immunization financing in developing countries and … · epi expanded program on immunization ......

Immunization Financing inDeveloping Countries and theInternational Vaccine Market

TRENDS AND ISSUES

Asian Development Bank

©2001 Asian Development BankAll rights reserved

The findings, interpretations, and conclusions expressed in this publication do not necessarily representthe views of the Asian Development Bank or those of its member governments. The Bank does notguarantee the accuracy of the data included in this publication and accepts no responsibility for anyconsequences of their use.

Asian Development BankP.O. Box 7890980 Manila, PhilippinesTel: (63-2) 632-4444Fax: (63-2) 636-2444Website: http://www.adb.org

ISBN: 971-561-349-7Publication Stock No. 020301

iii

List of Tables and Figures vPreface viiAcknowledgments ixAbbreviations xi

Introduction 1Trends in Grant Financing for Vaccines and Immunization Programs 3

Declining Donor Funding 3Shifting Donor Focus 3Global Alliance for Vaccines and Immunization 4

International Vaccine Procurement and Financing Mechanisms 7The PAHO Revolving Fund 7

Description 7Benefits 9Accomplishments 9Assessment 10

The Vaccine Independence Initiative 12Description 12Participation 14Capitalization 15Assessment 15

Impact of Vaccine Procurement Mechanisms 16Program performance 16Government financing and sustainability of immunization programs 17Lessons learned 18

The International Vaccine Market: Major Issues 21Main Characteristics 21

Dominance by a few manufacturers 21Limited worldwide buyers 21High degree of segmentation and tiered pricing 22Scale sensitivity of vaccine development and production 24

Contents

iv IMMUNIZATION FINANCING IN DEVELOPING COUNTRIES: TRENDS AND ISSUES

Factors Affecting Prices 24Development and production costs 25Demand 25Predictability of demand 26Production capacity 26Competition 27Local producers 28Intellectual property rights 28

Effects of These Factors on Vaccine Price Trends 30DPT 30OPV 30

Recent Developments Formalizing and Expanding Tiered Pricing 31The Mercer study 32The “banding”strategy 32GAVI 35

Different Approaches to Pricing 35Planned tiered pricing 35Bulk purchasing/Uniform pricing 39

The Price History of Hepatitis B Vaccine: A Case Study 41Introduction 41

Plasma-derived vaccine 42Recombinant DNA vaccine 42

Plasma-Derived Vaccine 42More accessible technology and increased number of manufacturers 42Creation of the Hepatitis B Task Force 43The model Hepatitis B program and international tender 43Increased competition, production capacity, and interest in

recombinant DNA vaccine 44Recombinant DNA Vaccine 44

Limited number of licensees for the Biogen patent 45Competition with the plasma-derived vaccine 45Increased competition 45Increased demand 45

Summary 46Lessons learned 46

Bibliography 49

v

TablesTable 1 Main Features of the PAHO Revolving Fund and the Vaccine

Independence Initiative (VII) 8Table 2 Countries Participating in the Vaccine Independence Initiative 14Table 3 Proportion of Recurrent Costs Financed by National Resources

in Selected Countries in the Americas, 1995–1999 (%) 17Table 4 Proportion of Vaccine Financing by Governments in Selected

Countries Participating in the VII, 1995–1997 18Table 5 Price of a Pediatric Dose of Vaccine in the US Domestic Market

and PAHO, 1999 23Table 6 The Segmented Public-Sector Vaccine Market, 1990 25Table 7 Main Factors Affecting Vaccine Prices 27Table 8 Status of New Vaccines: Producers, Patents, Technology 29Table 9 Planned Tiered Pricing: Arguments For and Against 37Table 10 Bulk Purchasing Model with Uniform Prices: Arguments For

and Against 38

FiguresFigure 1 Estimated Contributions for Immunization and Vaccines through

UNICEF, 1990–1998 3Figure 2 USAID Support for Polio and Other Immunization Programs 4Figure 3 JICA Grant Funding for Worldwide Immunization, 1993–1998 4Figure 4 Operation of the PAHO Revolving Fund 7Figure 5 Number of Vaccine Doses Procured through the PAHO

Revolving Fund, 1979–1999 10Figure 6 Producers’ Shares of the World and UNICEF Vaccine Markets 22Figure 7 Volume of Vaccines Procured by UNICEF, 1983–1995 26Figure 8 Price per Dose of DPT Vaccines Obtained through the PAHO

Revolving Fund, 1979–1999 30Figure 9 OPV Purchased through the PAHO Revolving Fund, 1979–1999 31

Tables and Figures

vi IMMUNIZATION FINANCING IN DEVELOPING COUNTRIES: TRENDS AND ISSUES

Figure 10 WHO/UNICEF Global Banding Strategy 33Figure 11 Two Models of Vaccine Pricing 36Figure 12 Changes in Hepatitis B Vaccine Prices for Developing Countries

(lowest prices obtained) 41Figure 13 Price of Recombinant Hepatitis B Vaccine and Amount Purchased

through the PAHO Revolving Fund, 1994–1999 45Figure 14 Factors Affecting the Price of Hepatitis B Vaccine 46

vii

Preface

The Asian Development Bank, in its Policy for the Health Sector, emphasizes theimportance of primary health care and its provision to everyone in Asia. The policyfavors immunization because of its cost-effectiveness, its significant impact on theburden of disease, and its considerable public health advantages particularly for thepoor, children, and women.

But, despite these benefits, immunization programs in the region continue to facemany challenges. Among these are the high rate of vaccine-preventable disease;stagnating, declining, or unequal coverage; the slow introduction of new vaccines;and diminishing internal and external resources.

ADB launched the Asian Vaccination Initiative (AVI) in answer to these challengesand in line with its commitment to reduce poverty. The initiative, a regional approachto vaccine financing, is intended to assist developing member countries in strengtheningtheir immunization programs. Under AVI, ADB has helped developing membercountries determine the resources they need to carry out such programs.

This report is the first in a series of reports to be published under AVI. It gives anoverview of critical issues in immunization financing in developing countries and theinternational vaccine markets, and it documents financing and procurementmechanisms that have succeeded. With the help of its findings, policymakers in ourdeveloping member countries should be able to strengthen their immunizationprograms and extend their reach to more of the poor and the disadvantaged.

Akira SekiDirector, Agriculture and Social Sectors Department (West)Asian Development Bank

ix

This paper was prepared by Denise DeRoeck for the Agriculture and Social SectorsDepartment (West) of the Asian Development Bank. The study was supervised byIndu Bhushan, Senior Project Economist, under the overall guidance of Edward M.Haugh, Manager, Education, Health, and Population Division (West).

