Report on the United States Vaccine Industry

Vaccine Industry Economics
Overview
The aggregate U.S. vaccine industry contribution to R&D, interest, taxes, and earnings is
similar to the pharmaceutical industry, though vaccine return on assets is probably lower, due
to higher capital requirements. Individual product contribution varies depending on the
competitive environment, the product complexity and scale, and the stage of the product life
cycle. Royalties may be a major cost of many new vaccines and may change the core
economics of the business. And "contribution" is significantly higher for private versus public
sector sales.
As shown in Exhibit 22, we have simplified the vaccine value-chain to include five cost
categories: production, distribution, returns, sales and marketing, and administration. Because
R&D investment is not addressed, "contribution" is calculated as the difference between these
costs and net revenue and is thus defined as "contribution to R&D, interest, taxes, and
earnings." Earnings are necessary to fund capital expenditures (to maintain and expand research
and production facilities) and dividends (to attract investors). Production costs include bulk
production, filling and finishing, QA/QC, other indirect support (such as engineering), and
royalties expense; distribution includes storage, pick-pack, and shipping; and sales and
marketing covers the costs of the sales force, promotional discounts, and other marketing
activities.
Exhibit 22
Vaccine Industry Value-Added Chain

Disti- Sales and I Admini- Contribution to R&D,
Production bution etng stton nterest, Taxes and
j - Earnings
m jl ii ~ | ~ i i i ~ iii

Returns
Costs

i

t
Net Revenue
* List Price
* Volume
discounts

Elements: * Bulk
production
* Filling/
finishing
"*QA/QC
" Indirect
Support
* Royalties

" Shipping
* Storage
* Pick and
pack
* Materials

* Sales force *
* Promotional
discounts *
* Promotional
materials/
activities

Corporate
overhead
LegaVl/
liability
management

R&D
Interest
Taxes
Dividends
Capital
expenditures
Earnings

Mercer Management Consulting Page 25