Report on the United States Vaccine Industry

for DTP for which relatively low costs are more than offset by very low prices - reflecting the
competitiveness of its markets.
Newer vaccines face a number of different market and cost dynamics and generate
"contribution" margins lower than MMR and OPV, but still much higher than DTP. Hep B has
the highest "contribution" among this group, leveraging the highest price among childhood
vaccines to fund considerable sales and marketing efforts and very high royalty expenses.
DTaP has the lowest "contribution" of the new vaccines, continuing to invest in sales and
marketing activity despite lower multi-sourced pricing, sub-scale production and moderate
royalty commitments. Hib (the oldest of the-newer vaccines) has lower sales and marketing
expenses to offset competitively driven price reductions and still maintain "contribution".
Exhibit 28
Major U.S. Vaccine Value-Added Chain
$12.00 $11.32
$10.00 $9.91 Contribution
$9.23to R&D,
$4.6 Interest,
$800 $7.80 Taxes, and
Earnings
$/ $5.60 13.69 ~11n
Dose 8.00.Admin
$6.006
Sares & Micig
$4.00
$2.71Returns
Distribution
$2.00..
Production
MMR/OPV DTP HIb DTaP Hep B
Pediatric
Life Cycle Established New
Vaccine industry contribution to R&D, interest, taxes, and earnings vary significantly between
public and private sector sales. As an example, Exhibit 29 shows an estimate of "contribution"
for MMR/OPV both in total and across markets. Despite significantly higher sales and
marketing, returns, and distribution costs to serve the private versus public market ($3.17 as
opposed to $0.34 per dose, respectively), private sector sales still make a much larger
contribution to company R&D, interest, taxes, and earnings. At an average combined price of
$13.98 per dose, private market sales generate a "contribution" of $8.40, while the average
public price of $5.65 supports a "contribution" of only $2.90, a difference of $5.50 per dose.
While the specific "contribution" by market varies for each of the childhood vaccines, the
relationship generally holds. Private sector sales make a significantly larger contribution to
vaccine industry R&D, interest, taxes, and earnings, ultimately generating the cashflow to fund
dividend payments to investors and capital expenditures to support the growth of the business.

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