The following assisted the author in obtaining documents and other information:Miloud Kaddar of Abt Associates; Ciro de Quandros, Peter Carrasco, and LauraFuller of the Pan American Health Organization (PAHO); Ami Batson of the WorldBank; Steve Landry and Murray Trostle of USAID; Julie Milstein of the World HealthOrganization; James Maynard, Diane Woodle, Susan Jamison, Ginger Topol, andDavid Alli of PATH; Suomi Sakai and Aysha Mawani of UNICEF (New York);Steve Jarrett of UNICEF (Copenhagen); Colin Holbrow of Pasteur-Merieux-Connaught; Walter Vandersmissen of SmithKline Beecham; Mike McAttee of theUS Government Accounting Office (GAO); Bob Synder of the Centers for DiseaseControl and Prevention (Atlanta); Violaine Mitchell of GAVI; and Sally Stevenson,consultant, ADB.

Rich Mahoney of the International Vaccine Institute, Chris Maher of the WesternPacific Regional Office of WHO, Steve Landry of USAID, and Violaine Mitchell ofGAVI reviewed drafts of the paper and provided extensive, helpful comments.

Thanks are also due to all the Ministry of Health officials in the Asia/Pacificcountries who responded to the e-mail survey.

Acknowledgments

xi

ADB Asian Development BankAVI Asian Vaccination InitiativeBCG Bacille-Calmette-Guerin Vaccine (antituberculosis vaccine)CAR Central Asian RepublicsCDC Centers for Disease Control and PreventionCIDEF International Center for Childhood and the FamilyCVI Children’s Vaccine InitiativeDtaP DTP vaccine with acellular pertussisDTP diphtheria and tetanus and pertussis vaccineDT diphtheria and tetanus vaccineEPI Expanded Program on ImmunizationEU European UnionGATT General Agreement on Tariffs and TradeGAVI Global Alliance for Vaccines and ImmunizationGNP gross national productHBV Hepatitis B vaccineHib Haeomophilus influenzae type BIPR intellectual property rightsIPV injectable polio vaccineJICA Japan International Cooperation AgencyKGCC Korean Green Cross CorporationNIDs National Immunization DaysNIH National Institutes of Health (US)OPV oral polio vaccinePAHO Pan American Health OrganizationPATH Program for Appropriate Technology in HealthPMC Pasteur-Merieux-ConnaughtPMSV Pasteur-Merieux Serums et VaccinsR&D research and developmentSKB SmithKline BeechamTAG Technical Advisory GroupTT tetanus toxoid

Abbreviations

xii IMMUNIZATION FINANCING IN DEVELOPING COUNTRIES: TRENDS AND ISSUES

UCI Universal Child ImmunizationUNICEF United Nations Children’s FundUSAID Unites States Agency for International DevelopmentVII Vaccine Independence InitiativeWHO World Health Organization

Dramatic and constant change hasoccurred over the last 20 yearsin immunization financing for

developing countries and in the interna-tional vaccine market.

In 1977, the World Health Assemblydeclared that, by 1990, all children in theworld would be immunized. Five yearslater, UNICEF set the Universal ChildImmunization (UCI) target of 80 percentfor the six standard childhood vaccines,also by 1990.

Donor funding then increased substan-tially, and international procurementmechanisms were put in place to help en-sure that quality vaccines were providedon time and at affordable prices. The sub-sequent rapid expansion of the interna-tional vaccine market led to economiesof scale (for manufacturers and bulk pur-chasers) and improved production pro-cesses. Vaccine prices fell initially, until thecost of expanding production infrastruc-ture reversed the trend.

Donor funding dropped after the UCIgoal was achieved, and shifted its focusfrom general program support to vaccineprocurement. New technology and new,albeit often expensive, patented vaccines,as well as growth in the number of vac-cine manufacturers, have contributed tofurther change.

Over this time, manufacturers and pur-chasers defined the characteristics of theinternational vaccine market and exploitedits possibilities. These two groups haverecently started to work on a more col-laborative basis.

By 1999, the decline in donor funding,slow progress in introducing new vaccinesinto countries that needed them, and thedanger of reversing gains made in cover-age and disease control through UCI hadled to a new global initiative—the GlobalAlliance for Vaccine and Immunization(GAVI). This high-profile alliance of pub-lic- and private-sector partners has rap-idly mobilized large amounts of funding,both to procure new vaccines for quali-fied (poor) countries and to improve theirimmunization programs overall. The al-liance is again changing the immuniza-tion landscape, through its financial sizeand force.

The start of a potentially new era inimmunization would seem an opportunetime to examine the trends and issues invaccine and immunization financing in de-veloping countries over the last 20 years.The following will be discussed in thispaper:

• Recent and projected future trendsin grant financing for vaccines andimmunization programs

Introduction

The start of a

potentially new

era in

immunization

would seem an

opportune time

to examine the

trends and

issues in

vaccine and

immunization

financing in

developing

countries over

the last 20 years

2 IMMUNIZATION FINANCING IN DEVELOPING COUNTRIES AND THE INTERNATIONAL VACCINE MARKET : TRENDS AND ISSUES

• International vaccine procurementand financing mechanisms, amongthem, the Revolving Fund of thePan American Health Organiza-tion (PAHO) and the Vaccine In-dependence Initiative (VII) ofUNICEF

• Major issues in the internationalvaccine market, including vaccinepricing and strategies to make vac-cines more accessible in developingcountries

• The price history of Hepatitis B vac-cine, as a case study

Lessons learned and conclusions drawnfrom a discussion of these issues may helpguide future investments in immunization.

This paper gives background informa-tion for the Asian Vaccination Initiative(AVI), the Asian Development Bank’sresponse to the continuing challengesfaced by developing countries in sustain-ing and strengthening their immunizationprograms.

In 1977, the World

Health Assembly

declared that, by

1990, all children

in the world

would be

immunized

Declining Donor Funding

The UCI goal of 80 percent globalcoverage for basic EPI vaccinesmobilized significant financial

support for developing-country immuni-zation programs. However, once the goalwas reached in 1990, donor contributionsfor immunization in general, and vaccinesin particular, began to decline. This isshown in Figure 1 by the decrease in fund-ing for immunization programs fromUNICEF, traditionally the largest globalcontributor.

UNICEF grant financing data repre-sent all contributions to the general fundand bilateral donor funds that support coun-try programs through UNICEF. The datashow that overall support declined by 67percent between 1990 and 1998, from$182 million to about $60 million. At thesame time, immunization assistance de-clined from 57 percent of total UNICEFhealth spending to less than 30 percent.

