VStrat-Consulting, Valérie Argaut, November 2020
Vaccine business is not an easy one and its evolution has been observed to be cyclic in the past. The emergence of covid crisis might reschuffle the cards and bring a new era of increased awareness of the strategic importance of vaccination and how this prophylaxis act might be more cost-effective than what was so far acknowledge in period of increasing budget constraints.
Specificities of Vaccines market/ Difficulties as compared to pharmaceutical market/ other non-biological health products
Although research is done on therapeutic vaccines with already examples on the market that can really compare to biologicals in terms of marketing requirements and challenges, most current vaccines are prophylactic: they are meant to prevent infection of healthy people by stimulating in advance of any contamination the immune system against a well targeted disease specific antigen. That not only implies that the target population for vaccination is more important than when considering treatment of patients, but it also forces a much higher expectation in terms of safety, when traditionally considering the risk-benefit ratio. This translates into specific challenges in terms of clinical trials needs and related expenses.
Vaccines manufacturers prior to launching a vaccine can be requested to disprove rare adverse events, such as intussusception that appeared in 1999 to be caused by rotavirus launch in the US after FDA licensing on the year before. This requires very large cohort clinical trials, that are very expensive, adding a significant financial burden to the vaccine development. This can contribute to discouraging R&D manufacturers to invest in vaccine research.
Furthermore, several disease onsets were sometimes associated to vaccination by the population, despite of the lack of scientific evidence, followed by law suits, especially in developed countries and particularly in the US. But due to the very rare occurrence of such disease incidence anyway, it is also impossible to prove the contrary, via clinical trials, whose cohort would have to be far too important to make it feasible to do. This shed a doubt on vaccine safety, especially for people not familiar with the technical considerations around the constraints of scientific evidence production, creating a new incentive for the vaccine manufacturers to divest from this business. In 1986, the creation of the NVICP (National Vaccine Injury Compensation Program) in the US contributed to stop the trend by preventing certain abuses by personal injury lawyers, but they are still flaws, that prevent full efficacy of this system.
In parallel, as it is often much harder to perceive the benefit of prevention than the one of treatment, any unfortunate and unexpected potential adverse event of the vaccination experienced by a healthy person is usually emphasized. The media particularly like this king of frightening news, even when the connection is not certain, thus exaggerating the population’s perception that there is a risk with vaccination, and raising at the same time some skepticism and reluctancies from the population to get vaccinated or have the children vaccinated.
People sometimes refuse vaccination because they fear adverse events or are even afraid of contracting the disease through vaccination itself. But this decision can also be based on a loss of perception of the true disease burden and threat in absence of vaccination.
Because past vaccination campaigns have already brought tremendous results and because the incidence rate of many vaccine preventable diseases has already largely dropped, the population sometimes perceives a very low risk of contracting the disease, or under-evaluates its severity, and therefore does no longer see the need for vaccination. This is what happened for pertussis or measles in the past, eventually leading to lower coverage rates, and thus eventually diminished herd immunity effect and benefit, an effect which is obtained when vaccination coverage is sufficient in the population to indirectly confer a protection, even to people who are not vaccinated, by reducing inter-individual transmission.
The consequence of that is the current resurgence of such childhood diseases that were once almost eradicated in the industrialized countries. This reluctancy to vaccination that can be observed and potentially geopardizes the efficiency of the whole vaccination program from a public health point of view can push governments to make the vaccination mandatory, which in turn can be badly perceived by the population as a restriction of personal freedom to choose, given they usually forget to consider the herd effect.
This phenomenon shows the importance of raising population awareness of both the disease severity and the risk of contracting it in absence of vaccination, while it is crucial at the same time to educate and reassure on the safety of vaccines to ensure successful vaccination programs.
Of course, the benefit / risk ratio awareness has to be worked on also with all the other vaccine world stakeholders, national and international recommendation bodies, medical societies, and government health institutions, by timely meeting their expectations in terms of documenting burden of disease, generating evidence on vaccine effectiveness and safety and providing for economic evaluations appropriate and adapted data to local requirements.
