Vaccines used to be far less attractive than other pharmaceutical markets. As a mature product group that relied on a limited set of technologies and didn't generate strong revenues, the therapeutic area languished for decades. Companies were constrained by government price controls or, in some cases, by direct state manufacturing control. In many countries—often those that need vaccines most—few doses could be sold because payers had no money. Companies limited investment, and as a result, technological innovation lagged behind other pharmaceutical sectors.
But over the past decade, several trends converged to revive the market. Among investors and the broader public, vaccines are suddenly hot. New vaccines have been introduced to replace older ones, and innovative products are taking aim at unmet medical needs—all of which improve the pricing environment. Producers have consolidated, so that a handful of companies with real manufacturing and marketing muscle control the field. And the public sector has begun to institute policies that spur investment and therapeutic innovation. In 2004, President George W. Bush signed legislation adding the flu vaccine to the Vaccine Injury Compensation Program. More recently, the president has called for broader liability protection for vaccine manufacturers. Not least important, the non-profit sector—led by the Bill & Melinda Gates Foundation—has fostered public–private partnerships that enable vaccines to penetrate markets in poorer nations. The result: a new wave of investment in vaccines.
Big ChangesThe first noticeable change in the domestic vaccine market over the past 25 years is an increase in pricing. For example, a diphtheria, tetanus, and pertussis (DTP) treatment course that was priced at roughly 30 cents in 1980 now costs $20, in part because a new acellular pertussis antigen was added. More important, vaccine manufacturers are increasingly able to capitalize on new products, with some emerging vaccines priced at $300 or more per treatment course.
More on-schedule vaccines and higher prices have led to a 40-fold increase over the past 20 years in cumulative annual expenditures (the amount spent on a child during the first six years of life) on childhood immunizations in the United States. Adjusted for inflation, the annual spend per child has risen from less than $10 in the early 1980s to approximately $400 today (see "The Rising Cost of Immunization").
In fact, the vaccine field has a blockbuster. Wyeth's pneumoccocal conjugate vaccine, Prevnar, reached sales of $700 million in the United States within 15 months of launch, and tallied sales of almost $1.5 billion worldwide in 2005 (see "Blockbuster Potential"). Prevnar was the first vaccine to rank among the top-10 new product launches for a major pharmaceutical company, and it quickly established itself among the top-three products in Wyeth's portfolio. In the wake of Prevnar, companies will release at least seven potential blockbuster products (for human papillomavirus, or HPV; rotavirus; meningitis prophylaxis; pneumococcal disease; and herpes simplex) over the next three years (see "Major Vaccines on the Way").
Industry consolidation also has improved vaccine prospects. Mergers have winnowed a field of more than 25 smaller players into five major manufacturers: GlaxoSmithKline (GSK), Merck, Sanofi Pasteur, Chiron, and Wyeth. These firms are big enough to achieve attractive returns on vaccines. Profit margins for the vaccine units of these companies are comparable with those in their core pharmaceutical businesses.