Vaccines Are Profitable, So What?
By now, the numbers on the recent U.S. measles outbreak are well known. In 2014, America had more than 600 cases of measles—the highest number in 20 years. In the month of January 2015 alone, 84 people in 14 states reported having measles, with most cases linked to an incident at Disneyland. The reason for the resurgence? More and more people are opting to not vaccinate their kids.
While the main fixation of anti-vaccine groups is an old, discredited study linking vaccination to autism, another is a conspiracy theory circulated online that both doctors and pharmaceutical companies stand to profit financially from vaccination—which supposedly leads to perverse incentives in advocating for the public to vaccinate.
But that argument is historically unfounded. Not only do pediatricians and doctors often lose money on vaccine administration, it wasn't too long ago that the vaccine industry was struggling with slim profit margins and shortages. The Economist wrote that "for decades vaccines were a neglected corner of the drugs business, with old technology, little investment and abysmal profit margins. Many firms sold their vaccine divisions to concentrate on more profitable drugs."
In fact, vaccines were so unprofitable that some companies stopped making them altogether. In 1967, there were 26 vaccine manufactures. That number dropped to 17 by 1980. Ten years ago, the financial incentives to produce vaccines were so weak that there was growing concern that pharmaceutical companies were abandoning the vaccine business for selling more-profitable daily drug treatments. Compared with drugs that require daily doses, vaccines are only administered once a year or a lifetime. The pharmaceutical company Wyeth (which has since been acquired by Pfizer) reported that they stopped making the flu vaccine because the margins were so low.
“Historically vaccines were produced at a relatively low price and sold with a low profit margin. They were add-ons to other products—mostly drugs—that pharmaceutical manufacturers were producing," explains Neal Halsey, professor of pediatric infectious diseases and international health at Johns Hopkins Bloomberg School of Public Health. "The people working in vaccines described themselves as the stepchild of others, and they had to fight hard for the resources to develop new vaccines.”
There are many factors that make vaccine production tricky, and thus less lucrative: Live vaccines are troublesome to manufacture, and they're closely regulated by the FDA for quality control. Public agencies often buy vaccines at capped prices (though research has shown that doesn't necessarily make companies exit the market, because they buy at high volumes). Altogether, a combination of high production costs, low market prices, and heavy regulation may have contributed to occasional vaccine shortages.
But then a couple things happened to turn the vaccine market around in recent years. Global demand, particularly in developing countries, shot up. Since 2000, the Gavi Alliance has provided vaccination for 500 million children in poor countries, preventing an estimated 7 million deaths. GlaxoSmithKline reported that 80 percent of the vaccine doses they manufactured in 2013 went to developing countries. Additionally, vaccines that could turn a profit in high-income countries—constituting 82 percent of global vaccine sales in terms of value, according to the World Health Organization—hit the market.
"I think the market opened up once Hepatitis B vaccine showed that you can really sustain very high prices for single dose. That was unheard of back in the 1980s," says David Bishai, director of the Interdepartmental Health Economics Program at Johns Hopkins Bloomberg School of Public Health.
Two "blockbuster" vaccines also hit the market: pneumococcal conjugate for meningitis and other bacteria infections, and a vaccine for human papillomavirus (HPV). The industry grew. One estimate puts the vaccine market now at $24 billion—huge, but a mere 2 to 3 percent of a trillion-dollar worldwide pharmaceutical industry.
While vaccine prices have always been higher in the U.S. and Europe due to tiered pricing, prices have been rising dramatically in recent years. The government's Vaccine for Children Program purchases vaccines for about 50 percent of children in the U.S. The current CDC pediatric-contract price for MMR is $19.91, while the private-sector pediatric price for MMR has risen to $59.91.
In the U.S., Merck is the only company licensed to offer the measles vaccine. In their recent 2014 earnings report, they reported that sales of ProdQuad (a vaccine for measles, mumps, rubella, and varicella), MMR II (for measles, mumps, rubella), and Varivax (a chicken pox vaccine) together came in at $1.4 billion, a fraction of the company's $42.2 billion in global sales. Their top selling vaccine is Gardasil, an HPV vaccine, which brings in $1.7 billion in sales.
But profit margins are hard to know, as R&D (which can take up to 15 years), manufacturing, trials to test efficacy, and distribution costs for specific vaccines and drug products are not public. While a spokesperson for Merck told The Atlantic that vaccines remained one of its key areas of focus—it generated $5.3 billion in sales in 2014—she did not comment on the profit margins. Analysts peg the profit margin of giant pharmaceutical companies at anywhere ranging between 10 to over 40 percent. “Nobody knows exactly how much it costs for them to make it, because they don’t want to reveal that,” says Halsey. They fear that they would face pressure to lower prices in the U.S., Europe, and the developing world.
And costs are an issue: Where there were once worries that low vaccine prices would drive manufacturers out of the market and lead to shortages, there are now worries that prices are too high for both the developed and developing world. The New York Times reported last year that some American families had trouble finding doctors for vaccine administration because the vaccines were too expensive for doctors to stock. Doctors Without Borders recently called for Pfizer and GlaxoSmithKline to lower vaccine prices for developing countries.
In response to calls for vaccine costs to come down, supporters of increasing vaccine supply such as Bill Gates have argued that not only is vaccine production very complicated, but research and development budgets would suffer. While the pharmaceutical industry is unlikely to budge on revealing their profits, Halsey suspects that having more manufacturers would help lower prices. Yet the vaccine market is highly concentrated on both the supply and demand side, with high fixed costs and exclusive licensing discouraging competition.
So while the vaccine industry is likely more profitable now than in the 1970s or 1980s, this is the result of global market forces, not a reason to skip a child's vaccinations: Pharmaceutical companies need incentives to keep producing vaccines, because regardless of profits the economic and social benefits of vaccination are huge—in lives and the billions of dollars saved. A study released last year estimated that fully immunizing babies resulted in $10 saved for every dollar spent, about $69 billion total. "Vaccines are one of the most cost-effective interventions we have," says Halsey.
In the U.S., a study looking at the benefits of vaccination between 1994 and 2013 estimated a net savings of $295 billion in direct costs and $1.38 trillion in total societal costs. Looking at the last 50 years of the vaccine market, it's absurd to think profits could have ever been the sole motivation of vaccine production. In fact, 83 percent of Americans believe that the MMR vaccine is safe. Profits from vaccine production aren't a valid argument against vaccinations—the most important question is whether vaccines are safe and effective, and the answer is unambiguously yes.
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