The Economics of Vaccines

Pharmaceutical companies over the last couple of decades have been looking for blockbusters instead of incremental improvements.
  • Transcript


Seth Berkley:  It’s interesting because vaccines used to be thought as not very profitable. The pharmaceutical industry much, much larger-- People when they’re sick of course will have a perception that they’ll pay more because they’re worried about being sick and wanting to get better. There’s nothing that’s more driving than when you feel sick to get treatment. Vaccines used to be seen as public health commodity things, things that were required by the state, relatively inexpensive and that’s beginning to change. There’s been a series of vaccines over the last few years that have come out, that have come out at high price in the west and have created very large markets. But the pharmaceutical markets over the last couple of decades have been looking for blockbusters. They’ve been looking for drugs and vaccines that make billions of dollars and so that hadn’t been the way of working. On top of that, you have a disease that is extremely difficult scientifically. We’ve talked about that. You’ve got a disease that the primary place where it’s spreading, 95% of the infections are in the developing world, and third, you’ve got a disease that’s politically controversial. It’s about sex. It’s about people who are arguing about this. It’s about intellectual property. And so you can rationally see why a company might say this isn’t the best place to invest our shareholders’ resources and so one of our great challenges has been to say this is a global public good. This vaccine will be important not only for the developing but also for the developed world. So how do we create incentives that will engage the best scientists, the best companies, the best groups in the world to focus on this problem? It isn’t going to happen in a natural market mechanism. We’ve got to create them and that’s really part of what we’re trying to do.

Question: How do we incentivize innovation?

Seth Berkley:  In a sense, the mechanisms people usually do for these types of products is people presume there’s a massive market out there that can charge a lot of money and therefore there’s a lot of profit that can occur. And if it’s so profitable that you can make a real killing on a product, what that means is that you can have lots of products that don’t make it along the way and still have it be a profitable business. So in essence, companies and scientists and groups have to think about the probability of success of creating products and factor that into what the potential return on investments going to be, and that’s how the calculations are made. So you have this situation now where you’ve got a product that may be for a place that isn’t going to pay a lot of money, that is scientifically difficult, all these controversies. So if you want to try to get more work done, there are two major mechanisms: push and pull. The push mechanism is you can say all right, we’re not going to expect private companies to pay for the research. We’re going to use public dollars to pay for the research and that’s one way to drive things forward. But there’s also the possibility of creating a pull mechanism. You could say we’re going to put incentives in place whether it be we’ll take the risk out by funding the research, but also we can create an artificial market and that’s what an advanced market commitment is. That’s the idea that you put some money out there and you say we’re going to create a market that says we’ll buy a vaccine at a certain price up to a certain quantity so that the companies know this market is there for the developing world, for the places that they’re discounting. There’s also tax credits. There’s also prizes. There’s a whole range of other incentives one can put in place but the idea is to make sure that you get the best scientists engaged in this. Some of those are going to be in the public sector --  government laboratories, academic laboratories -- but a lot of this type of vaccine development work occurs in private companies, so you want to bring those two together. That’s the idea of a public/private partnership, to make sure you get the best of both sectors engaged in this.

Topic: Public-Private Partnerships

Seth Berkley:  IAVI was the first of these drug type of product development partnerships. There’s now 20-odd ones of these working in the drug and vaccine area and there’s more drugs that are moving forward now but for diseases of poverty than have been moving forward in the last three or four decades. So there’s been in a sense a whole renaissance of movement towards these new types of products. But product development partnerships, in essence, are not just things that are done in the health sector. Some of the most interesting academic product things have been like semi-tech, semiconductor-type work, government industry partnerships like the Airbus Consortia where they’ve taken the public and private sector and put them together to drive things forward. It’s a well-known tool, it just hasn’t been done for drugs and vaccines for diseases of poverty before.