NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, March 23, 2015

Advocates working to increase global access to medicines were frustrated by the recent comments made by Bill Gates publicly criticizing Médecins Sans Frontières (Doctors without Borders, MSF) for calling for reductions in the prices of new vaccines. In doing so, Mr Gates stands by a system of pricing that requires raising billions of dollars in donor funding every year to support it. We believe that a system dependent on raising massive amounts of money to meet arbitrarily high prices set by the pharmaceutical industry is a failed system and should be acknowledged as such by donors like Mr Gates. Rather, true success in global vaccination requires mechanisms that can rapidly achieve long-term sustainable vaccine pricing.

In the poorest countries in the world, the price of fully vaccinating a child is now almost 70 times higher than it was in 2001. The increase is mainly due to the soaring prices of newer vaccines such as the pneumococcal conjugate vaccine. This particular vaccine, which was the subject of Mr Gates criticism of MSF, is singly responsible for approximately 45% of the price for the total vaccination package for a child living in a developing country. In the meantime, GSK and Pfizer – who are the only producers of the pneumococcal vaccine – have made over $19 billion dollars since it’s arrival on the market in 2009.

The justifications for current vaccine prices proffered by the pharmaceutical industry are undermined by their persistent lack of transparency in disclosing accurate figures on their research and development expenditures. These prices are particularly indefensible given the huge amount of taxpayer funding that has gone into vaccine development. For example, federally-funded research at Georgetown University, the University of Rochester, and the US National Cancer Institute was critical to the development of the HPV vaccine, which has made over $16 billion USD for Merck and GSK since it hit the market in 2006.

Mr Gates downplays the importance of vaccine pricing, while emphasizing the importance of improving immunization systems. We believe that the development of national immunization systems and sustainable-priced vaccines need not be mutually exclusive.

The funding model of GAVI (the Vaccine Alliance) – a key player in funding vaccine roll-out in developing countries – illustrates the underlying problems with the current system of vaccine pricing. The subsidies provided by GAVI to countries to finance new vaccines are intended to taper off over a 5-year period, once countries are no longer eligible. There is the expectation that, over time, prices will fall, allowing countries to finance their own vaccines. To date, however, this expectation has not been realized.

So what is the answer to the high cost of new vaccines? In his comments, Mr Gates expressed support for a tiered pricing strategy. We disagree. While tiered pricing has broad support from industry, it has demonstrated itself inferior to the consistently effective strategy of robust and open market competition to lower prices. For example, generic competition decreased the price of first-generation HIV drugs from approximately $10,000 USD per person per year to under $120 today. In contrast, the tiered pricing model used for second-line HIV drugs has resulted in middle-income countries paying up to $740 USD per person per year.