U.S. Markets for Vaccines: Characteristics, Case Studies, and Controversies
Book Forum
About This Event

Much has been written about how the American vaccine industry was nearly destroyed by tort liability litigation in the 1980s and how price controls and tight reimbursement limits impeded innovation in the ensuing decades. Yet remarkably little is known about the vaccine industry's extraordinary resurgence in the past decade or Listen to Audio


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so. Research and development on a broad front have brought new or improved vaccines for children and for the flu, along with breakthrough vaccines for pneumonia, shingles, the human papillomavirus (the leading cause of cervical cancer), rotavirus (which kills thousands of children annually in poor nations), and more.

In their new book,
U.S. Markets for Vaccines: Characteristics, Case Studies, and Controversies (AEI Press, May 2009), Ernst R. Berndt, Rena N. Denoncourt, and Anjli C. Warner provide a sweeping account of these new developments. This authoritative work includes a clear analysis of the unusual economic and biological properties of vaccines and their resulting effect on markets--from vaccination incentives and patient responses to the difficulty of testing biologics (for example, the enormous clinical trials needed for testing vaccines). The authors also lead us through the basic stages of vaccine development and marketing. Detailed case studies provide a wealth of insights from experience with four very different vaccines: the familiar DPT and flu vaccines and the pneumonia and shingles vaccines. Berndt, Denoncourt, and Warner conclude by discussing the current controversy over vaccine safety and the new wave of research on exotic approaches such as therapeutic cancer vaccines, which are designed to attack illnesses rather than prevent them.

Responding to the authors will be AEI's Scott Gottlieb, M.D., a former Food and Drug Administration deputy commissioner, and Henry Grabowski, a well-known researcher on the economics of vaccine R&D. AEI's John E. Calfee will moderate. The authors and discussants will also address the prospects for a vaccine for the H1N1 flu virus ("swine flu").

Agenda
Event Summary

WASHINGTON, MAY 8, 2009--With the threat of pandemic flu once again in the news, questions about the vitality and reliability of the vaccine industry have resurfaced in Congress and in the minds of concerned Americans. Is the industry able to respond to public health risks, or is it still beset by massive litigation, constrained prices, and regulatory policies that choked off the vaccine enterprise in the 1980s and much of the 1990s? Presenters at an AEI book forum on May 8 addressed these questions, and they generally expressed cautious optimism that the vaccine industry is experiencing a renaissance. Of late, it has successfully expanded into new therapeutic areas like pneumonia, bacterial meningitis, chickenpox, and the human papillomavirus for the prevention of cervical cancer, and it has shown promise in tackling such intractable conditions as cancer and Alzheimer's disease. But in one crucial area--flu--technology has advanced slowly, so that we face many months to create and manufacture limited supplies of vaccines for dangerous new flu viruses, such as the H1N1 "swine flu" now spreading throughout the world.

Ernst R. Berndt and Anjli C. Warner, coauthors of the newly released AEI Press book U.S. Markets for Vaccines: Characteristics, Case Studies, and Controversies, launched the discussion by outlining some of the challenges the vaccine industry has faced over the last two decades and recent indicators of growth and innovation. "Traditionally, vaccine industries have not been as profitable" as biotech and pharmaceutical enterprises, Berndt noted. This has been due to relatively weak intellectual property; exceptionally large and expensive clinical trials; government purchasing power that has forestalled value-based, competitive pricing; and organized opposition to vaccination. Berndt and Warner provided an overview of the economics and science of modern vaccine R&D. "The industry is now entering a more profitable phase," Berndt explained, as overall vaccine sales have begun to climb. New vaccines are now being priced according to cost-benefit, rather than cost-effectiveness, analyses that capture social value, not just reductions in health care costs. As a result, two vaccines in particular have reached blockbuster status with over $1 billion in annual sales.

Henry Grabowski of Duke University endorsed the authors' optimism but was worried about "fragile nature of this industry." He found it "encouraging to hear from the book [authors] that we are now approaching more value pricing for vaccines," and he suggested that the government in turn "go beyond cost-effectiveness" so that reimbursements reflect not only benefits to the healthcare system but also benefits to consumers and employers. To enhance incentives, Grabowski proposed tax credits for capital investment and late-stage research and development--two areas in which the vaccine industry falls woefully behind the biotech and pharmaceutical industry. He added that this approach has already been a "big success" for the development of orphan drugs that treat rare medical conditions.

As the discussion turned toward pandemic flu, Warner noted that the industry continues to rely on an "extremely unpredictable [and] unfortunately, not very flexible" egg-based system to supply the nation's annual flu vaccine. Even if more innovative cell-based technologies were to come on line, scale-up for a pandemic would not likely be feasible. AEI's Scott Gottlieb, a practicing physician and former deputy commissioner of the Food and Drug Administration (FDA), said that the FDA deserves credit for developing guidelines for manufacturers interested in switching to cell-based technology, but the FDA's concerns may slow the adoption of such forward-thinking technology. In terms of existing flu vaccine capacity, Gottlieb remarked that because we are "at the tail end of the production cycle" for seasonal flu vaccine, manufacturers could now switch over to H1N1 vaccine production without disrupting the seasonal flu vaccine supply. However, vaccines for H1N1 flu would probably only be available for high-risk individuals and first responders. Gottlieb concluded the discussion with a call for domestic capacity to deal with a pandemic--describing that capacity as a "strategic asset." In the event of a pandemic, he said, we should be wary that foreign suppliers would "nationalize their vaccine production facilities, and the reality is that we don't have a lot of production capacity here in the U.S."