Shifting Donor FocusFigure 1 also shows that a growing per-centage of immunization funding is mov-ing away from general program supportand focusing specifically on vaccines. In1990, vaccines took up only 25 percent

of total immunization financing; by 1998,they accounted for 78 percent. In realterms, vaccine funding through UNICEFrose from $45 million in the early 1990sto a peak of $59 million in 1995–1996before dropping again in 1998 to $48million. Therefore, UNICEF was in-creasingly funding vaccines (a recurrentcost) at the expense of capital investmentin the cold chain, infrastructure, or otherprogram-strengthening areas such astraining.

The focus on polio eradication drewfunds away from general program sup-port. Data on USAID spending from 1987

Trends in Grant Financingfor Vaccines andImmunization Programs

FIGURE 1

Estimated Contributions for Immunization and Vaccinesthrough UNICEF, 1990–1998

Source: UNICEF (New York)

136

80 72

6653

51

22 16.613.0

45 4555

44 42

59 58 59.247.5

1990 1991 1992 1993 1994 1995 1996 1997 19980

25

50

75

100

125

150

175

200181

125 127

11095

110

80 75.8

60.5

$ million

Total immunization fundingVaccine funding

The focus on

polio eradication

drew funds

away from

general program

support


to 1998 (Figure 2) clearly show this trend.Funding levels stayed about the same be-tween 1992 and 1998, but since 1996more than 35 percent of total funds (54percent in 1998) have been redirected topolio eradication. Meanwhile, USAIDsupport for routine immunization pro-grams has declined markedly, from a highof $67 million in 1993 to just over $22million in 1998.

Contrary to the general trend of sup-porting vaccine procurement, however,USAID support, including assistance forpolio programs, has been directed to in-formation, education, and communication(IEC) materials, training, technical assis-tance, disease surveillance, research, andother key program components. There-fore, despite its specific focus on polioeradication, USAID support is likely tohave contributed as well to strengthen-ing immunization and disease control pro-grams overall, especially the developmentof national surveillance systems and na-tional and regional control laboratories.

Grant financing from the Japan Inter-national Cooperation Agency (JICA) rosesharply over the six years to 1998 (Fig-ure 3) but, like UNICEF assistance, wentmostly to the procurement of vaccines,particularly polio vaccine (OPV), ratherthan program strengthening. Vaccinesaccounted for 81 percent of total immu-nization support from JICA in 1996 and72 percent in 1997. JICA spending pri-orities, however, underwent a reversal in1998, when 70 percent of its total immu-nization finance supported program in-puts other than vaccines.

Global Alliance forVaccines andImmunizationWith global immunization rates at astandstill, donor funds declining, and dis-parities in vaccine access widening be-tween industrialized and developing coun-tries, the Global Alliance for Vaccines andImmunization (GAVI) was formed in1999 to “re-energize the world’s commit-

FIGURE 2

USAID Support for Polio and Other ImmunizationProgramsa

a Includes funding for technical assistance, cold-chain equipment, training, VII vaccination, some vaccines

20.0

25.0

26.150.9

38.5

44.0

32.2

37.8

51.8

67.4

58.9

37.533.8

17.722.5

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 19980

10

20

30

40

50

60

70US$ million

53.8

42.7

48.6

Other immunization program supportPolio program support

FIGURE 3

JICA Grant Funding for Worldwide Immunization, 1993–1998

60

140

66

366

616 1,473

207

640

240 240

1,528

1,339

1993 1994 1995 1996 1997 19980

500

1,000

1,500

2,000

2,500Japanese Yen million

Other program supportOther vaccinesPolio vaccine

300 306

1,8942,162 2,113

TRENDS IN GRANT FINANCING FOR VACCINES AND IMMUNIZATION PROGRAMS 5

ment to vaccines and immunization.”GAVI is a coalition of public- and private-sector partners including national govern-ments, organizations associated with theChildren’s Vaccine Initiative (WHO,UNICEF, the World Bank Group), theInternational Federation of Pharmaceu-tical Manufacturers Associations(IFPMA), and the Bill and Melinda GatesFoundation.

GAVI has had dramatic success inmobilizing resources. Its financing arm,the Global Fund for Children’s Vaccines,was created in 1999 with an initial grantof $750 million (to be used over fiveyears) from the Bill and Melinda GatesFoundation. The Fund has since leveragedadditional funding support from govern-ments and other donors.

The Fund provides financial supportdirectly to low-income countries (percapita GDP of less than $1,000) tostrengthen their immunization services

and to purchase new and underused vac-cines. In the future, resources may alsobe used to speed up the development ofvaccines for diseases such as HIV/AIDS,tuberculosis, malaria, and acute respira-tory diseases, which cause significantmortality in developing countries.

GAVI has committed more than $250million for the five-year period 2001–2006after two funding rounds, and should com-mit an even greater amount as furtherrounds are completed. UNICEF, for itspart, contributed $60 million to immuni-zation programs in 1998.

In summary, donor funding for immu-nization programs declined overall in theeight years up to 1999 yet gave increas-ing support to the procurement of vac-cines in general, and OPV in particular.However, GAVI, which has mobilizedsignificant global resources within a yearof its establishment, is proving to be apowerful force in reversing this trend.

In the future,

resources may

also be used to

speed up the

development of

vaccines for

diseases such

as HIV/AIDS,

tuberculosis,

malaria, and

acute

respiratory

diseases

The decline in donor financing forvaccines and immunization pro-grams has forced countries to fi-

nance and procure their vaccine supply in-dependently. However, many countrieslack the necessary management andtechnical capacity, purchasing power,access to hard currency, and interna-tional credit to do this effectively. In-ternational vaccine procurement mecha-nisms have accordingly been establishedto provide assistance and ensure accessto high-quality vaccines at reasonableprices. The two most widely usedmechanisms—the PAHO RevolvingFund and UNICEF’s Vaccine Indepen-dence Initiative (VII)—will be dis-cussed in this section. Their main fea-tures are summarized in Table 1.

The PAHO RevolvingFundThe PAHO Revolving Fund is a commonfund for the purchase of vaccines and im-munization supplies for Latin Americanand Caribbean countries. Established in1979, it was the first multi-countrymechanism that gave countries access tolow-cost, high-quality vaccines (using re-gional economies of scale), in the process,making the countries more self-sufficient.

International VaccineProcurement andFinancing Mechanisms

The Fund offers the option of paying inlocal currency and on delivery, thus elimi-nating two major procurement obstaclesdeveloping countries face in the interna-tional open market.

