• Why are vaccine prices so low?

    Vaccines are biologic drugs. But compared to many other biologics, they’re cheap. I took to Twitter to try to find out why.

    This led to a few Twitter-conversations, emails, and some article reading. Here’s what I learned so far:

    To an insurer, the combined price of all the childhood vaccines, put together, is about $2000, tops. Even at the high end — and even though that price tag was a lot lower in years past — it’s money well spent. Vaccination is considered one of the most, if not the most, valuable and effective, clinical preventive service. Vaccination is highly cost-effective. In fact, a 2005 article in JAMA Pediatrics concluded that “the current routine childhood immunization schedule results in substantial cost savings” with direct and societal cost-benefit ratios of 5.3 and 16.5, respectively. A 2014 article in Pediatrics concurs.

    In comparison, Tarceva, a biologic drug used to treat lung and pancreatic cancer, costs tens of thousands of dollars for a few weeks to a few months of survival. It is borderline (and arguably not) cost-effective for the former and nowhere near so for the latter.

    Given their high value, their necessity for school enrollment (in most places), endorsement by the medical establishment, and widespread insurance coverage for them, you’d think the high demand for vaccines would push their prices up to something like that for Tarceva and other high-priced biologic drugs. Why not?

    One lead on an answer came from my friend John Methot, who has a decade of experience working on early drug discovery. He focused on development costs. Before you argue that “costs” don’t inform “prices,” bear with me (and him):

    Biologic drugs are intended to modify the mechanism of a disease process. This is incredibly hard. We have to understand the disease biology well enough to identify potential target genes, then spend years “validating” a target: proving that if we modulate its product we can modify the phenotype in (only) the desired way. Vaccine discovery is conceptually simpler: isolate the pathogen of interest and then figure out the minimal antigen portion you can introduce to cause an adaptive immune response. That’s still hard (e.g. decades of failure inventing vaccines for HIV and Malaria), but it’s a more well-defined problem with more established approaches.

    Development: With a vaccine, you are not trying to deliver a therapeutically active protein to a specific tissue with all the associated pharmacodynamic complexity, off-target effects, exposure and other issues to deal with. You’re only trying to introduce (part of) an antigen to immune cells in circulation. That is a simpler, albeit still complex, proposition. So the development time/cost of a vaccine is likely substantially lower than a biologic drug.

    Production: Probably not as big a difference, but vaccine production is also very well-established and routine as compared to biologic drug production. In fact I bet many big pharma companies that make vaccines contract out the actual production.

    To these observations, we might add that some vaccines are developed largely on government funds (see polio). The earlier ones weren’t patented, which might have increased competition, at least in the past.

    So, vaccine development and production may be easier than for other biologics. That could mean its costs are lower. Lower costs impose a lower barrier to entry. More entrants, or potential entrants, means more competition. More competition can lead to lower prices. Voilà!

    Other evidence supporting this theory:

    • There is price variation. Some larger physician practices can negotiate vaccine price discounts, something that should not be possible if there were no vaccine competition.
    • Though considered inferior and not available in the U.S., Synflorix is something of a competitor with Prevnar 13.
    • Danzon and Periera made the case that vaccines markets are dynamically competitive: Superior products push out older ones. This probably is price increasing over time, but I wonder if it limits the rate of increase. For instance, if vaccine A is superior to B, it can be priced higher, but not infinitely higher. There’s some limit, at least in the short term, because use of A and B overlap while B is still considered acceptable. B’s price would also go down in this setting.
    • Danzon and Periera also wrote that new vaccine classes initially attract multiple entrants, though not all stay in the market. Still, that might imply a threat of future entry. On the whole, it might put brake on price growth.
    • Danzon and Periera think competition among vaccines pushes their prices below our willingness to pay.

    Not so fast, says Matt Davis, Professor of Pediatrics, Internal Medicine, Public Policy, and Health Management & Policy Deputy Director, Institute for Healthcare Policy and Innovation at the University of Michigan. By email, he conveyed the following:

    • Mark Pauly suggested that pharma has invested less in vaccines because they’re more, not less, difficult and costly to discover.
    • Davis’s work examining over 132 vaccines and 4235 non-vaccine products over a 16-year period showed indistinguishable failure rates between the two groups. The times spent in the phases of development was slightly longer for vaccines. If vaccines were easier to develop, their failure rates should be higher and time spent in development phases should be shorter than other drugs. Caveat: This analysis did not directly compare vaccines to other biologic drugs.
    • The most competition any vaccine manufacturer faces is from one other producer. There are effectively no generic vaccines in the US. But, maybe it’s enough to have two actual entrants and the threat of more to keep prices low though (?).

    Over half of all childhood vaccine doses are publicly purchased at discount. (That discount is much smaller today than it once was, Matt Davis told me). The two, big vaccine-providing public programs are Vaccines for Children (VFC) and Section 317. Together they provide vaccines for children who cannot otherwise finance them. The former requires no congressional action for expansion: once an advisory committee deems that a vaccine must be provided, the federal government must establish a contract with a manufacturer to do so.

    These programs could moderate price growth in the pre-Affordable Care Act era as follows. If vaccine prices went up too high, perhaps an insurer would drop them from coverage or require higher cost sharing. That would make them less affordable for families, and more would obtain them through the public programs, like VFC. Manufacturers get a lower price from those programs — and perhaps there’s a threat federal prices could go lower still (?) — so they have an incentive to keep prices from rising too much in the commercial market. In fact,

    Concern has been raised that failure to cover vaccine administration could result in shifting children from private providers to health department clinics [28]. Previous experience showed that low administration fee reimbursement rates [29, 30] and high out-of-pocket costs to parents resulted in referrals to health department clinics [31, 32, 33].

    However, now that the ACA mandates zero-cost sharing vaccine coverage from insurers, the threat of dropping or reducing that coverage is gone. If my theory is right, that should push vaccine prices up, particularly for those with no competition. This is empirically testable.

    I’ve got more reading to do on this subject and a forthcoming plane ride on which to do it. I’ll post more when I’ve done that. Meanwhile, got any other explanations for why vaccines are so cheap? Email them to or tweet them at me.

    @afrakt

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