Report on the United States Vaccine Industry

efficient technologies than smaller plants, the decision on which markets to serve often has a
direct impact on the plant's cost structure.
U.S. suppliers must build full-scale production plants in order to produce the vaccines required
for clinical trials even though the volume of doses required for clinical trials is a tiny fraction
of a plant's capacity. In recent years, the process of obtaining both PLA and ELA licenses has
become more difficult and complex - with higher costs for obtaining licenses and longer time
periods for approval. The elapsed time for efficacy trials and approval by the FDA can often
be 4 or 5 years. Thus, capital is tied up in plant construction that sits idle, with no certainty
that a license will be approved or that the plant will ever operate.
If the license is denied, the dollars spent on research and development, clinical trials and plant
capital have limited salvage value. These costs must be recaptured by successful future
vaccines, further raising the cost of vaccine development and licensing for products which are
licensed.
To summarize, the plant sizing decision is very difficult for U.S. suppliers. To take full
advantage of production scale requires sizing the plant from the start for an international
market. However, each international market has a separate, unique and sometimes arcane
product licensing process. Moreover, the volumes and prices in these international markets
tend to be lower than in the U.S. and are therefore less attractive. To build a larger plant
requires more investment capital, generating more risk. For many suppliers, it has been easier
to focus primarily on the U.S. market than to incur the risks and uncertainties of building plants
which could serve a global market.
An additional factor is the historical attitude toward tiered pricing adopted by the U.S.
government. Most foreign governments recognize that vaccine exports are sold at whatever
price the export market will bear, generally well below domestic prices. For a product with
very high fixed costs but very small marginal costs of production, pricing flexibility is a
prerequisite for success in global markets. It is quite feasible in the vaccine industry to export
at deep discounts and still provide contribution to the bottom line.
The U.S. government has taken a different perspective, however, by challenging industry
executives in Congressional hearings on the practice of tiered pricing. Thus, to the degree that
economic factors did not already discourage a global strategy, Congressional pressure has.
Despite these obstacles, U.S. suppliers now must look to global markets to sell new vaccines.
Through partnerships, alliances and technology licensing, they are finding creative ways to
circumvent the economic and political hurdles. In some cases, however, the U.S. could be
supplying product and not just technology which would generate jobs in U.S. vaccine plants
and lead to lower production costs.
Exhibit 5 portrays the means by which European suppliers are able to generate such large
dosage volumes relative to U.S. suppliers. The vast preponderance of their sales volume are
for basic vaccines (largely OPV) exported outside OECD markets at very low prices. UNICEF
sales are included in these volumes.

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