Economics of vaccines

Vaccine development and production is economically complex and prone to market failure. Many of the diseases most demanding a vaccine, including HIV, malaria and tuberculosis, exist principally in poor countries. Pharmaceutical firms and biotechnology companies have little incentive to develop vaccines for these diseases because there is little revenue potential. Even in more affluent countries, financial returns are usually minimal and the financial and other risks are great.[1]

Most vaccine development to date has relied on "push" funding by government, universities and non-profit organizations.[2] Many vaccines have been highly cost effective and beneficial for public health.[3] The number of vaccines actually administered has risen dramatically in recent decades.[4] This increase, particularly in the number of different vaccines administered to children before entry into schools may be due to government mandates and support, rather than economic incentive.[5]

## Contents

* 1 Market concentration
* 2 Epidemic response
* 3 Market incentives
* 4 Demand
* 5 Public domain
* 6 References

## Market concentration[edit | edit source]

The struggle to get access to vaccine in the 2013-2016 Ebola epidemic was primarily socio-economic, not technical

While vaccine research and development is done by many small companies,[6] large-scale vaccine manufacturing is done by an oligopoly of big manufacturers.[6][7][8] A March 2020 New York Times article described the political effects of this market structure: "government and international health organizations know that any vaccine developed in a lab will ultimately be manufactured by large pharmaceutical firms. At this critical juncture with coronavirus, no health expert would publicly criticize drug companies, but privately they complain that pharma is a major speed bump in developing lifesaving vaccines."[7]

Concentration and monopolization of the manufacture of specific drugs has also led to supply shortages, and significant healthcare costs for employing people to track down hard-to-get drugs.[9]

This oligopoly power allows[citation needed] vaccine manufacturers to engage in price discrimination, and vaccine prices are often two orders of magnitude higher than the manufacturer's stated manufacturing costs, as of 2015[update]. Sales agreements often require that the buyer keeps the price secret and agrees to other non-competitive restrictions; the exact nature and extent of this problem is hard to characterize, due to agreements being secret.[10][11] Price secrecy also disadvantages vaccine purchasers in price negotiations. It also makes market analysis difficult and hinders efforts to improve affordability.[10]

The first decade of the 2000s saw a large number of mergers and acquisitions, and as of 2010[update], 80% of the global vaccine market was in the hands of five multinationals: GlaxoSmithKline, Sanofi Pasteur, Pfizer, Merck, and Novartis.[12] Of these, Novartis does not focus on vaccine development.[13] Patents on key manufacturing processes help maintain this oligopoly.[14][15]

## Epidemic response[edit | edit source]

In the past, the market power of pharmaceutical companies has delayed responses to epidemics. Manufacturers have successfully negotiated favourable terms, including market guarantees and indemnification, from governments, as a condition of manufacturing vaccines. This has delayed responses to some epidemics by months, and prevented responses to other pandemics entirely.[7] Some intellectual property issues also hinder vaccine development for epidemic preparedness, as in the case of rVSV-ZEBOV.[16]

## Market incentives[edit | edit source]

There is also no business incentive for pharmaceutical companies to test vaccines that are only of use to poor people.[17] Vaccines developed for rich countries may also have short expiry dates, and requirements that they be refrigerated until they are injected and given in multiple shots, all of which may be very difficult in remote areas. In some cases it has simply never been tested whether the vaccine will still be effective if the requirements are not followed (say, if it retains potency for several days unrefrigerated).[10]

In almost all cases, pharmaceuticals including vaccines are developed with public funding, but profits and control of price and availability are legally accorded to private companies.[18] The profits of large pharmaceutical companies are mostly used on dividends and share buybacks, which inflate executive pay,[19][20] and on lobbying and advertising.[21][20][22] Innovation is generally bought along with the small companies that developed it, rather than produced in-house;[19][20][22] low percentage R&D spending is sometimes touted as an attraction to investors.[23] The financialization focus of the pharmaceutical industry, especially in the US, has been cited as an obstacle to innovation.[20]

There have been ethical issues raised with accepting donations of generally unaffordable vaccines.[15]

## Demand[edit | edit source]

While the vaccine market makes up only 2-3% of the pharmaceutical market worldwide, it is growing at 10-15% per year, much faster than other pharmaceuticals (as of 2010[update]).[12] Vaccine demand is increasing with new target population in emerging markets (partly due to international vaccine funders;[10] in 2012, UNICEF bought half of the world's vaccine doses[12]). Vaccines are becoming the financial driver of the pharmaceutical industry, and new business models may be emerging. Vaccines are newly being marketed like pharmaceuticals.[12]