Only under such conditions of constructive collaboration between the different stakeholders can a successful market access be reached. WHO for instance, through its SAGE group (Strategic Group of Experts) produces recommendations on optimal use of licensed vaccines, that are central to positions eventually taken by certain NITAG’s and international funding agencies. WHO also determines global immunization goals, provides immunization R&D supports through partnerships, set technical specific standards, conducts product pre-qualification process and helps countries fixing their priorities for their national immunization program (NIP) as well as setting recommendations for managing pandemics. Product pre-qualification ensures that the specific vaccines meet international standards of quality, safety and efficacy. Unicef and PAHO for exemple only supply vaccines that are WHO pre-qualified. Such requirements also exist in certain countries at national level. That means that WHO is very influential on the market size, prioritizations in vaccinations and possibly even to a certain extend in the choice of the supplier.
In addition to face higher safety constraints, the vaccine business is also a more difficult one in terms of product stability and preservation conditions. Vaccines do not have very long shelf lives, a parameter that often also depends on the strict management of cold chain. For the manufacturer, this puts an extra pressure to make sure to sell the goods far in advance before the expired lots would have to be destroyed. This increased risk of write-offs as compared with over products reinforces the need for quality market forecasts, which remain a challenge within a very competitive environment.
The difficulty of market demand volume or sales forecasting is greatly reinforced by the characteristics of the procurement procedures and the long production time required from bulk production to vaccine batch release. A large part of the market supply is covered by government centralized procurement or even pooled procurement from supranational procurement agencies, such as Unicef or PAHO (Pan America Health Organization). This is carried out via public tenders with sometimes even a “winner takes it all” outcome, which puts the risk of producing doses for a market that will finally be granted to another competitor at the maximum.
Progress has been done already, with the implementation of multi-supplier procurements or multi-year procurement plans and agreements in order to facilitate the demand forecasting process and therefore the production volume decisions. However, despite of that, there still remains high uncertainties in the sales forecasts the manufacturers have to make when they have to anticipate the production. Due to the timings at stake, manufacturers sometimes have to produce doses dedicated to specific markets before they know whether they are awarded the supply of the tender. This introduces a high risk on the manufacturer’s side.
Added to the relatively short shelf life and a long production process, a third factor of business complexity is the fact vaccines are biological products: their development and production are more difficult than for chemical products, as it involves the use of living organisms and separation or extraction methods, whose reproducibility is not always as easy as hoped. The production of vaccines is incredibly complex on general basis, which can be further increased by the technology chosen as already explained (multi-valent recombinant or conjugate vaccine versus simple life attenuated ones). It illustrates oneself along multi-step manufacturing processes, extending from bulk production to formulation. Production issues are common along this long manufacturing process, also at the end stage of quality control tests or batch release, leading to full vaccines lots having sometimes to be discarded. This quite often triggers unpredictable product shortages and supply disruptions at the international levels. This throws further uncertainties on the volume forecasting tasks.
Affordability is also a concern. While treatment are reserved to a limited patient population, whose size depends on the incidence or the prevalence of a disease, the preventive products such as vaccines do target much larger populations, from segments with a fair risk of contracting the disease to potentially the whole birth cohort. The volume at stake can be important, thus the importance of controlling the price levels, especially in a context of growing price pressure on healthcare expenses.
It also appears that the populations that can benefit the most of the vaccination are often in low & middle income countries, and not always in a position to fund large scale vaccination campaigns or to ensure a quality market access channel.
A number of stakeholders are supporting these countries in the implementation and funding of vaccination programs, such as GAVI (Global Alliance for Vaccine Immunization) or BMGF (Bill & Melinda Gates Foundation), representing very powerful market influencers with important bargaining power, while recommendations entities are supporting the governments in making the right decisions (WHO, NITAGs (National Technical Advisory Groups)…) either at the national or international levels. Market structure is therefore another difference between the world of pharmaceuticals and the one of vaccines, offering chances of return on R&D investment that are not exactly equivalent, which is not without consequences on the interest companies show in this business, which goes with cycles but generally tends to follow a concentration trend.
Cycles in the business attraction & Divestment from pharmaceutical companies
The operating margins were for long comparable between the pharmaceuticals and the vaccine business. The cost of production for vaccines are much higher than for pharmaceutical non biological drugs, but this drawback used to be balanced by lower marketing costs due to higher buyer concentration.
Yet, the complexity of vaccine manufacturing sometimes leads to supply disruptions, which triggers uncertainty in the production capacity forecast and regular unbalance between offer and demand on the market, with tension on prices that similarly goes up and down, along with attraction of the market. Because production lead time is long and investment decision have to be taken a long time in advance of market reach, the conditions at the time of this market reach can be a lot different from the ones anticipated at the time of the investment or product capacity sizing.
