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Sheldon Jacobson, professor of computer science
One way to make vaccines more accessible worldwide is to lower prices for them, but how to do that is a complex issue. Sheldon H. Jacobson, a professor of computer science at Illinois, and collaborator Ruben A. Proano, a professor of industrial and systems engineering at the Rochester Institute of Technology, have studied the economics of pediatric vaccine pricing and offer their views on what can be done to improve vaccine availability.
Recently UNICEF announced that it will publish the prices it pays to manufacturers for their vaccines. Will that increase competition and drive down prices?
Publishing prices will add transparency to the vaccine market and increase confidence in UNICEF as a large vaccine procurer. However, it is highly unlikely that such a measure will induce competition and reduce vaccine prices. In the United States, for example, the Centers for Disease Control and Prevention has been publishing the federally negotiated prices for the vaccines it buys, and yet vaccine prices have been constantly increasing.
What makes the vaccine market less prone to price competition?
The vaccine market is oligopolistic and manufacturers do not compete directly over their most profitable vaccines, which are combination vaccines. In fact, you will hardly find markets with two or more combination vaccines manufactured by different companies that protect exactly against the same diseases. Typically for each combination vaccine, you have one single supplier in each market.
What has been done to reduce vaccine prices and improve availability in poorest countries?
Typically, UNICEF and organizations such as the Global Alliance for Vaccines and Immunization have relied on large private and public donors for funds to purchase vaccines for the poorest countries. However, these efforts are not sustainable and have failed to provide incentives to create vaccines targeting diseases affecting developing countries. Moreover, the number of vaccine manufacturers remains very limited. There is a need to make the vaccine market financially more attractive.
How can making a vaccine market more profitable reduce vaccine prices?
Vaccine manufacturers should be able to recover all the costs associated with research and development, and vaccine production, and also be able to generate returns on investment that satisfy their stockholders. A more profitable vaccine market may attract new producers and also new technologies. However, pricing should be done in such a way that the final vaccine price is affordable even for the poorest countries. This may seem unachievable, but in the pediatric vaccine market, most of the profit is generated from selling vaccines to children in industrialized nations, which is a small proportion of all children requiring immunization. Additionally, the contribution of the R&D costs per dose is very large when compared with the manufacturing costs per dose. Thus, a small proportion of children are helping manufacturers recover most of their investment, and hence they pay exorbitant prices.
If vaccines become available and affordable to developing countries, the large fixed R&D and manufacturing costs can be diluted over a larger number of vaccine doses, and thus the manufacturers could sell their products at lower prices and earn higher profits.
Would this mean that buyers in richer countries pay more for having cheaper vaccines for developing countries?
Not at all. On the contrary, making vaccines available to developing countries at prices that they can pay can help reduce vaccine price in industrialized nations.
What would be needed to implement such changes in the vaccine market?
We propose (in an article published in Omega, a journal of management science) a mathematical approach for determining the price per dose of combination vaccines, so that by distributing the large R&D cost across different income market-segments, including developing countries, the cost per dose decreases and manufacturers can make larger profits by selling at lower prices. The proposed model suggests how many doses and from which producers the buyers should procure their vaccines, as well as the range of prices per dose for which such quantities result in maximum savings for the buyers and maximum profits for the manufacturers.
Our work shows that it is possible to have a sustainable vaccine supply if organizations such as UNICEF consider the entire vaccine market systemically as a single entity.
Are you suggesting that there should be a global central planner that dictates what to buy and at which price?
No. We suggest buyers work together and coordinate buying decisions so that they pay lower prices per dose. These decisions should be made so that more manufactures are interested in investing in the vaccine market.
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