DescriptionThe Fund operates as follows (see Fig-ure 4):

FIGURE 4

Operation of the PAHO Revolving Fund

Country Action Plans aredeveloped with PAHO

Orders are consolidated; internationaltenders are made for each vaccine;contracts with producers are signed

PAHO confirms quarterlyneeds with each country

(maybe revised by countries)

PAHO approves countryorders, places pooledorders with suppliers

each quarter

PAHO pays suppliers forpooled order in US dollars

Suppliersmake

deliveries tocountry

PAHOsends

invoice tocountry

Country pays PAHO in60 days in local currency

or US dollars

Fund is replenished withequivalent in US dollars


• PAHO advisers work with nationalimmunization program managers todetermine Country Action Plans, in-cluding vaccine supply needs, for thecoming year.

• PAHO consolidates the orders fromthe Country Plans at its headquartersin Washington, D.C., and then solic-

its international tenders from WHO-prequalified manufacturers.1

1 WHO certifies the quality of a manufacturer’s vaccineusing a strict regulatory code. Procuring countriescan thus be assured of the quality of the vaccine from“qualified” manufacturers. This certification is espe-cially important for countries without strong regula-tory authorities.

TABLE 1

Main Features of the PAHO Revolving Fund and the Vaccine Independence Initiative (VII)

aSix of the seven Band A countries receive structural adjustment financing for vaccine purchases as part of the EU Initiative. For an explanation of band categories, see page 32 of this paper.

PAHO Revolving Fund

PAHO procurement system. Internationaltenders are solicited for each vaccineyearly, on the basis of consolidatedorders from countries. Two suppliers withthe lowest bids are contracted for eachvaccine/antigen

Vaccines, syringes, needles, small cold-chain equipment (cold boxes, etc.)

Common regional fund

Donor contributions plus 3% servicecharges in excess of amount that willkeep the reserve fund at $100,000 level.All funds are pooled into common fund (noearmarking for specific countries)

Yes

Local currency accepted up to absorptioncapacity of the PAHO country office.Beyond this, hard currency is required.Currently, only around 20% of countriespay in local currency. Payment within 60days of receipt of invoice (after delivery)

Government financing (budgetaryallocations), with additional donor fundingfor poorer countries

Band A: 2 (5.7%)Band B: 15 (43.0%)Band C: 16 (46.0%)Band D: 2 (5.7%)

VII

UNICEF procurement services are used for VII countriesand many others. Biannual contracts with suppliers, followinginternational tenders, are based on anticipated needs

Vaccines, supplies for some countries

Individual revolving fund for each country, with fixed ceilingson outstanding amount at any one time. No revolving fund forcountries with “modified” VII agreements

Donor contributions to revolving funds in individual countriesor to general fund. Thirty percent of donor contributions aretied to specific countries, making it more difficult to shiftfunds to make up for temporary shortfalls

Vaccines must be in government budget but not necessarilyas a separate line item although line- item budgeting forvaccines is encouraged

Local currency accepted in countries where UNICEFcountry program can absorb sufficient local currency. Hardcurrency required in countries where UNICEF program issmall or nonexistent. Payment required after goods arereceived (45–60 days after receipt of invoice)

Mixed government/donor funding in most countries.Progressive share of government financing over timespecified in agreements with former Soviet states. EUstructural adjustment funds used to pay for vaccines in theseven EU Initiative countries in west/central Africa

Band A: 7 (27%)a

Band B: 12 (46%)Band C: 7 (27%)Band D: 0

Feature

Procurement system

Commoditiespurchased

Type of revolvingfund

Capitalization ofrevolving fund

Budget line itemrequired?

Payment terms forcountries

How countries payfor commodities

No. of participatingcountries, by WHO/UNICEF band (and% of total)

INTERNATIONAL VACCINE PROCUREMENT AND FINANCING MECHANISMS 9

• PAHO negotiates annual contracts tosupply and deliver the vaccines toeach country. It usually enters intocontracts with two producers for eachvaccine, to avoid supply problemsarising from a production failure byeither manufacturer.

• PAHO sets one price for each vac-cine for the year (by “blending” thequotes from the two selected manu-facturers) and makes the price knownto all member countries.

• The PAHO procurement office thenplaces the orders consolidated fromall countries with the producers eachquarter, paying them in advance outof the common fund, which is capi-talized in US dollars.

• After the goods are delivered, PAHOinvoices the participating govern-ment for the total cost of delivery(shipping, insurance, etc). A servicefee of 3 percent covers foreign ex-change losses, lost shipments, andother contingencies. The fee receiptsare placed in a reserve fund, whosebalance is kept at $100,000. Excessfunds are added to the capital of thecommon fund.

• Participating countries may payPAHO within 60 days, in local cur-rency or in US dollars, depending ontheir agreement with PAHO.2

• US dollars are deposited directly intothe common fund. PAHO uses pay-

ments in local currency for its in-country operations and replenishesthe Fund with the equivalent amountin US dollars.

• Countries cannot receive additionalorders until they have repaid theFund, to prevent depletion of work-ing capital.

BenefitsThe revolving fund mechanism, as PAHOpoints out, has the following benefits:

• Countries are forced to plan and bud-get their vaccine and supply needsyearly, allowing time for procure-ment and delivery. Disruptions insupply and therefore immunizationservices are minimized.

• More reliable demand forecasts al-low manufacturers to schedule pro-duction for the entire year. They canthus increase efficiencies and reducecosts.

• Consolidating vaccine orders allowseconomies of scale to be maximized,leading to lower and more stable vac-cine prices.

• Countries are assured of high-qual-ity vaccines, as only manufacturersprequalified by WHO are used.

• Countries can pay in local currencywhen they receive the goods, savinglimited foreign exchange.

AccomplishmentsThe operations of the Revolving Fundhave grown significantly over the past 20years, as reflected in the increased par-ticipation of member countries, the intro-duction of new vaccines onto the procure-ment list, and a substantial rise in theFund’s capital.

2 If the local PAHO office cannot absorb all of the localcurrency given by the government as payment for thevaccines, the government pays in local currency up tothe amount that can be absorbed and must pay therest in US dollars.

The operations

of the Revolving

Fund have

grown

significantly

over the past 20

years


doses for routine immunization or thevaccination of high-risk groups in 24countries. The Hib vaccine had been in-troduced in 18 countries (including Bra-zil and Mexico) by 1999. That year, PAHOprocured about 20.5 million Hib vaccinedoses for 14 countries and the pentava-lent vaccine HBV-DPT-Hib for Mexico,Peru, and Uruguay. The Fund purchasesthe measles-mumps-rubella (MMR) vac-cine as well for several countries.

