Financing the vaccine enterprise

Funding for vaccine research and development comes primarily from taxes/ government sources, profits from sales of products, and venture capital. Compared with the worldwide pharmaceutical market, the vaccine market is very small and much less profitable. Revenues from worldwide vaccine sales in 2000

were approximately US$6 billion; this combined revenue was less than that from a single pharmaceutical blockbuster such as Lipitor (a cholesterol-lowering agent) (Offitt, 2005b). Furthermore, vaccines are often more difficult and more time-consuming to produce and have a much more limited potential for consumption, since an individual will be immunized with a specific vaccine only a handful of times at the most (Offitt, 2005b).

In addition, the dynamics of supply and demand are highly regulated and constrained in the vaccine market. In the United States, more than 50 percent of childhood immunizations purchased are bought by a single purchaser - the US Federal Government - principally through the Vaccines for Children Program of the Centers for Disease Control and Prevention (CDC). In Latin America the Pan American Health Organization (PAHO) manages vaccine purchases, and in the remainder of the developing world the United Nations Children's Fund (UNICEF) is the main purchaser of vaccines, accounting for 40 percent of the global volume of basic pediatric vaccines (Danzon etal, 2005). Supply of vaccines is also highly constrained. In the US, there are only four major companies that manufacture vaccines (NVAC, 1997; Levine, 2004). As a result, most vaccines licensed in the US are made by only one or two manufacturers, leaving the vaccine supply at constant risk for disruption and shortages (Danzon and Pereira, 2005). In the developing world, the vaccine market has seen a divergence from the developed world in the vaccines produced, and a proliferation of local vaccine manufacturers to supply these vaccines; most of the vaccines now supplied to UNICEF come from developing country manufacturers, not the multinational corporations (Plotkin and Orenstein, 2004).

Also, the sectors of the vaccine market that are most profitable often differ from those where there is the greatest opportunity to reduce morbidity and mortality. Whereas the trends in developed nations are towards developing vaccines for the more profitable adolescent and senior adult markets, the greatest infectious disease burdens remain among children in the developing world (Levine, 2004). As a result, efforts are underway to develop innovative, sustainable financing mechanisms to enable all children worldwide not only to benefit from existing vaccines, but also to have access to new vaccines as they are developed, and to put in place incentives so that the vaccines needed to fight diseases predominantly affecting children in low-income countries will continue to be developed. The Vaccine Fund, established under the auspices of GAVI, was created to help support routine immunizations, the introduction of new vaccines, and safe delivery mechanisms for vaccines in the poorest countries worldwide (Levine, 2004; Batson, 2005). With the goal of ensuring the sustainability of these efforts, a requirement of this funding is the creation of a five-year national immunization plan that includes identifying long-term financing mechanisms beyond the period of the funding (Plotkin and Orenstein, 2004).

Among the solutions currently proposed to encourage innovation in immunization programs and facilitate the introduction of new vaccines to the developing world are the creation of advance-purchase agreements for low-income countries. These contracts would be made between sponsoring donors and vaccine manufacturers to create a guaranteed market for a new vaccine, thus establishing a "pull" mechanism to provide incentive to industry to develop needed immunizations by demonstrating demand in advance of vaccine development (Berndt and Hurvitz, 2005; Lieu et al., 2005). Other solutions include "push" mechanisms, such as direct financing of vaccine research and development by donor agencies or governments, tax credits for research, and harmonization of regulations to create an environment favorable to multinational vaccine development (Lieu et al., 2005).

One example of such a novel approach to vaccine financing is the partnership developing a vaccine against malaria. When a corporate restructure resulted in the manufacturer withdrawing funds for this vaccine, the Gates Foundation stepped in to fund continued research. When early trials yielded promising results, this catalyzed international collaboration to raise capital from multiple governments via the bond market. Finally, an advance purchase contract allowed for a purchase price of $15-25 dollars for the three-dose series for the first 200 million doses, to recoup research and development costs, followed by a price drop to $1.00-1.50 for subsequent doses (Wall Street Journal, 2005).

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