The Vaccine Industry - An Overview

Virtually all licensed vaccines in the United States are produced by just a handful of pharmaceutical companies: GlaxoSmithKline, Merck, Novartis, Sanofi Pasteur, and Wyeth. These companies account for 80 percent of the worldwide vaccine market.1 With a limited number of manufacturers and many recommended vaccines produced by only a single company, vaccines are susceptible to large fluctuations in supply and availability.2

Thirty years ago, the vaccine market looked remarkably different. At the time, 35 companies produced vaccines for use in the United States, and similar departures from the international vaccine market have also occurred in the intervening years. Between 1988 and 2001, 10 of 14 global vaccine manufactures partially or completely stopped production of traditional childhood vaccines.3 Health policy experts and economists attribute this trend primarily to market and financial considerations--namely, sparse profits; costly research, development and production; and liability concerns.

However, vaccine production has gained renewed attention from pharmaceutical companies in recent years. This comes as a result of technological advances, successful early-stage research, and the 1986 National Childhood Vaccine Injury Act, a law designed in part to protect vaccine manufacturers against safety-related financial liability. Although representing only about 1.5 percent of all pharmaceutical revenues, the vaccine business is currently growing at a double-digit rate with particular attention directed at influenza, AIDS, and new cancer vaccines.4-5 Even with industry growth fueled by limited competition and the prospect of "blockbuster vaccines" such as Prevnar and Gardasil, analysts expect vaccine profits to remain below the margins of branded pharmaceuticals.6 Compared with pharmaceutical "blockbusters" capable of annual sales well over one billion dollars, most vaccines continue to yield more modest profits for manufacturers. Additionally, the current development pipeline suggests that no vaccine having blockbuster potential is expected for at least the next several years.7

Small biotechnology companies often play a significant role in the vaccine industry by improving upon vaccine technologies and development at early stages of research. Nearly without exception, however, the high cost and challenges of large-scale vaccine development and testing requires partnerships between these small firms and the major manufacturers. This further cements the central role of multi-national pharmaceutical firms in the U.S. and international vaccine landscape.

Challenges for vaccine supply and availability

Between late 2000 and 2003 there were unprecedented and unanticipated shortages of eight of 11 vaccines routinely administered to children. Attracting the most attention was the influenza vaccine shortage in 2004 due to production problems by Chiron Vaccines, a major supplier at the time.8 In addition, the 2009-10 H1N1 influenza vaccination campaign further illustrated the challenges of ensuring that vaccine supply meets demand, particularly in a public health emergency.

In all cases, vaccine shortages force policy-makers and physicians to alter recommended immunization schedules, putting children at risk for potentially fatal infectious diseases as vaccination is delayed or deferred. As a result, the system is ill-equipped to respond to unexpected fluctuations in supply or demand.

Demand for a pediatric vaccine is generally quite predictable; it is directly related to the size of the birth cohort in a given year. Such capacity is typically met without difficulty by manufacturers of licensed vaccines. Meanwhile, the largest single purchasers of vaccines are governments. In the U.S., for example, the federal and state branches constitute close to 60 percent of all pediatric vaccines sold in the country.9 These factors, coupled with the high cost of research and development, explain why there is little incentive for competition with well-established vaccines generally capable of meeting demand.

The lack of additional capacity in vaccine production creates vulnerabilities should large amounts of vaccines be needed on short notice, as in a public health emergency created by a novel virus or an act of bioterrorism. The 2009-10 H1N1 influenza pandemic illustrated these structural shortcomings quite clearly. Meanwhile, differences in production standards and regulatory requirements in the U.S., Europe, and elsewhere often mean that vaccines may not legally be imported to other countries. This may even apply to slightly different formulations of vaccines produced by a manufacturer of a licensed vaccine in a particular country.

