President, Valera, A Moderna Venture, US
In 2016 four global vaccine producers—Sanofi Pasteur, Merck, Pfizer and GSK—invested significantly (over US$200 m each) in global vaccines R&D each year. This has shrunk from 14 global R&D vaccine producers in 1998 and 6 in 2014. Today there are only two producers for each of the northern hemisphere’s principle infant, adolescent and adult vaccines. In the past these R&D based producers also supplied many vaccines to the lower income markets. However pressure on prices and loss of commercial viability have left this mantle increasingly to the Indian producers such as Bharat, Panacea, Biological E, Shantha Biologics and most significantly, the Serum Institute of India. This shift of suppliers is the result of an increase in Indian capability and capacity and a decrease in the ability of other producers to sell at increasingly low vaccine prices. The Indian producers have focused their business model on the largely pooled procurement markets of GAVI/UNICEF and PAHO/Revolving fund in addition to their domestic and regional markets. They have also focused initially on the development and production of existing heritage vaccines rather than the long, expensive and unpredictable challenge of R&D into new vaccines. In many cases, such as MenA conjugate and rotavirus vaccines, leveraged significant financial and technical support has come from PATH, in turn funded by BMGF. This focused business model as well as the lower costs of building and operating production facilities in India has allowed the Indian producers to remain in markets that R&D-based producers have been forced to leave due to insufficient profit margins. As a result The R&D-based producers have ceased to develop and produce whole cell pertussis combinations, measles and rubella vaccines, rotavirus vaccines and yellow-fever vaccines.
There are, of course, positive aspects of this transition of vaccine capability and capacity supply from the North to the South, most importantly, the re-globalisation of vaccines production capability and capacity. On the surface there also seems to be a parallel between the falling prices for heritage vaccines and the transition from branded to generics in the small molecule market. However, the role of price pressure in this transition should be of increasingly concerning for all policy makers, procurers and producers, regardless of their business model. The concerns are three-fold. The first concern is that if the prices that have forced the R&D-based Northern producers to leave the market, continue to fall, then so will the profit margins. As a result, even the commoditised Southern producers may face increasing difficulties in retaining their presence within the market. The second concern is that lower prices may allow the donors, philanthropists and purchasers to buy more vaccines but it is clear that these lower prices have not improved access for the 20 per cent of the world’s children that don’t get even the minimum vaccines. So there is a real risk that lowering prices is not solving the true root cause underlying poor vaccine access. Thirdly, if margins are continuously eroded, who will pay for the R&D needed to develop improved versions of existing vaccines and vaccines for the many unmet needs in infectious diseases, especially in the markets that are increasingly served by the low cost business model? This raises the fundamental question of whether the purchaser’s anxiousness to minimise prices may actually be risking a tragedy of the commons for this incredibly valuable global public good without solving the underlying objective of access and impact. This in turn poses the question: who is catalysing this ecosystem and why is vaccinations’ value being under-estimated and/or under-rewarded?
Few deny the immense contribution of vaccinations to individual, societal, economic and global health. Vaccinations make us healthier individuals, families and communities. Healthier societies are better able to invest time, people and resources in social, economic and environmental health. Since it is increasingly acknowledged that wealth follows health at least as much as health follows wealth, it is clear that vaccinations are an essential ingredient in generating a virtuous cycle of health, wealth and happiness.
A public good is something that everyone has access to (non-excludable) and by having access, they don’t prevent access by others (non-rivalrous.) Textbook examples of public goods are fireworks displays, lighthouses, clean air and defense. Eighty-five per cent of the world’s vaccines were purchased by governments and donor-funded groups, such as GAVI. These vaccines are provided free of charge to the afflicted (non-excludable) and whilst supply is sufficient, everyone has the right to be vaccinated (non-rivalrous.) Vaccination can, therefore, be thought of as a public good. Some may refute this because a single vaccine can only be used for one person, thereby rendering it rivalrous and that the only true public good of vaccination is the herd immunity resulting from the total public health benefit being far greater than the sum of the individuals protected. Those who argue that vaccination is not a true public good prefer to label it a merit good. A merit good confers benefits on society in excess of the benefits conferred on individual consumers; in other words, there is a divergence between private and social costs and benefits. The benefits accruing to society, therefore, tend to be greater than the private benefits to the individual. As a result, a private market cannot be relied upon to ensure an efficient allocation of society’s scarce resources to the good. Vaccinations exhibit the positives but also the risks of public goods and merit goods.