CapitalizationThe Fund received an initial contribu-

tion of $1 million from PAHO when itbegan in 1979. Since then, donors (includ-ing UNICEF, the Netherlands, and theUS) and PAHO member countries havecontributed an additional $2.7 million tocapitalize the Fund. In 1999, capitaliza-tion was more than $12 million; of thisamount, more than $8 million (67 per-cent) was raised from the 3 percent ser-vice fee and short-term investments. Mostof the growth in the Fund has occurred inthe last few years and is due to the increasein the total value of vaccines purchasedresulting from the higher volume of pur-chases (particularly since Brazil joined theFund) and the inclusion of more expen-sive vaccines (Hepatitis B, Hib, and thepentavalent). But despite the total capital-ized value, reserves fluctuate throughoutthe year because of the interval betweenthe time suppliers are paid and the timethe Fund is reimbursed by the countries.

AssessmentTo date, there has been no formal inde-pendent evaluation of the PAHO Revolv-ing Fund. Most of the information for thisreport came from PAHO headquarters,

FIGURE 5

Number of Vaccine Doses Procured through the PAHORevolving Fund, 1979–1999

a Includes TT, DT, MMR, and from 1998 on Hepatitis B, Hib and pentavalent.

1979 1983 1987 1991 1995 19990

30

60

90

120

150

180Number of doses (million)

38.9

64.7 63.574.7

79.7

108.4

141.3

112.8102.6

171.7 174.5

Polio Measles DPT BCG Othera

1981 1985 1989 1993 1997

ParticipationThe Revolving Fund had 19 participat-

ing countries when it began in 1979; todayit has 32 to 34.3 Brazil’s entry in 1997 in-creased the population represented by theFund by 57 percent. By 1999, all the coun-tries in the PAHO region,4 except for Chileand Venezuela, were using the Fund to pro-cure some or all of their vaccines. Vaccinespurchased through the Fund have alsogrown tremendously in volume and in valuein the past 20 years, from 38.9 million dosesamounting to $2.6 million in 1979 to anestimated 174.5 million doses worth about$85 million in 1999 (see Figure 5).

New vaccinesThe Fund first procured Hepatitis B

vaccine for individual countries in 1994;by 1999, it was purchasing 12.1 million

3 Some countries such as Chile, Argentina, and Mexicojoin and leave the Fund in any given year and may useit only to purchase certain vaccines.

4 The PAHO region consists of all countries in LatinAmerica and the Caribbean.

By 1999, all the

countries in the

PAHO region,

except for Chile

and Venezuela,

were using the

Fund to procure

some or all of

their vaccines


making an objective assessment difficult.Nonetheless, in view of the growth in thenumber of participating countries and thevolume of vaccine purchases, and the highdegree to which participating countries fi-nance their vaccine purchases themselves(discussed below), most observers con-sider the Revolving Fund to be a success.According to UNICEF, “[the RevolvingFund] has been instrumental in achievingthe high coverage rates and the virtualeradication of poliomyelitis in the West-ern Hemisphere” (UNICEF 1992). TheFund’s success is ascribed to factors suchas the following:

• Its link to the overall program of po-litical, policy and technical assistance

• Compliance with strict criteria andrules

• Strong regional coordination• A strong Technical Advisory Group• Continuity of program staff

Links to overall technical assistanceRather than being just a vaccine pro-

curement mechanism, the Fund is onecomponent within a broader program ofpolitical, policy, and technical assistance.PAHO works with member countries todetermine their priorities, project theirvaccine needs, assess and improve theirimmunization infrastructure (e.g., cold-chain system), and analyze the cost-effec-tiveness of introducing new vaccines. Ac-cording to Freeman (1999, p. 1), “theRevolving Fund . . . serves as a lever forencouraging countries to evaluate theirimmunization strategies in terms of theepidemiology, cost-effectiveness and fi-nancial and logistical sustainability.” Asubregional Technical Advisory Group(TAG) and the well-respected regional

TAG conduct technical and strategic re-views of each country’s immunization pro-gram. PAHO advisers can also help mo-bilize resources from bilateral donors forcountries that need those resources.

PAHO has been instrumental as wellin securing the passage of laws in severalcountries mandating government financ-ing for vaccines. It drafted laws for theLatin American and regional parliaments,which were later used as models for simi-lar legislation in Venezuela, Peru, Guate-mala, Ecuador, and Brazil (Ciro deQuadros, personal communication).

This comprehensive package of assis-tance has been critical to improving coun-try immunization programs. Indeed,

. . . using the prices and stability of theFund’s procurement apparatus as leverage,PAHO was able to require participatingcountries to plan their immunization pro-grams more comprehensively, to improve in-frastructure, to share their data and pro-gram experiences in regional and subre-gional meetings and to help countries abideby the recommendations of the TechnicalAdvisory Group . . . . The message PAHOhas labored to send throughout LatinAmerica is: “Do your homework, prepareto disclose your data and strategy for a criti-cal review across the region, or buy your vac-cines outside the Fund.” (Freeman 1999,p. 6)

Strict criteria and rulesThe criteria that PAHO has set for

member countries have shaped a “cultureof discipline,” which has helped to keepthe Fund solvent and ensured that pro-gram advice is taken seriously (Freeman1999, p. 3). For example, countries join-ing the Fund must have:

The criteria that

PAHO has set

for member

countries have

shaped a

“culture of

discipline,”

which has

helped to keep

the Fund solvent

and ensured that

program advice

is taken

seriously


• A specific line item in the nationalbudget for vaccines and syringes

• A realistic and comprehensive na-tional program plan

• Adequate infrastructure for vaccinestorage and distribution

• A national program manager autho-rized to develop and implement theprogram5

Also, a new vaccine cannot be pur-chased through the Fund until PAHO findsthe vaccine to be cost-effective and is as-sured that the country has adequate fi-nancing and infrastructure to introducethe vaccine without jeopardizing the restof the immunization program.

The Fund stays solvent because countriesthat do not pay their invoices on time havetheir future orders suspended until theyrepay the Fund. Some countries from timeto time have been late in paying, but theirnumber has decreased and all countries haveeventually reimbursed the Fund in full (Pe-ter Carrasco, personal communication).

Regional coordinationPAHO periodically holds subregional

and regional meetings, during whichcountries share data and experiences, inthe process finding solutions to commonproblems. Collective feedback to PAHOhas also helped improve the administra-tion of the Revolving Fund.

A strong Technical Advisory Groupand continuity of program staffThe regional TAG, well respected by

countries and donors alike, provides criti-cal advice to countries about their immu-

nization programs. The strong leadershipand continuity of PAHO staff in chargeof the Fund as well as the “superior mar-ket intelligence” they have built up overthe years are considered factors in theprogram’s success (England 1999).