Impact on vaccine research and development

As noted thus far, many factors seem to discourage vaccine research and development, including limited demand, liability concerns, and price limits as a result of bulk purchasing. Perhaps the largest obstacle to the development of vaccines is the cost and time necessary to shepherd a vaccine through the clinical research process to licensure.

Producing a safe and effective vaccine requires about 12-15 years of research and costs estimated between $500 million and $1 billion dollars.10 This financial landscape means that the vaccine industry is unlikely to invest in a product that will not both pay for itself and turn a profit--characteristics which (almost) require a significant demand in wealthy, developed countries. As a result, many potentially vaccine-preventable diseases--such as those primarily impacting the developing world--are left without large-scale research interest from multi-national vaccine manufacturers. Attempting to fill this void have been networks led by private philanthropies, governments, and public-private partnerships.

The costs of vaccines extend beyond research expenses to the development of dedicated, specialized production facilities for large-scale manufacturing. Particularly because vaccines are given to healthy individuals who are often members of vulnerable populations (children and the elderly), regulators are particularly concerned with maintaining production standards so as to reduce the likelihood of safety problems. While these additional requirements increase confidence in the safety of individual vaccine lots, they lead to increased costs.

Since it is estimated 60 percent of vaccine production costs are fixed, meaning they are incurred regardless of the amount of product produced, vaccines require a sizable market to be profitable.11 Unlike cholesterol or blood pressure medications that are prescribed to patients for years, vaccines are only given a limited number of times, dramatically reducing the potential market and profitability.

The role of non-industry-based vaccine research and development

Increasingly, not-for-profit institutions such as the Bill and Melinda Gates Foundation have been playing a role in funding vaccine research and development. Their relatively recent emergence in vaccine research, coupled with the new strategies developed by dozens of small biotechnology companies, have the potential to transform a field previously dominated by only a handful of pharmaceutical companies in collaboration with academic researchers.

While increased funds and manpower have brought considerable energy to vaccine research, the various groups participating in this work face challenges in coordination and priority-setting. Research funding, be it from a not-for profit or a pharmaceutical company, comes with a specific agenda and expectations, resulting in differences in research priorities, objectives, and measures of success. These potentially competing concerns may impede research progress without careful coordination among the many groups--public and private--interested in the development of new vaccines.12

-- By Christine Prifti, Princeton University (cprifti@princeton.edu); Updated July 2010.


1 "Shot in the arm." The Economist. 5 (May 2003): 64.
2 Caplan, AL, Schwartz JL. "Ethics." in Vaccines, 5th ed. SA Plotkin, WA Orenstein, and PA Offit, eds. (Philadelphia: Elsevier, 2008).
3 "Where have all the vaccines gone?" The Lancet Infectious Diseases. 4(2004):187.
4 "Beyond the egg." The Economist. 10 (March 2007): 65.
5 Salinsky, E., Warble, C. "The Vaccine Industry: Does It Need a Shot in the Arm?" National Health Policy Forum. 25(January 2006): 12. Available at http://www.nhpf.org/pdfs_bp/BP_VaccineIndustry_01-25-06.pdf
6 "Beyond the egg." The Economist. 10 (March 2007): 65.
7 "Vaccines: Hot 'new' business for drugmakers." CNN Money. May 2007. Available at http://money.cnn.com/2007/05/30/news/companies/vaccine/index.htm
8 "Where have all the vaccines gone?" The Lancet Infectious Diseases. 4(2004):187.
9 FA Sloan, S Berman, S Rosenbaum, RA Chalk and RB Giffin. "The Fragility of the U.S, Vaccine Supply." The New England Journal of Medicine. 351.23(2004): 2443.
10 Ibid, 7.
11 Salinsky, E., Warble, C. "The Vaccine Industry: Does It Need a Shot in the Arm?" National Health Policy Forum. 25(January 2006): 14.
12 Caplan, AL, Schwartz JL. "Ethics." in Vaccines, 5th ed. SA Plotkin, WA Orenstein, and PA Offit, eds. (Philadelphia: Elsevier, 2008).

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