The immense and widely accepted value of public and merit goods such as vaccinations is also their potential Achilles heel. Anything as valuable as vaccinations is quickly embraced as a global human right, like education, sanitation and clean water. It seems unthinkable that the whole world should not have access to such an important public good. However, if everyone accesses a public good for free, how would we fund its continuity and improvements for the future? Historically vaccinations have had to manage the fact that not all governments have the means to fund them. For those with lesser means, the Lower Income Countries (LICs), mechanisms have to be found to try and prevent cost from being a barrier to vaccinations. The most visible and effective of such mechanisms is tiered pricing. This works for globally distributed vaccines and broadly matches vaccine price to ability to pay, so that High Income Countries (HICs) pay more than LICs. This results in a viable average selling price and means adjusted affordability. However, this does not work for products confined to lower income countries, such as cholera or whole cell pertussis vaccine nor does it work for countries for which the lowest viable pricing tiers are out of reach. These vaccination market failures are covered by multi-billion dollar donor funded programs such as the polio eradication program (GPEI) or the GAVI alliance or by financing mechanisms such as PAHO’s revolving fund.
The single largest purchaser of vaccines in volume is GAVI, through UNICEF. GAVI purchases 33-38 per cent of global vaccine production by volume for about 5 per cent of the value. Until recently, tiered pricing has allowed this balance to be maintained. However, over the last 5-10 years, price pressure and erosion has appeared at a number of points in the continuum of vaccine pricing. At the lower end of the pricing continuum GAVI, UNICEF, BMGF, CHAI and India have been engaged in a concerted campaign of Market-Shaping supported by highly vocal advocacy campaigns from organisations such as Doctors without Borders (MSF.) They have focused on bringing down the price of GAVI vaccines using a combination of volume commitments, support of new producers for some vaccines (esp. pentavalent) and market mechanisms such as the Advanced Market Commitment (AMC) for the Pneumococcal Conjugate Vaccines (PCV.) Others, such as PAHO’s revolving fund, maintain low prices by reference pricing to the GAVI rate through the ‘Lowest Price Clause’ in their contracts.
However, these donor-funded programmes are themselves under immense pressure from the donor governments, and philanthropists to demonstrate the maximum impact of every dollar given and spent. They are obliged to minimise to administration costs and demonstrate that they pay the lowest price possible for vaccines. The donor and purchaser demand to minimise cost is understandable. But it is, by definition, almost always short-term in focus. The combination of the small number of global vaccine volume purchasers and the long cycle times for manufacturing a vaccine (12-36 months) mean that suppliers have little choice over who to sell to and must move their stock if they are to avoid the double impact of lost sales and write-off costs. There is no explicit consideration built into the tender process for the longer term impact of such a short-term focus comprising of very few dominant purchasers on a public good. There is no explicit tracking of the impact of falling vaccine prices either on the health of the public good or whether low price is actually achieving the public health goals rather than just the donor’s demands for efficiency. The fact that these children don’t receive Oral Polio Vaccine (OPV) at 12 cents a dose or Diphtheria-Tetanus-Pertussis vaccine (DTP) at 19 cents a dose tells us that in reality, the main barriers to access are the challenges of children physically accessing vaccines, and gaps in education, awareness and acceptance, not the price.
Short-term focus on low price and low costs rather than sustainable Pareto-efficiency may not be solving the true underlying barrier to access to vaccination and it may be creating significant risk for the future. Indeed, the last decade has seen very little reduction in the 20 per cent of the world’s children that don’t receive even the minimum vaccines. Conversely falling margins have forced some producers to exit due to loss of sufficient profitability. Those that remain will be increasingly forced to make important decisions on where to invest dwindling income in terms of competency and capacity. We may only know that these choices have inadvertently had a negative impact on vaccine quality, supply reliability and innovation when it is too late. In economic terms, the impact of concentrated buyer power is known as a race to the bottom. This may be acceptable for commodities but vaccines are not commodities and treating them as such risks a tragedy of the commons.