The impact of the Revolving Fund pro-gram on immunization program perfor-mance, government financing, and the fi-nancial sustainability of immunizationprograms is discussed in Impact of Vac-cine Procurement Mechanisms below.

The Vaccine IndependenceInitiativeEncouraged by the success of the PAHORevolving Fund, UNICEF established theVaccine Independence Initiative (VII) in1991. The VII was created primarily tohelp middle-income countries becomeself-reliant in vaccine financing and pro-curement, and thus to “ensure the avail-ability of funding for the introduction ofnew vaccines…by freeing up donor fundsfor this purpose” (UNICEF 1999a, p. 3).

DescriptionVII operates on the same principles asthe PAHO Fund, allowing participatingcountries to pay for low-cost vaccines inlocal currency (with some exceptions) af-ter deliveries are made. It thus providesa reliable means (through UNICEF’s pro-curement system in Copenhagen) of pro-curing high-quality vaccines at sustainableprices. The VII also obliges countries toplan their vaccine needs annually, withtechnical assistance, and to include the costof vaccines in the national budget. A spe-cific vaccine line item is encouraged butnot required.

5 However, according to some informants, these require-ments have not always been as strict in practice.

Some countries

from time to time

have been late in

paying, but their

number has

decreased and

all countries

have eventually

reimbursed the

Fund in full


There are, however, some importantdifferences between the operations of VIIand those of the PAHO Revolving Fund.These are:

• Instead of a common fund for allcountries, as in the PAHO mecha-nism, the VII establishes a revolvingfund for each participating country.

• VII maintains a greater separationbetween procurement services andfund management; the PAHO usesservice fees to capitalize its revolv-ing fund.

• Unlike the PAHO, the VII enters intoformal annual contracts with partici-pating countries for their vaccine pur-chases.

• The VII is implemented in a greatervariety of ways.

Individual revolving fundsThe VII establishes a revolving fund for

each participating country instead of a com-mon fund for all countries. The countryfunds are managed by UNICEF (NewYork) and capitalized by donor contribu-tions to targeted countries or to the VIIgeneral fund. UNICEF pays for vaccinesfrom the funds (in dollars) and governmentsreimburse the funds in local or hard currencyonce they receive the vaccines. At no timecan the outstanding orders or payments ofa country exceed its capitalization (thecountry’s “ceiling”). The revolving funds aredesigned to “turn over” twice a year. Thatis, the government should reimburseUNICEF within six months after placing anorder. Each year a country can thus purchasevaccines worth up to twice the amount of itscapitalization (i.e., a fund capitalized with$500,000 which turns over twice a year canbuy $1,000,000 worth of vaccines).

Separation between fundmanagement and procurementservicesWhile the UNICEF headquarters in

New York manages the VII and the indi-vidual revolving funds, the UNICEF Sup-ply Division in Copenhagen procures vac-cines for participating countries. The Sup-ply Division keeps the 6 percent servicefee charged by UNICEF (double whatPAHO charges) to cover its operationalcosts. Therefore, the accumulated fees donot go back into the VII revolving funds,as they do in the PAHO program, wherethey constitute an important source ofadditional capital.

More formal agreements withparticipating countriesUnlike the PAHO program, the VII

requires countries to sign annual contractsstating the government’s budget for vac-cine purchases for the year and its com-mitment to pay for the vaccines. The con-tract also stipulates the amount of vac-cines to be procured through UNICEF,the estimated unit price for each vaccinefor the year, and the total value of vac-cines that can be purchased for the year.

More varied implementationA number of countries have “modified

VII agreements,” under which they re-ceive UNICEF assistance in planning andforecasting their vaccine needs, have ac-cess to UNICEF’s procurement services,but pay for the vaccines in advance anddo not use the revolving fund mechanism.To quote England (1999, p. 24), “the VIIwill accept any mechanism that results inMinistries of Health becoming self-reli-ant in the supply of quality vaccines.”

The VII also

obliges

countries to plan

their vaccine

needs annually,

with technical

assistance, and

to include the

cost of vaccines

in the national

budget


ParticipationMorocco and the Philippines were thefirst countries to join the VII in 1993.6

Now 27 countries, including 12 PacificIsland nations, have VII agreements withUNICEF. There are four categories ofparticipation, as shown in Table 2.

Category 1: Self-financingMorocco, the Pacific Island countries,

and Bangladesh (which uses the VII topurchase only a portion of its vaccine sup-ply),7 pay for the vaccines from govern-ment budget allocations and have indi-vidual revolving funds.8

Category 2: European UnionInitiativeSince 1996, seven west and central Af-

rican countries have participated in theVII through the European Union (EU)Initiative. Through this initiative, coun-

TABLE 2

Countries Participating in the Vaccine Independence Initiative

Description

Countries using revolving funds and financingtheir own vaccines

Countries with revolving funds and financing fromEU structural adjustment grants

Countries with modified VII (no revolving funds)

Countries with special emergency fund

Countries

Morocco, Bangladesh (for some vaccines only), 12 PacificIsland countries, Philippines (until 1998)

Senegal, Cape Verde, Burkina Faso, Niger, Chad, Mauritania,Gambia

Kazakhstan, Turkmenistan, Uzbekistan, Mali, Uganda

Ghana

Category

1

2

3

4

tries use structural adjustment fundingprovided by the EU to purchase vaccines.Each country makes use of a revolvingfund, paying for the vaccines in the localcurrency once they are received.

Category 3: Modified agreementsKazakhstan, Uzbekistan, Turkmenis-

tan, Mali, and Uganda have modifiedagreements (i.e., no revolving fund), un-der which they pay in advance for the vac-cines either in hard currency (in the caseof the Central Asian countries) or in lo-cal currency (Mali and Uganda). The cen-tral Asian countries each have a VIIagreement between the government,UNICEF, and the Japanese Governmentto co-finance vaccines procured throughUNICEF. The government increases itsshare of financing each year until it reachesself-sufficiency, usually in five to nineyears.

Category 4: Emergency fundGhana used the VII to set up a “vac-

cine stabilization fund,” capitalized byUSAID, to purchase emergency suppliesfor disease outbreaks and shortfalls inroutine vaccines.

6 The Philippines left the Initiative in 1998 and nowpurchases vaccines directly from suppliers (using loanfunds from the World Bank) through an internationaltender and bid process.

7 VII vaccines in Bangladesh are financed by the Gov-ernment (30 percent), a World Bank loan (43 per-cent), and donors (27 percent).

