TRENDS IN THE GLOBAL VACCINE SITUATION

Industry Characteristics

Concerns about the anticipated high cost of some newer vaccines—especially those produced with so-called conjugation technology—as well as fears of price hikes for the current set of EPI vaccines 37 prompted the United Nations Children’s Fund (UNICEF) and the WHO to commission an analysis of the commercial aspects of global vaccine supply.38 The analysis focused on the firms that sell vaccine to UNICEF.39 Among its many findings, the study revealed that vaccine manufacturing is a largely fixed-cost activity (Box 5). That is, to a greater extent than in many other sectors, production efficiency in the vaccine business rises dramatically with increasing volume. This means that relatively fewer additional man-hours are needed for a given boost in production volume. This advantage holds true only if the manufacturing facility is appropriately sized from the start, however.

There has also been a general consolidation of the worldwide vaccine industry, reflected by strategic alliances between and among companies on both sides of the Atlantic. According to industry officials, these mergers are driven largely by the desire to access technology and share intellectual property in order to develop combination vaccines. What impact these mergers may have on industry involvement in the CVI is unclear. For their part, U.S. biotechnology companies involved in vaccine R&D report that they require generally lower profit margins than big industry (because of lower fixed overhead costs) and have a greater interest in pursuing products of potential use in the developing world. However, in order to attract investors, biotechnology firms may be even more dependent than large vaccine makers on evidence of markets for prospective vaccine products.

Local Production and Self-Sufficiency

Although UNICEF and others have been concerned that rising vaccine demand and prices would exceed the ability of the fund to provide EPI vaccines to the developing world, this appears not to be the case. UNICEF purchases

37  

EPI vaccines target seven diseases: diphtheria, pertussis, tetanus, tuberculosis, polio, measles, and hepatitis B.

38  

The study, a summary of which was published by UNICEF, was conducted by Mercer Management Consulting.

39  

U.S. vaccine manufacturers, who have not sold vaccine to UNICEF since the early 1980s, were not included in the analysis.



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The Children’s Vaccine Initiative: Continuing Activities: A Summary of Two Workshops Held September 12–13 and October 25–26, 1994 TRENDS IN THE GLOBAL VACCINE SITUATION Industry Characteristics Concerns about the anticipated high cost of some newer vaccines—especially those produced with so-called conjugation technology—as well as fears of price hikes for the current set of EPI vaccines 37 prompted the United Nations Children’s Fund (UNICEF) and the WHO to commission an analysis of the commercial aspects of global vaccine supply.38 The analysis focused on the firms that sell vaccine to UNICEF.39 Among its many findings, the study revealed that vaccine manufacturing is a largely fixed-cost activity (Box 5). That is, to a greater extent than in many other sectors, production efficiency in the vaccine business rises dramatically with increasing volume. This means that relatively fewer additional man-hours are needed for a given boost in production volume. This advantage holds true only if the manufacturing facility is appropriately sized from the start, however. There has also been a general consolidation of the worldwide vaccine industry, reflected by strategic alliances between and among companies on both sides of the Atlantic. According to industry officials, these mergers are driven largely by the desire to access technology and share intellectual property in order to develop combination vaccines. What impact these mergers may have on industry involvement in the CVI is unclear. For their part, U.S. biotechnology companies involved in vaccine R&D report that they require generally lower profit margins than big industry (because of lower fixed overhead costs) and have a greater interest in pursuing products of potential use in the developing world. However, in order to attract investors, biotechnology firms may be even more dependent than large vaccine makers on evidence of markets for prospective vaccine products. Local Production and Self-Sufficiency Although UNICEF and others have been concerned that rising vaccine demand and prices would exceed the ability of the fund to provide EPI vaccines to the developing world, this appears not to be the case. UNICEF purchases 37   EPI vaccines target seven diseases: diphtheria, pertussis, tetanus, tuberculosis, polio, measles, and hepatitis B. 38   The study, a summary of which was published by UNICEF, was conducted by Mercer Management Consulting. 39   U.S. vaccine manufacturers, who have not sold vaccine to UNICEF since the early 1980s, were not included in the analysis.

OCR for page 29
The Children’s Vaccine Initiative: Continuing Activities: A Summary of Two Workshops Held September 12–13 and October 25–26, 1994 BOX 5 The Economics of Vaccine Manufacturing Three cost categories: variable, batch fixed, site fixed Fixed-cost categories represent about 85 percent of manufacturing expense Marginal cost per dose of producing additional vaccine is significantly lower than the full cost per dose of lower production volume UNICEF purchases cover suppliers’ fully marginal and marginal production costs SOURCE: Adapted from summary of Mercer study of commercial vaccinesupply, UNICEF, 1994. some 525 million doses of EPI vaccines each year, equal to about 15 percent of the worldwide sales of these products. The fund is paying more per dose for these vaccines now than in the past, but this is due mainly to the decline in value of the U.S. dollar. In fact, over the last decade, the prices of vaccines purchased by UNICEF have remained relatively stable. Worldwide, the total production of EPI vaccines has been increasing at a steady 7 percent per annum; however, the volume of UNICEF-purchased EPI vaccines has been declining since 1990, primarily in response to rising local production of these vaccines. According to Mercer Management Consulting, local production has risen at an annual rate of 10 percent over the last 10 years. Indigenous production facilities, including many in the developing world, have become major sources of vaccine in the world. For instance, India and China together account for more than two-thirds of all local production of EPI vaccines. An additional factor altering the landscape of the global vaccine market is the move toward self-sufficiency. About 70 percent of EPI vaccines now are purchased by the nations that use them. Countries buying their own vaccine may be motivated by any number of factors, including national pride and the desire for an inexpensive, secure supply of vaccine. Part of this trend is the result of the Vaccine Independence Initiative. Launched by the UNICEF and the U.S. Agency for International Development in 1992, the initiative is a revolving fund that helps countries purchase childhood vaccines using local currency. UNICEF then uses these monies to administer its programs in the purchasing country. The