A tragedy of the commons is the result of an over-exploitation and under protection of a public good. The result is a degradation or loss of a public good because everyone wants as much of it as possible but no-one takes responsibility to protect it. For example, if localised pollution of the air has its negative impact either elsewhere or for a long-term, there is little incentive for the polluter to focus on the short-term and ignore the broader and longer term consequences. Short-term exploitation of a public good by those that don’t bear the immediate consequences (free-riders) may result in the longer term destruction of the good (a tragedy of the commons). Famous examples include over fishing and destruction of the Grand Banks, the destruction of salmon runs on rivers that have been dammed, the devastation of sturgeon fisheries and the limited water available in arid regions (e.g., the area of the Aral Sea). It is even suggested that antibiotic resistance is an unfolding tragedy of the commons.
Once a tragedy of the commons occurs, the positive externalities such as herd immunity are lost. For instance, the far-reaching benefits of a free flowing public roads system is rapidly reversed by its overuse and resulting accidents, traffic pollution and multiple opportunity costs. A world in which low vaccine prices compromised supply reliability, quality and innovation would be equally concerning.
The immense contribution of vaccinations to saving and improving lives is frequently cited and claimed by global health leaders. The same leaders invariably swiftly follow this unreserved acknowledgement of the value of vaccination with calls for even lower prices, but with increased supply, high quality standards and continuing innovation in all aspects of vaccines and vaccination. Give the impact and value of vaccination, these calls are entirely understandable and laudable but are they realistic and what are the potential unintended consequences that we should all be aware of? How can we recognise these unintended consequences as early as possible and what can be done to avoid them?
Sustainable vaccination is predicated on maintaining the integrity of a triangle of affordability, reliable quality supply and innovation. Focusing on affordability risks reducing resources available for quality production and innovation, and focusing on innovation and/or quality supply will necessitate additional resourcing either from the sale of vaccines or from elsewhere. The expectation of a combination of lower prices, increased quality and continuing innovation is therefore paradoxically unrealistic, unless the pressure is able to stimulate a paradigm change in how vaccines are discovered, developed, produced, released, purchased, shipped and used.
Today there are six vaccines for which UNICEF has only a single contracted supplier. These include Diphtheria-Tetanus-Pertussis vaccine (DTP), Measles-Rubella vaccine (MR), Measles-Mumps-Rubella vaccine (MMR), meningococcal A/C polysaccharide vaccine (Men A/C), Yellow Fever vaccine (YF), rabies vaccine (Rab.V) and Meningococcal C conjugate vaccine (MCCV). This compares with only 2 vaccines with single suppliers in 2001. A look at UNICEF’s supply status reveals that all but two of the vaccines that they procure for GAVI are moderately or severely supply-constrained. The recent Ebola and Zika outbreaks have also highlighted the yawning gaps in vaccines R&D for marginal and neglected diseases.
For three of the sole supplier vaccines (MR, MMR and Men A/C) it was the loss of an R&D-based producer that left a solitary supplier within the market. For one (YF) it is only the persistence of an R&D producer and the ability to raise prices that keeps global supply close to minimum demand. For one it was the exit of one R&D and one non-R&D producer (DTP) that left a single supplier and for two (Rab.V and MCCV) it is the presence and investment of SII that has been critical to assuring supply.
The vaccination community has always worked to try and find ways to vaccinate as many children as possible. Price reduction is an attractively simple way to show how effective the purchasers are at controlling the suppliers in the short-term but unless we re-establish absolute clarity on our goal, which is to protect more people, and align our actions and metrics with this goal, our over-dependence of price risks will perpetually cause a tragedy of the commons and damage the extraordinarily valuable public good of vaccination.
Michael is a UK trained physician in Internal Medicine and infectious diseases and post-graduate training in Pharmaceutical Medicine. He has worked for the last 20 years in vaccines. His roles have included UK Medical Director of Aventis Pasteur MSD, Head of Clinical and Epidemiology for SPMSD in Lyon, France, Head of R& D for Acambis in Cambridge MA and Global Head of Vaccination Policy and Advocacy at Sanofi Pasteur, and Global Head of Policy for the SANOFI Group. In April he was appointed President of the mRNA vaccine company Valera, a Moderna Venture.
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