Report on the United States Vaccine Industry

Distribution Costs

Vaccine distribution costs are relatively high in the United States, reflecting, in part, the high
number of small shipments; in fact, almost 50 percent of shipments are made to individual
physicians. Furthermore, vaccines are supplied and thus split by four major producers, further
reducing average order size.
Exhibit 24 shows the typical distribution costs for a vaccine supplier, segmented by the size of
the customer channel served and the number of doses in a vial. Shipping small orders to
individual physicians can cost from 1 to 2 dollars per dose, while shipping multi-dose orders to
state warehouses, large wholesalers, and major HMOs can cost less than a ten cents per dose.
Overall, distribution costs average 10 percent of sales, although that figure varies by individual
supplier, based on the mix of single versus multi-dose vials as well as on customer channels.
Exhibit 24
Major U.S. Vaccine Distribution Costs
- Example -
State Warehouses/ State
Private Small HMOs/ Large Wholesaler/ Warehouses/
Physicians Hospitals/ Distributors and Select HMOs and
Direct Distributors HMOs Wholesalers Total
Multi Single Multi Single Multi Single
Dose Dose Dose Dose Dose Dose
Average Order 25 doses 400 doses 2,000 doses 10,000 doses
Size
Shipping and $30 $30 $150 $150 $500 $500 $1,600
Handling Cost
per Order
Total cost per $1.20 $.08 $.38 $.08 $.25 $.05 $.16
Dose
Channel MIx 49% 4% 3% 13% 9% 13% 9% 100%
- % of doses
Channel Cost $33 M $.2 M $1 M $.6 M $1 M $.3 M $1 M $37 M
- 10% of sales
Sales and Marketing Costs
Vaccine industry sales and marketing investments are focused primarily in three areas: (1)
sales forces, which "detail" (an industry term for educating and selling to physicians) products
and negotiate sales to large buyers; (2) promotional discounts, which support channel-based
market share maintenance and expansion strategies; and (3) market development materials.
Individual company investments depend on both the competitive environment and lifecycle
stage of each product in their portfolio. On average, vaccine companies annually spend about
16 to 18 percent of sales on sales and marketing activities.

Mercer Management Consulting Page 28