8 Morocco also uses loan funds from the World Bank tofinance vaccines.


CapitalizationThe VII was used to purchase $11 mil-lion worth of vaccines in 1998 and over$50 million since it began in 1993(UNICEF 1999a). The revolving fundsare currently capitalized at $8.6 million,about 30 percent of which is earmarkedfor specific countries and 70 percent forthe general fund. Three-fourths of thefunding has come from three sources:USAID, (40 percent), UNICEF (23 per-cent), and the Netherlands (13 percent).

AssessmentAs with the PAHO Revolving Fund, therehas been no formal independent evalua-tion of the VII.9 The VII was originallydesigned to assist middle-income coun-tries, many of which, including Pakistan,Egypt, Nepal, and Sri Lanka, chose notto join, opting instead to buy vaccines onthe open market. The countries that havejoined tend to be poorer than was origi-nally anticipated, with three-fourths ofthem in the WHO/UNICEF Band A orB (see Figure 10), and only 27 percent inBand C, the originally targeted middle-income countries. Consequently, many ofthe countries in the VII still depend ondonors to finance at least some of theirvaccine, and in the case of the EU Initia-tive countries, all of their vaccine supply.

In any case, according to UNICEF, theVII has strengthened the commitment ofparticipating governments to carry outtheir immunization programs and to se-cure funding for vaccines.

The negotiation and signing of the VIIagreement with the Ministry of Health…

has proven one of the most useful and effec-tive aspects of the VII process. The agree-ment formalizes the government’s commit-ment to paying for vaccines, provides a signeddocument attesting that the budget for vac-cines is assured, and provides for continuityof the budget commitment across changes inpersonnel. (UNICEF 1999a)

AdministrationThe system of separate revolving funds

limits the ability of countries to place largesingle orders (e.g., for National Immu-nization Days) that temporarily exceedtheir ceilings. It also limits UNICEF’sflexibility in managing funds, as it cannotmove funds from one country to anotheras demand fluctuates. The separate fundswere established largely in response to theway the VII was initially supported. Do-nors, especially USAID, tended to ear-mark funding for specific countries, in-stead of contributing to the general fundfor all countries.10 Earmarking made itimpossible to create a common fund orto shift funds from one country to another.

This inflexibility in country ceilings andthe inability of UNICEF to shift fundsfrom one country to another to accom-modate changing needs have sometimesled to the inefficient use of funds, accord-ing to UNICEF. In response, UNICEF ismoving toward a common fund model,encouraging donors to contribute only tothe general fund (for use by any partici-pating country) and allowing countries toexceed their ceilings “on an exceptionalbasis.” These changes were made only in

9 An assessment of the program was made in Morocco,early in the implementation period.

10 USAID contributions are often earmarked becausethe funds actually come from country missions, whichare required to fund activities that benefit their coun-try only.


1999 and it is still too soon to tell if theyhave made a difference.

Procurement administration has provento be somewhat of a burden for both coun-tries and UNICEF. Unlike the PAHO pro-gram, which requires countries to submittheir vaccine needs once a year, with quar-terly confirmation, countries participatingin the VII must submit their orders everythree months. Delays have occurred indeliveries, the receipt of invoices fromUNICEF, and government repayment. Ascountries are limited by the ceiling of theirindividual revolving fund, any of these de-lays can deplete the balance of their fundand cause vaccine shortages. However, itis not known to what extent vaccine sup-ply has actually been disrupted.

Countries have also complained of ex-change-rate difficulties when rates changebetween the time orders are placed and thetime the invoice is received. The programin Morocco solved some of these adminis-trative problems by shifting the responsi-bility for billing from Copenhagen to thelocal UNICEF office, thus reducing thetime from delivery to billing from monthsto days, and by stipulating fixed exchangerates for the entire year in the contract.

New vaccinesOne of the main objectives of the VII

was to free up donor funding to financethe introduction of new vaccines. Exceptfor the Pacific Islands countries, which payfor the traditional EPI vaccines themselvesbut receive donor funding for Hepatitis Bvaccine, this does not appear to have oc-curred. Some participating countries, suchas Morocco, have begun to introduceHepatitis B vaccine, but with governmentfunds and World Bank loan funding. As

discussed in Impact of Vaccine Procure-ment Mechanisms below, before GAVIwas established, donors were reluctant topay for Hepatitis B and other new vaccinesbecause of the higher cost and the poten-tially huge demand from developing coun-tries.11

Impact of VaccineProcurementMechanismsAs formal evaluations of the PAHO Re-volving Fund program and the VII haveyet to take place, it is difficult to assessthe impact these mechanisms have hadon country immunization programs.Available information, however, does al-low us to draw some conclusions on theimpact of the VII and the PAHO Revolv-ing Fund on program performance, gov-ernment financing, and sustainability ofimmunization programs.

Program performancePAHO: Data from PAHO countries showthat immunization coverage rates have, ingeneral, increased since countries joinedthe Revolving Fund. How much this in-crease can be attributed to the Fund (or toother factors such as UCI) is not possibleto determine. Countries reportedly expe-rienced some disruptions in vaccine sup-ply early in the program because of opera-tional problems such as delays in placingorders as well as an inadequate level of

11 The Global Alliance for Vaccines and Immunization(GAVI), which began funding in 2000, has dramati-cally increased the demand for Hepatitis B vaccine.This initiative is discussed further in the previous mainsection of this report.


capitalization of the Fund (Carrasco et al.1983). However, according to PAHO,these problems have diminished as PAHOand the countries have gained experiencein managing the Fund. Supply disruptionsare now at a minimum and if the Fund islow at any one time, countries must pay inadvance for any further orders.

VII: Evidence of the impact of the VIIon immunization programs is also largelyanecdotal. An assessment of the VII inMorocco, as part of a country case studyon immunization financing, showed:

• The Government was able to doublethe value of its vaccine purchasessince joining the VII in 1994, lead-ing to the successful implementationof a polio eradication program.

• Immunization coverage rates in-creased after the VII began, withDPT3 and OPV3 coverage rising 10percent from 1992 to 1995.

• Disruptions in vaccine supply have beenminor since the Government began fi-nancing all vaccine purchases throughthe VII12 (Kaddar et al. 1999).

Again, the degree to which the VII isresponsible for these improvements isdifficult to determine.

Government financing andsustainability of immunizationprogramsOperational self-sufficiency is a key ele-ment in immunization sustainability. Of

primary importance is vaccine self-suffi-ciency, which is achieved if a country pur-chases or produces all the routine EPIvaccines it requires.

PAHO: Data from PAHO show thatmost countries participating in the PAHORevolving Fund finance their entire vac-cine supply. Several poorer countries, withthe exception of Haiti, Bolivia, and Gua-temala, finance most of their vaccines andrelated recurrent costs. The increasedshare of financing over the past four yearsis shown in Table 3.