Vaccines offer new opportunities for funding from public-private partnerships (such as CEPI[7][24] and GAVI[25]), governments, and philanthropic donors and foundations (such as GAVI and CEPI's donors[7][25]). Pharmaceutical companies have representation on the boards of public-private global health funding bodies including GAVI[26] and CEPI.[27][example needed] Private donors often find it easier to exert influence through public-private partnerships like GAVI than through the traditional public sector and multilateral government institutions like the WHO; PPPs also appeal to public donors.[25] Philanthropic funding means that vaccines are now rolled out to large developing markets less than 10 or 20 years after they are developed,[26][28] during the patent validity term of the patent owner.[citation needed] Newer vaccines are much more expensive than older ones.[29] Lower-income countries are increasingly a profitable vaccine market.[10]

## Public domain[edit | edit source]

Baker (2016) observed that the vast majority of the cost of most diagnostic, preventive and treatment procedures are patent royalties: The unit costs are almost universally a tiny fraction of the price to the consumer. Moreover, in the US "the government spends more than $30 billion a year on biomedical research through the National Institutes of Health". And researchers (individuals and organizations) routinely obtain patents on products whose development was paid for by taxpayers, per the Bayh–Dole Act of 1980. Baker claims that the US population would have better health care at lower cost if the results of that research were all placed in the public domain.[30]

Moreover, the cost of those diagnostic, preventive and treatment procedures would be lower the world over if the results of publicly-funded research were in the public domain. This would likely lead to better control of infectious diseases worldwide. That, in turn, would likely reduced the disease load in the US.[31]