--ELIZABETH DUPRE

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Speaker biographies

Ernst R. Berndt is the Louis E. Seley Professor in Applied Economics at the MIT Sloan School of Management and codirector of the Harvard-MIT Biomedical Enterprise Program. He serves as director of the National Bureau of Economic Research Program on Technological Progress and Productivity Measurement and, until recently, was chair of the Federal Economic Statistics Advisory Committee, an interagency committee formed by the Bureau of Labor Statistics, the Bureau of Economic Analysis, and the U.S. Census Bureau. Mr. Berndt also served as a member of the National Science Foundation Panel on Measurement, Methodology, and Statistics. Currently, he serves on the editorial board of Health Affairs. Mr. Berndt's health care research has been published in peer-reviewed journals such as the New England Journal of Medicine, The American Journal of Psychiatry, The Journal of Mental Health Policy and Economics, the Journal of Health Economics, and Health Affairs. In 1985, he was named the most cited economist under age forty. In the last decade, much of Mr. Berndt's research has focused on economic issues in health care, with a strong emphasis on measurement of costs, outcomes, and prices.

John E. Calfee is a resident scholar at AEI. He previously worked on the economics of consumer protection--including advertising and marketing, the tort liability system, tobacco, and other topics--at the Bureau of Economics at the Federal Trade Commission. He has taught marketing and consumer behavior at the business schools of the University of Maryland at College Park and Boston University and spent a year as a visiting senior fellow at the Brookings Institution. Mr. Calfee's academic articles and opinion pieces cover a variety of topics, including tort liability, advertising and information, Food and Drug Administration (FDA) regulation, and the pharmaceutical market. His op-eds have run in the Wall Street Journal, the Philadelphia Inquirer, the Los Angeles Times, and numerous other newspapers and magazines. His recent scholarly publications have appeared in Clinical Pharmacology and Therapeutics, Health Affairs, and the Supreme Court Economic Review. He has published three short books: Fear of Persuasion: A New Perspective on Advertising and Regulation (AEI Press, 1997); Prices, Markets, and the Pharmaceutical Revolution (AEI Press, 2000); and Biotechnology and the Patent System: Balancing Innovation and Property Rights, with Claude Barfield (AEI Press, 2007). He has also testified before Congress and federal agencies on various topics, including alcohol advertising; biodefense vaccine research; international drug prices; the Vioxx episode; and, most recently, FDA oversight of drug safety.

Scott Gottlieb, M.D., is a practicing physician and a resident fellow at AEI. A leading expert in health care policy, Dr. Gottlieb's work focuses on providing insights into the economic, regulatory, and technological forces driving the transformation of health care today. From 2005 to 2007, Dr. Gottlieb served as Food and Drug Administration (FDA) deputy commissioner and, from 2003 to 2004, as a senior adviser to then–FDA commissioner Mark McClellan and as the FDA's director of medical policy development. A recipient of numerous medical association awards, Dr. Gottlieb is the author of more than three hundred articles that have appeared in leading medical journals, as well as the Wall Street Journal, the New York Times, USA Today, and Forbes. Dr. Gottlieb has held editorial positions on the British Medical Journal and the Journal of the American Medical Association and appears regularly as a guest commentator on CNBC. Previously, Dr. Gottlieb worked as a health care analyst for the investment bank Alex Brown & Sons and authored the Forbes-Gottlieb Medical Technology Letter and the Gilder Biotech Report. Dr. Gottlieb has testified as an expert witness on health and regulatory matters before the U.S. Senate and House of Representatives and members of the Japanese Diet.

Henry Grabowski has been at Duke University since 1972, where he is a professor of economics and the director of the Program in Pharmaceuticals and Health Economics. He has also served on the faculty of Yale University and held visiting appointments at the Health Care Financing Administration in Washington, D.C., and the International Institute of Management in Berlin, Germany. Mr. Grabowski has published numerous studies on the pharmaceutical industry, with his principal research involving the economics of the innovation process, business regulation, and industrial organization. He has investigated the economics of pharmaceutical research and been an adviser and consultant to several organizations, including the National Academy of Sciences, the Institute of Medicine, the Federal Trade Commission, the Government Accountability Office, and the Office of Technology Assessment.

Anjli C. Warner is currently the lead market forecaster for the anemia drug Aranesp at Amgen in Thousand Oaks, California. Prior to joining Amgen in 2007, Mrs. Warner was a manager at Elan Pharmaceuticals in its corporate strategy group, where she analyzed licensing and acquisition opportunities by conducting market assessments, benchmarking competitors, and forecasting financials. Previously, she was a senior analyst in the strategy and analysis group at Digitas, where she developed and recommended cross-channel marketing strategies for General Motors. Prior to Digitas, Mrs. Warner worked at Morgan Stanley in global equity capital markets for health care, energy, and consumer products industries.

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AEI Participants

 

John E.
Calfee
  • Economist John E. Calfee (1941-2011) studied the pharmaceutical industry and the Food and Drug Administration (FDA), along with the economics of tobacco, tort liability, and patents. He previously worked at the Federal Trade Commission's Bureau of Economics. He had also taught marketing and consumer behavior at the business schools of the University of Maryland at College Park and Boston University. While Mr. Calfee's writings are mostly on pharmaceutical markets and FDA regulation, his academic articles and opinion pieces covered a variety of topics, from patent law and tort liability to advertising and consumer information. His books include Prices, Markets, and the Pharmaceutical Revolution (AEI Press, 2000) and Biotechnology and the Patent System (AEI Press, 2007). Mr. Calfee wrote regularly for AEI's Health Policy Outlook series. He testified before Congress and federal agencies on various topics, including alcohol advertising; biodefense vaccine research; international drug prices; and FDA oversight of drug safety.

 

Scott
Gottlieb
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