump administration began negotiating with drug manufacturers to preorder any effective coronavirus vaccines they might end up developing. In July, Pfizer reached an agreement to sell 100 million doses of its prospective Covid-19 vaccine to the U.S. government for $1.95 billion, once the Food and Drug Administration (FDA) approved its emergency use, Fortune reports.
Hedging its bets, the administration reached purchasing agreements with five other vaccine makers, according to the New York Times. Pfizer was the only one to decline government subsidies, choosing to assume all the risk of vaccine development in order to remain free of government oversight and potential delays. Pfizer moved on to other government negotiations, eventually promising 200 million doses of its vaccine to the European Union by the second quarter of 2021 and 100 million doses to China by the end of that year.
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Ignoring Early Warnings
By the early fall of 2020, Pfizer officials urged the Trump administration to preorder more doses of its vaccine, which was showing promise in early trials. Pfizer warned that “demand could vastly outstrip supply,” the Times reports. But the White House declined to make further commitments to the vaccine.
When approached by Pfizer, U.S. negotiators may have “botched the economic calculation of the enormous benefits of having these doses,” vaccine-economics expert Christopher Snyder of Dartmouth College told Fortune. “The trillion-dollar risk to the health and welfare of the country is not worth taking. . . . It’s a billion-dollar payout.”
Pfizer reportedly also wanted Trump to invoke the Defense Production Act (DPA) to speed up its production by compelling its suppliers to prioritize materials it needed for its vaccine. The White House declined to do so, likely for two reasons, the Times reports. First, the government wanted Pfizer to promise it would use the materials to produce vaccines only for Americans; Pfizer refused. Second, U.S. officials reportedly feared such a deal would disadvantage the five drugmakers it had invested in through subsidies.
Too Little, Too Late?
On November 18, Pfizer shared the stunning news that its Covid-19 vaccine had achieved a 95% efficacy rate with no significant side effects. The same month, however, supply chain problems led Pfizer to cut the number of doses it had planned to deliver to the U.S. government in half, from 100 million to 50 million—enough to fully vaccinate only 25 million Americans. The Trump administration was frustrated but left with little recourse.
On December 11, the FDA approved Pfizer’s vaccine for emergency use. The White House asked Pfizer for enough additional doses to vaccinate 50 million more Americans. Pfizer said that its deals with other nations would prevent it from supplying more doses to the United States until mid-2021, according to the Times. But Pfizer reportedly again offered to ramp up production if the White House exercised the DPA.
This time around, Pfizer had significant negotiating leverage, given that the FDA had approved only one other Covid-19 vaccine, Moderna’s. By mid-December, Pfizer had agreed to sell 100 million more doses for $1.95 billion, while the White House had agreed to invoke the DPA on Pfizer’s behalf. Pfizer committed to delivering 70 million doses by June 30, 2021, and the remaining 30 million by the end of July, National Public Radio reports.
Lessons from Pfizer’s U.S. Government Negotiations
As the pandemic worsened, the U.S. government rightly pursued multiple Covid-19 vaccine deals rather than putting all its proverbial eggs in one basket. But in its negotiations with Pfizer, U.S. officials made significant negotiating mistakes that prevented the nation from securing as many lifesaving vaccines as possible, as quickly as possible.
A competitive mindset and lack of foresight appeared to lead government negotiators to play hardball with Pfizer rather than heeding its early warnings of supply shortages and collaborating on solutions. And a focus on recouping investments appeared to distract White House decision makers from doing all that was needed to enable Pfizer to move full speed ahead with vaccine production.
In all sorts of negotiations, win-lose negotiation strategy typically leads to inefficient, value-compromising deals. In government negotiations during an unprecedented public-health emergency, win-lose negotiation can distract officials from their responsibility to save as many people as possible.
What have been some of your experiences in government negotiations?