## References[edit | edit source]

1. ↑ Goodman JL (2005-05-04). "Statement by Jesse L. Goodman, M.D., M.P.H. Director Center for Biologics, Evaluation and Research Food and Drug Administration U.S. Department of Health and Human Services on US Influenza Vaccine Supply and Preparations for the Upcoming Influenza Season before Subcommittee on Oversight and Investigations Committee on Energy and Commerce United States House of Representatives". Archived from the original on 2008-09-21. Retrieved 2008-06-15.
2. ↑ Olesen OF, Lonnroth A, Mulligan B (January 2009). "Human vaccine research in the European Union". Vaccine. 27 (5): 640–5. doi:10.1016/j.vaccine.2008.11.064. PMC 7115654. PMID 19059446.
3. ↑ Jit M, Newall AT, Beutels P (April 2013). "Key issues for estimating the impact and cost-effectiveness of seasonal influenza vaccination strategies". Human Vaccines & Immunotherapeutics. 9 (4): 834–40. doi:10.4161/hv.23637. PMC 3903903. PMID 23357859.
4. ↑ Newall AT, Reyes JF, Wood JG, McIntyre P, Menzies R, Beutels P (February 2014). "Economic evaluations of implemented vaccination programmes: key methodological challenges in retrospective analyses". Vaccine. 32 (7): 759–65. doi:10.1016/j.vaccine.2013.11.067. PMID 24295806.
5. ↑ Roser, Max; Vanderslott, Samantha (2013-05-10). "Vaccination". Our World in Data. Archived from the original on 2020-09-01. Retrieved 2023-05-20.
6. ↑ 6.0 6.1 Peter Coy (13 February 2020). "The Road to a Coronavirus Vaccine Runs Through Oslo". Bloomberg News. Archived from the original on 20 March 2020. Retrieved 7 March 2020.
7. ↑ 7.0 7.1 7.2 7.3 7.4 Gerald Posner (2 March 2020). "Big Pharma May Pose an Obstacle to Vaccine Development". New York Times. Archived from the original on 7 March 2020. Retrieved 8 March 2020. "Drug companies on CEPI's scientific advisory panel, including Johnson & Johnson, Pfizer, and Japan's Takeda, pushed back. CEPI mostly capitulated in a December 2018 two-page declaration in which it jettisoned specifics but gave lip service to its founding mission of "equitable access to these vaccines for affected populations during outbreaks.""
8. ↑ Patrick, Kate. "FDA commissioner decries drug industry oligopoly". Supply Chain Dive. Archived from the original on 2020-09-01. Retrieved 2023-05-20.
9. ↑ Vaillancourt, R (May 2012). "Drug shortages: what can hospital pharmacists do?". The Canadian Journal of Hospital Pharmacy. 65 (3): 175–9. doi:10.4212/cjhp.v65i3.1138. PMC 3379822. PMID 22783027.
10. ↑ 10.0 10.1 10.2 10.3 10.4 "The Right Shot: Bringing down barriers to affordable and adapted vaccines - 2nd Ed., 2015". Médecins Sans Frontières Access Campaign. 20 January 2015. Archived from the original on 22 March 2020. Retrieved 20 May 2023.
11. ↑ "GAVI money welcome but could it be more wisely spent?". Médecins Sans Frontières (MSF) International. Archived from the original on 2020-05-15. Retrieved 2023-05-20.
12. ↑ 12.0 12.1 12.2 12.3 Kaddar, Miloud. "Global Vaccine Market Features and Trends" (PDF). World Health Organization. Archived (PDF) from the original on 2020-06-29. Retrieved 2023-05-20.
13. ↑ Stanley A. Plotkin; Adel A.F. Mahmoud; Jeremy Farrar (23 July 2015). "Establishing a Global Vaccine-Development Fund" (PDF). The New England Journal of Medicine. 373 (4): 297–300. doi:10.1056/NEJMp1506820. PMID 26200974. Archived (PDF) from the original on 5 May 2017. Retrieved 20 May 2023.
14. ↑ Buranyi, Stephen (4 March 2020). "How profit makes the fight for a coronavirus vaccine harder". The Guardian. Archived from the original on 15 August 2020. Retrieved 20 May 2023.
15. ↑ 15.0 15.1 Hamblin, James (14 October 2016). "Doctors Refused a Million Free Vaccines–to Make a Statement About the Pharmaceutical Industry". The Atlantic. Archived from the original on 23 April 2020. Retrieved 20 May 2023.
16. ↑ "MSF's response to CEPI's policy regarding equitable access". Médecins Sans Frontières Access Campaign. 25 September 2018. Archived from the original on 18 May 2020. Retrieved 20 May 2023.
17. ↑ Belluz, Julia (4 March 2020). "A guide to the vaccines and drugs that could fight coronavirus". Vox. Archived from the original on 6 March 2020. Retrieved 20 May 2023.
18. ↑ Mazzucato, Mariana; Momenghalibaf, Azzi (18 March 2020). "Drug Companies Will Make a Killing From Coronavirus". The New York Times. Archived from the original on 23 November 2020. Retrieved 20 May 2023.
19. ↑ 19.0 19.1 Lazonick, William; Tulum, Öner (26 February 2019). "How High Drug Prices Inflate C.E.O.s' Pay". The New York Times. Archived from the original on 4 June 2023. Retrieved 20 May 2023.
20. ↑ 20.0 20.1 20.2 20.3 Tulum, Öner; Lazonick, William (February 2019). "FINANCIALIZED CORPORATIONS IN A NATIONAL INNOVATION SYSTEM: THE US PHARMACEUTICAL INDUSTRY" (PDF). International Journal of Political Economy. Archived (PDF) from the original on 2023-03-26. Retrieved 2023-05-20.
21. ↑ Lerner, Sharon (13 March 2020). "Big Pharma Prepares to Profit From the Coronavirus". The Intercept. Archived from the original on 13 December 2020. Retrieved 20 May 2023.
22. ↑ 22.0 22.1 "Analysis: Large pharma companies do little new drug innovation". STAT. 10 December 2019. Archived from the original on 30 May 2023. Retrieved 20 May 2023.
23. ↑ Vara, Vauhini. "Billions and Billions for Botox". The New Yorker. Archived from the original on 2023-01-30. Retrieved 2023-05-20.
24. ↑ "Norway has invested 200 million euros in epidemic preparedness, but are they getting what they're paying for?". Médecins Sans Frontières Access Campaign. 7 March 2019. Archived from the original on 10 April 2020. Retrieved 20 May 2023.
25. ↑ 25.0 25.1 25.2 Storeng, Katerini T. (14 September 2014). "The GAVI Alliance and the 'Gates approach' to health system strengthening". Global Public Health. 9 (8): 865–879. doi:10.1080/17441692.2014.940362. ISSN 1744-1692. PMC 4166931. PMID 25156323.
26. ↑ 26.0 26.1 "Pneumococcal Vaccine is Launched in Africa, But Are Donors Getting a Fair Deal from Companies?". Doctors Without Borders - USA. Archived from the original on 2020-06-16. Retrieved 2023-05-20.
27. ↑ Røttingen, John-Arne (21 July 2017). "Coalition for Epidemic Preparedness Innovations (CEPI): Presentation to the WHO" (PDF). CEPI. Archived (PDF) from the original on 14 October 2021. Retrieved 20 May 2023.
28. ↑ MSF. "Pfizer and GSK should not get huge subsidy for pneumonia vaccine". Médecins Sans Frontières (MSF) International. Archived from the original on 2023-03-10. Retrieved 2023-05-20.
29. ↑ "Vaccination". Doctors Without Borders - USA. Archived from the original on 2021-12-15. Retrieved 2023-05-20.
30. ↑ Lua error in Module:Cite_Q at line 13: attempt to index field 'wikibase' (a nil value)..
31. ↑ See also the 2021-02-23 interview with Baker in "v:Unrigging the media and the economy".