Report on the United States Vaccine Industry

Our analysis of vaccine economics reflects the input and thinking of a variety of people and the
review of a broad set of sources, organized around three basic steps. The first step entailed
building up the economics based on (1) an understanding of the overall cost drivers of the
business, (2) the development of key information inputs, and (3) the aggregation of data. The
second step involved establishing top-down benchmarks of the economics, mostly through
interviews with industry experts (many of whom had worked directly in the business) and to
integrate those with the results of the bottom-up analyses. The third and absolutely critical step
was to share data with the vaccine suppliers. For the most part, they found the analysis to be
very accurate and when they found discrepancies, provided direction and inputs on changes.
Net Revenue
The initial step focused on understanding net revenue. An estimate of the revenues for each
company by product was developed for the year 1993. The public market analysis was based
on CDC estimates of purchased doses, contract prices, and total revenue for each product. For
the private market, CDC provided estimates of total doses distributed; in cases where there was
more than one supplier, estimates of market share were developed to allocate volume to
individual suppliers. List prices were then adjusted for volume-based discounts discussed in
the previous section, and net revenue was calculated.
Production Costs
The analysis of production costs is based on a cost model that was built and validated with
suppliers in Europe, and then, with the help of the Michigan Department of Health and
Massachusetts Biological Laboratories, verified and adjusted for the U.S. market. The key
inputs were product volume and complexity; input costs, such as labor rates, depreciation rates,
materials, and utilities; and the royalty profile by product. The main outputs were estimates of
production capital, and thus depreciation, headcounts, and costs on a per-unit basis by product.
For purposes of this report, the results for OPV and MMR were combined to protect the
confidentiality of their sole suppliers.
Significant differences exist in production cost per dose for the six major U.S. childhood
vaccines. These differences are driven primarily by product complexity and scale, though
royalties can be large for newer vaccines. As shown in Exhibit 23, DTP is a fairly simple,
high-volume, and relatively low cost product while DTaP is a lower volume and more complex
product, (because of the number of filtration steps) and is relatively high-cost in terms of labor
and capital. MMR/OPV processes are also relatively complex have materials costs which are
two to three times higher than other products, due primarily to the high number and cost of
testing animals used in the production of OPV.

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