This is for instance the case of the Flu market with alternance of under-capacity and over capacity periods, that also make it a cycle market in terms of attractiveness.
During some periods, when the market is very concentrated, and not totally covered by existing production capacities, which can also be reinforced by temporary shortages due to production issues, prices tend to go up and the market looks very attractive, so that new companies join the game adding new capacities.
This period of under-production can even be emphasized by temporary shortages from an existing market player, due to frequent batch release issue after a production incident of any kind. However, after the offer versus demand ratio has equilibrated, sometimes even reaching an over-production, because of a hysteresis effect that is hard to control, the pressure on prices is increasing due to the evolution in bargaining power repartition amongst players. The profits decrease while the risk of write-offs increases. The market then becomes less attractive, with high uncertainty of volume of sales forecast and some players prefer to divest and exit this market, initiating a new market cycle.
Market players can also choose to divest from vaccine to refocus on core businesses. With the increase of competitive pressure in the past decades, companies’ strategies have evolved and sometimes shift every couple of years along the different re-organization periods they experience, depending on the impulse given by the management and the supporting strategy consulting firms.
Pfizer, Novartis and Johnson & Johnson for instance entered the vaccine market as new comers years ago. In 2002, Wyeth on the contrary chose to stop its production of DTaP and Flu vaccines. In the year 2008, big pharmaceutical companies reinforced their presence on the vaccine business already dominated by GSK, Sanofi Pasteur, Merck, Novartis or Pfizer, a concentrated market given these companies cumulated about 80% of the sales, at that time, while the other 20% were generated by about half a hundred other manufacturers, mainly from emerging countries and concentrating on low-cost high volume national markets.
Yet some of them achieved higher quality standards allowing them to reach the expectations for WHO product pre-qualifications and therefore opening the potential for exports in other low & middle income countries.
Vaccination is also recognized by WHO as the most cost-effective health interventions available, saving millions of people from illness. It often comes with large volume markets, that attract the interest of manufacturing companies.
That explains why the biggest volume markets, such as Flu vaccine for example, which is a recurrent one, trigger a highly competitive environment, while at the same time making this business a cycle one.
There was for instance a Flu vaccine shortage in 2003-2005, after which the production capacities were reinforced by several producers worldwide, and a production overcapacity followed inn the following years.
In 2014, Pfizer also reinforced its position in vaccines by completing the acquisition of Baxter’s marketed vaccines, while Novartis made a reverse decision, by divesting their vaccine business: Novartis announced an agreement to divest its influenza vaccines business to CSL Limited for USD 275 million, a transaction that was closed on the following year. In 2015, it also completed the swap of non-influenza vaccines and cancer drug business with GlaxoSmithKline (GSK), further emphasizing the market concentration in high income countries, following the trend of market exits that have been observed recently; and it is not excluded that similar trend could be seen in emerging countries, as quality standards are raised, given the risk level at stake in this business and high market entry barriers. More recently, GSK in turn announced the divestment of travel vaccines acquired from Novartis to follow its strategy of focusing on innovative key growth assets and in in order to simplify its vaccine supply chain, targeting a staged technology transfer to Bavarian Nordic over 5 years.
Overall the vaccine market remains a very concentrated one, despite of emerging countries producers becoming more and more important players.
Indeed hurdles and entry barriers are multiple:
- More and more costly production techniques are required, potentially making difficult the business for new-comers
- It is needed to make the necessary large capacity investment decisions far ahead of the market authorization granting and usually before phase III clinical trials completion or even initiation. This makes the capital investment very risky, knowing production sites are usually product dedicated and not easily transferable to some other product productions.
- There is constant strengthening of regulatory requirements triggering longer development times and higher costs
- And not to be forgotten, existing players have a strong bargaining power given the market concentration level
This explains why an important market potential is required to counterbalance and validate the up-front financial risk taken, especially as the exigence of always safer vaccines arises, that involve more costly and complex production methods, such as recombinant DNA, as opposed to the traditional life attenuated vaccines. Expectations are of course naturally raising over time, as vaccination has proven in the past very efficient to reduce mortality; now further smaller progress require more effort. Life attenuated vaccines were extremely useful to reduce the disease burden and incidence, but they are not adapted to total eradication goals, for which total inactivation is required for instance.
