1. In July 2020, SII set the price of $13 per dose for its Covid shield vaccine, although the typical price of its vaccines was much lower. What was SIIs rationale for the $13 price? Helpful suggestions: 2A. What is SII's typical price per dose of vaccine? [Hint: SII Revs Ex. 3 divided by # of doses shipped pg.1]. 2B. What is SII historical vaccine pricing strategy? [Hint: Compare Ex. 2A and 2B, pg.8. 2C.) Why is SII's Covid19 (Covishield) vaccine strategy deviating from it's historical norms?

2. Given the announcements made by Russia and J&J (pg.5 , 2nd para), should SII modify its pricing strategy? Why or why not? Helpful suggestions: 4A. What are SII's fixed costs [R&D, Capex, Opex} of producing a new vaccine? 4B. What is variable cost per dose? [Hint; Opex/# initial doses].

THE COMPETITIVE DYNAMIC due to the ha By carly August 2020, six vaccines had entered final-phase clinical trials, with candidates having been developed by Pfizer-BioTech, AstraZeneca-Oxford University, Moderna, Sinopharm, and Sinovac.". few other vaccines, such as those developed by J&J and Russia's Gamaleya Institute, were expected to enter phase-three trials by the end of September 2020. US-based Plier, ce of the world's largest pharmaceutical companies, had announced a deal to supply the US government with 100 million doses of the vaccine developed by its German partner, BioTech, for $1.95 billion." According to the arrangement, the US government would receive the first batch of doses by the end of 2020, and it would have the right to acquire up to 1.3 billion more doses by the end of 2021. Pfizer had also announced similar deals with the UK (30 million doses) and Japan (120 million doses). During an earnings-related conference call, the senior management of Prr er had explained the logic behind the vaccine's pricing:" during the pandemic, the vaccine would be priced to allow for "broad access" and supplied to multiple governments around the world. Pfizer believed that the true value of the vaccine was far greater than the initial price of $19.50. After the pandernic, Pfizer expected the demand for vaccines to "become more standard or seasonal," leading to normal channels of supply and a more "value-based" pricing approach, depending on both the competition and the demand at the time. Plizer also expected that he huge demand - given that the world's population stood at 7.5 billion - competition would not erode price levels in the near future. Pfizer expected its vaccine to be one of the earliest to reach the market in late 2020, pxartly because it had declined US government funding, thereby avoiding lengthy negotiations regarding pricing." Moreover, Pfizer had received approval from the US regulator (the Food and Drug Administration) to fast track its clinical trials by combining phases two and three." In contrast with the other key vaccine manufacturers, Moderna was a new biotechnology venture. It was established in the US in 2010, and it was only listed as a publicly traded company in 2018. While Modernit had developed a range of medicines and vaccines, all of its products were based on mRNA technology. The principal advantage of this technology was that it allowed products to have a much smaller footprint than conventional pharmaceutical and vaccine products. The risk was that no mRNA vaccine had previously been approved anywhere in the world. The Pfizer BioTech vaccine was also hased on mRNA technology Unlike Pfizer, however, Moderna had received $955 million in US government funding to develop its vaccine." Yet, despite accepting the funding, Moderna had insisted that it could not price the vaccine at cost, as it needed the vaccine sales to Telur profits for its investurs. During an earnings-related conference call on August 5, 2020, Moderna's CEO had also announced that the company had forged deals to supply vaccines to a number of Europcan Union (EU) countries at a cost of S32-537 per dose. Attempting to strike a more reassuring note, he suggested that for deals involving a higher volume, the price would be lower. Modema had entered into three agreements concerning the production, packaging, and storage of its vaccines. First, it had contracted with Lonza, a Switzerland-based multinational biotechnology corporation, to manufacture vaccine material equivalent to one billion doses per year." Second, it had contracted with US-based Catalent to package and store 100 million doses of its vaccine in the US. Third, it had contracted with Spain's ROVI to package and store hundreds of millions of vaccine doses in pan-European locations. AstraZeneca was a vaccine frontrunner from Europe. In March 2020. AstraZeneca had signed a licensing agreement with Oxford University's Jenner Institute for the experimental COVID-19 vaccine developed at the institute. According to the a ac agreement, 6 both partners agreed to operate on a not-for-profit basis for the duration of the coronavirus pandemic; however, after the pandemic, both would receive royalties based on commercial pricing. The Oxford vaccine, as it was commonly known, stimulated the human body's production of antibodies and high levels of T-cells specific to the COVID-19 virus. The head of the Jenner Institute had characterized this immune response as "clearly better than Moderna's vaccine. In May, the company announced that a US government agency bad pledged funding support of up to $1.2 billion for the development, production, and delivery of the vaccine toward the end of 2020. The development program included phase-three clinical trials involving 30.000 participants as well as a pediatric trial" If the vaccine received approval, AstraZeneca would supply 300 million duses to the US and 100 million doses to the UK on a not-for-profit basis." AstraZeneca had also announced an expanded deal with the EU to supply member states with 400 million doscs. After committing to expanding its global production to over one billion doses by the end of 