Ithaka Life Sciences - Blog

Ithaka Life Sciences Ltd (Ithaka) is a provider of business advisory and interim management services to the life sciences sector.

Friday, 24 June 2011

Vaccines boost healthcare

Vaccines are one of the great success stories of modern healthcare. The twentieth century saw the introduction of several successful vaccines, including those against diphtheria, measles, mumps, and rubella. Major achievements included the development of the polio vaccine in the 1950s and the eradication of smallpox during the 1960s and 1970s.

It’s a subject that is close to my heart as the first business I founded was a vaccine company, and vaccines offer huge potential to address major healthcare issues in the developing world, a topic in which I have a passionate interest.

Over the past decade the Global Alliance for Vaccines and Immunisation (GAVI), a global health partnership representing stakeholders in immunisation from both private and public sectors (, has become the world’s main advocate of immunisation. On June 13th, in response to a call from GAVI for additional funds to support new vaccines to prevent pneumonia and diarrhoea, the biggest killers of young children, donors pledged $4.3 billion to help immunise 250 million children. To its great credit the UK government led the way by pledging an additional £163 million a year for the next five years.

We seem to be on the cusp of a boom in vaccines with many new products in development. Importantly, changes in how vaccines are developed, financed and delivered have begun to address a key market issue: how to supply vaccines to the poor regions of the world where need is greatest but there is little ability to pay. As a result, immunisation rates in the developing world have soared.

One success factor is increased competition among manufacturers, largely thanks to vaccine-makers in emerging markets. The Gates Foundation has used “push” financing, to develop a cheap vaccine against meningitis A, which the Serum Institute of India now makes for around 50 cents a dose.

Another is GAVI itself, which has insisted on higher volumes and long-term contracts to attract manufacturers and drive down prices. Support from GAVI for the hepatitis B vaccine has led to the immunisation of 267 million children between 2000 and 2010.

However, this success has proved harder to replicate with other vaccines, for example the pentavalent vaccine, which essentially combines vaccines against five diseases, such as whooping cough and diphtheria, into one. Its price has remained high, because it was expensive to develop. This has led to the development of new financing models.

GAVI is testing “pull” financing, in the form of cash rewards to any firm that comes up with an effective pneumonia vaccine. It will pay Pfizer and GlaxoSmithKline (GSK) $3.50 a dose for this, with a guarantee of 30 million doses each year for a decade.
It remains to be seen whether price and purchase guarantees will encourage innovation. They can also cause potential difficulties in the market. For example, the price for the meningitis vaccine is now so low that other suppliers are reluctant to enter the market.

Different vaccines may require different models. R&D grants can play an important role. Also, high prices in the rich world can subsidise low ones in poor countries. For example, on June 6th Merck and GSK said they would offer developing countries a lower price for their vaccines against diarrhoeal disease, which kills approximately 1.8 million children worldwide, mostly in developing countries.

The need for new vaccines will not go away and this pressure may result in other innovative solutions emerging. However, this surge of innovation in vaccines may provide some exemplars of business models that could be applied to other sectors of the pharmaceutical industry such as the development of therapeutic drugs.

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