When comparing with long term disease or chronic disease drug treatments, the market for vaccines is often smaller as only a few shots at the most are administered to the exception of Flu vaccine, which is seasonal, with constant mutations of the circulating strains.
That justifies that when competing in terms of budget allocation with drugs, pharmaceuticals industries often favor investments in drugs rather than in vaccines. As a result of mergers and acquisitions that happened in the past by big pharmaceutical companies of smaller companies mainly devoted to vaccines, when considering the budget assignment decision, the situation evolved from having to distribute their R&D budget between different vaccines to having to distribute their budget between potential vaccines and drugs, in which case vaccines often lost in this prioritization.
Over time, pressure on price increased by the progressive switch from a big market portion being private towards public market centralized procurement, with a higher bargaining power from governments, reinforcing the incentive to exit vaccine market.
Yet vaccines offer longer life cycles for return on investment than small chemical molecules, given biosimilars do not as easily penetrate the market as generics do for chemical drugs.
How the focus put on the interest in vaccines for public health preservation due to COVID-19 crisis will reverse the trend of vaccine market concentration remains to be seen.
The threat of pandemics is not new, and we already had alarms in the past, that luckily did not expand worldwide.
The 2009 H1N1 pandemic for instance had various effects amongst countries, in some places conducting to decreasing coverage rates for Flu vaccination. The recent emergence of Covid-19 that turned into an effective pandemic situation as declared by the WHO on January 30th and as we are now experiencing worldwide, has put back the focus on the threat of such diseases.
The economic impact that will derive from the containment measures that were rendered necessary to stop the spread of the virus or attempts to it can only further highlight the cost effectiveness of vaccination, its importance and use, when vaccination campaigns will start to show their effect.
Many industries entered right away the race towards Covid-19 vaccine R&D, with the promise of quick return or investment for the first ones which would succeed, and thanks to the large investments conceded for this goal, it also fostered an interesting R&D innovation impulse.
Furthermore the importance of cost-effectiveness analysis has increased over years, and with it the need for vaccine manufacturers to provide health economic data. Possible cost-savings to be taken into account in the analysis vary upon countries however and are often limited to mainly direct ones. Partly due to the silo way of functioning for states’ budgets, it is hardly acceptable to take into account for example savings derived from avoidance of work loss, but this could now be modified in light of the pandemic we are experiencing.
This decade was declared in 2010 by the Bill & Melinda Gates Foundation “The Decade of Vaccines”, directing the lights on a market for long perceived as unattractive. Bill Gates continuously tried to emphasize the importance of vaccines, so that pursuant to the Ebola outbreak in Africa a couple of year ago he had even made a sort of prescient warning during a 2015 TD talk: at that time, he was already anticipating pandemics as “the threat of the future”, saying that “If anything kills out 10 million people in the next few decades, it’s most likely to be a highly infectious virus rather than a war . Viruses pose the greatest risk of global catastrophy […] But we are not ready for the next epidemic”, he had added. The Covid-19 crisis we are currently facing is exactly materializing what Bill Gates was afraid of, yet with a virus that despite of being highly contageous, is luckily not killing a very high percentage of the contaminated population as Ebola did a couple of years ago.
However, it proved sufficient to virtually stop the whole societal world and the economic impact will be unprecedently high. This can only push towards a higher global awareness of the importance of vaccine R&D, of the setting of a regulatory framework allowing rapid and efficient reaction in case of a pandemic situation and of preparedness to scale up testing, vaccines and medicines production very rapidly, pointing out to CEPI (Coalition for Epidemic Preparedness Innovation).
At the edge on a new decade, this unprecedent situation the whole world is going through right now having to face Covid-19 threat also emphasizes much the value and price given to human life and puts on the front line the impact of uncontrolled spread of such disease can have on the country national economies, thus the importance of such catastrophy prevention.
Chances are it will shade a new light on vaccination and trigger a renewed interest in vaccine business on a longer term and larger scope.
Yet only by carefully choosing adapted strategies and following a thoughtful market access road map, taking into account all impacted stakeholders and involving KOLs from an early development stage, can a company achieve a successful product launch in a timely manner. This is of course to be customized to the specificities of each target country market needs and requires involvement of experts in the field, which best ensures returns on investments, sometimes done in the emergency of the situation.
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