2021, AstraZeneca signed licensing agreements across the world, including with the SII in Indin, Shenzhen Kangtai in China, and others in South Korca and Brazil." On August 5, 2020, J&J announced a deal to supply the US government with 100 million doses of its vaccine in exchange for $1 billion. The arrangement also allowed the US government to order an aditional 200 million doses from J&J." The agreed $10 per dose price was lower than the price of most existing vaccines in the US, which aligned with J&J's pledge to provide a supply of its vaccine on a not-for-profit basis during the pancemie." Unlike Pfizer, J&J had accepted $450 million in US government aid to help accelerate the development of its COVID-19 vaccine. Once the pandemic was over, J&J would be expected to shift to for- profit pricing. J&J's vaccine was expected to enter phase-three clinical trials in late September 2020." The two Chinese vaccine manufacturers that were in final phase trials on August 5, 2020, namely Sinopharm and Sinovac, had based their vaccines on the older, tried-and-tested approach of inactivating the disease-causing virus." Another Chinese vaccine manufacturer, CanSino, was expected to enter phase- three trials soon, and its candidate vaccine was based on more advanced genetic technology, similar to the Oxford and J&J vaccines. All of the Chinese vaccine manufacturers faced one key issue: the difficulty of recruiting suitable human subjects for phase-three trials due to the absence of a COVID-19 epidemico in China in August 2020. Thus, China had entered into agreements with countries that were facing epidernic conditions, such as Russia, Brazil, and Pakistan, to test its vaccines there." Another issue concerned perceptions, as top US health officials doubted the quality of Chinese vaccines due to prior mishaps involving defective vaccines." The Russian vaccine was developed by the state-backed Gamaleya Institute, The Russian health minister had declared that mass vaccinations would begin, starting with medical workers and teachers, in early October 2020, which would make it the first mass vaccination for COVID-19. By August , it had become clear that the carly phase human trial data were promising, and the Russian vaccine entered phase-three clinical trials." The Russian health minister had also announced that three other vaccines were then under development, with one of the candidates baving catered carly-stage buman trials." A leading Russian virologist involved in the project claimed that the motive was neither profit nor politics, but instead purely considered. Early vaccine production in Russia was expected reach 1.5 million doses per month, progressing to six million per month by the end of 2021. Global vaccine production capacity was an overarching concern. The WHO had estimated the world's production capacity for all vaccines to be about 3.5 billion doses per year." Reports from across the globe had indicated plans to more than double the vaccine production capacity so that more than four billion doses global shortfall in supply in 2021, given that most vaccines required two doses. of COVID-19 vaccines could be produced by 2021." However, even doubling the capacity would imply a SERUM INSTITUTE OF INDIA The SII was founded by Cyrus Poonawala in 1966, a time when his home country of India had to import most of its vaccines at high prices. Based on domestic market requirements, the SII developed the know- how and technology necessary to manufacture several vaccines and related immunological products, such EXHIBIT 1: KEY CHARACTERISTICS OF COUNTRY SEGMENTS BY INCOME as tetanus anti-oxins, it an affordable price." Over time, the SII began to export its vaccines to many low- and middle-income countries, and eventually, to high-income countries. In 2019, the SII produced and sold more than 1.5 billion doses of vaccines and related biopharmaceutical products used in over 170 countries. It was estimated that about two-thirds of the world's children had received at least one vaccine 8.00 manufactured by the STI." These vaccines were accredited by the WHO, and they were favoured due to their quality and affordability. It $850 Despite its policy of keeping vaccine prices low, the SII enjoyed profit margins of over 40 per cent, which were higher than the profit margins of its larger and more diversified, global competitors (see Exhibit 3). The top nianagement of the SII attributed the high margins to the conpany's ability to keep overhead costs low, a motivated workforce, as well as advanced automation and production equipment. Cyrus also believed that as the SII was privately held, it could take a long-term view regarding investments, which was harder to do in publicly traded firms. An example of this thinking could be seen in the Sil's large, temperature-controlled warehouse, which maintained a considerable stock of a variety of vaccines. While the warehouse increased operating expenses, the ready inventory cnabled the SII to respond rapidly to an outbreak. 14 A source of reduced expenses was the lack of investment in research concerning new vaccines. Instead, the SII focused its development efforts on improving production yields and increasing the stability of its vaccines across a range of temperatures. As the sli did not develop its own vaccines, it worked with on-patent products, while for newer proclucts, it entered into licensing agreements. Thus, the SIT had entered into agreements regarding COVID-19 vaccines with AstraZeneca and Novovax, another leading vaccine developer. However, in a departure from this strategy, the STI had also invested in 107 developing its own COVID-19 vaccine through modifying one of its existing, off-patent vaccines. Los THE PRICING DECISION Segment High- come Upper-middle- Lower-middle- Low-income economies income income economies Characteristics economies economies Gross national income cteristics > $12,356 $4,046 to $1.036 to $12,356 $4,046 to $1.036 to