This financing trend, in conjunctionwith the increase in number of PAHOcountries that have introduced the moreexpensive Hepatitis B and Hib vaccines,suggests that government financing of vac-cines is now sustainable in several coun-tries. Although increases in governments’share of vaccine financing are also part ofa global trend, possibly driven by de-creases in donor funding, the support that

12 However, Morocco uses loan funds from the WorldBank to pay for its vaccines. The country reportedlyplanned to increase its Government allocations in 2000to cover vaccine purchases, including Hepatitis B vac-cine, instead of using loan funds. This would be a truertest of its ability to become self-sufficient in vaccinefinancing and of the usefulness of the VII in assistingthe Government to achieve this goal.

TABLE 3

Proportion of Recurrent Costs Financed by NationalResources in Selected Countries in the Americas,1995–1999a (%)

Source: PAHO (1999) (slides)— = not availablea Covering vaccines, syringes, and small cold-chain equipment

Country (Band) 1995 1996 1997 1998

Bolivia (B) 49 72 68 44

Ecuador (B) 69 81 77 91

El Salvador (B) 100 100 100 100

Guatemala (B) 100 92 79 85

Haiti (A) 19 22 25 —

Honduras (B) 78 82 96 91

Nicaragua (B) 67 76 78 95

Peru (B) 97 99 100 100


PAHO gives to ministries of health inpromoting immunization programs haslikely contributed to this increase.

Nonetheless, most countries in the Re-volving Fund, even those financing theirentire vaccine supply, continue to receivesome donor support for critical inputs,most notably training, cold-chain equip-ment, disease surveillance, and social mo-bilization (DeRoeck and Levin 1999).

VII: Most countries participating in theVII finance much less of their vaccinesupply than PAHO countries, althoughgovernments’ share of vaccine financinghas generally been increasing, as shownin Table 4. However, comparisons withPAHO countries should be made cau-tiously, as VII countries are generallymuch poorer. The VII agreements for thethree central Asian countries call for the

government to pay an increasing share ofvaccine costs until they become self-fi-nancing, according to predeterminedschedules. So far, two of these countrieshave been meeting their payments onschedule, while one is behind on its pay-ments (Simidjiyski 1999).

The main exceptions to the increase ingovernment financing of vaccines amongthe VII countries are the west and cen-tral African countries participating in theEU Initiative. On paper, financing for vac-cines comes out of each government bud-get, but the funds actually come entirelyfrom EU structural adjustment grants.Although the countries participating inthe Initiative are meant to gradually as-sume a greater share of vaccine financingfrom their own internal resources, thereis as yet no way of differentiating betweenfinancing from internal resources andstructural adjustment funding. Countriestherefore have little incentive to increasetheir share of vaccine financing—a majorcriticism of the EU Initiative.

Nonetheless, one important success ofthe VII has been in convincing govern-ments of the importance of financing theirimmunization programs and in creatingbudgetary line items for vaccines and/orimmunization programs. This is a criti-cal first step.

Lessons learnedA number of lessons have been learnedfrom the experiences of the PAHO Re-volving Fund and the VII. These include:

• The importance of providing procure-ment mechanisms within the frame-work of overall technical assistance.Both PAHO and UNICEF stress thatthese mechanisms, by themselves,

TABLE 4

Proportion of Vaccine Financing by Governmentsin Selected Countries Participating in the VII, 1995–1997a

— = not availablea Including loan funds from the World Bank used to purchase vaccinesb Countries receiving EU structural adjustment funds for vaccines through the EU Initiative, which began in1996

c Levin et al. (1999)Source: UNICEF (New York)

Country 1995 1996 1997

Burkina Fasob — 33.8 0.0

Band AChadb 0 0.0 0.0Gambiab — 0.0 0.0Nigerb 0 0.0 0.0Mauritaniab 0 0.0 0.0Uganda 0 35.0 49.0

Band BBangladesh 84 74.0 53.0c

Morocco 100 100.0 100.0Senegalb — 0.0 0.0Cape Verdeb — 0.0 0.0

Band CKazakhstan — 20.0 38.5Turkmenistan — 9.3 11.5Uzbekistan — 16.0 30.0Fiji — 50.0 —


will not lead to better immunizationprograms or to increased govern-ment responsibility for financing pro-grams. Critical to success has beenthe technical assistance that is pro-vided to countries to help assess andstrengthen their immunization pro-grams, and to convince other govern-ment ministries (e.g., the ministry offinance) of the importance of immu-nization. For example, PAHO’s well-respected and informed TechnicalAdvisory Group has been considereda vital asset to the PAHO program.

• The benefits of a common revolving fundand flexible donor financing. UNICEFhas learned the limits of earmarked do-nor funding and the establishment ofindividual country revolving funds andis now moving toward a common fundmodel similar to PAHO’s. Having acommon fund into which all donor con-tributions are placed and which is usedto purchase vaccines for all participat-ing countries provides the flexibility forcountries to buy larger quantities ofvaccines than normal (e.g., for NIDs)and to purchase emergency supplies.

• The advantages of keeping the manage-ment of the revolving fund and the pro-curement operations closely tied. Keep-ing these two functions close togetheris one way to improve the manage-ment of the program overall. It alsoallows the program to put any servicefees back into the fund. As mentionedabove, accumulated fees account fornearly 70 percent of the capitalizationof PAHO’s Revolving Fund.

• The lower-than-expected importance ofeasy credit terms to many countries.Both the PAHO fund and the VII

allow countries to pay for vaccines inlocal currency, after deliveries aremade. PAHO and UNICEF thoughtthese credit terms to be an impor-tant advantage to countries and amajor incentive for them to join theseprograms. Experience has shown,however, that these credit terms areless significant for many countries.Around 80 percent of countries in thePAHO Revolving Fund, for instance,pay in hard currency (although theability to pay in local currency is criti-cal for the remaining 20 percent).The VII countries are more likely torequire the local-currency option, butmany have found it easier to pay forthe vaccines in advance, because oftheir government’s budget processes.These countries do not need a revolv-ing fund.Many countries join these programsmainly for the low vaccine prices andeasier procurement procedures (theydo not have to deal directly with sup-pliers or issue international tenders),as well as the availability of technicalassistance.

• The benefits of a regional initiative.Having a program within one regionmakes it easier for participating coun-tries to share information and expe-riences. For PAHO, this occurs dur-ing the periodic meetings of countriesparticipating in the Fund. The EUInitiative in west and central Africaalso provides for periodic meetingsand ways of sharing information. Inaddition, countries participating inthe EU Initiative lend one anothervaccines in emergencies until suppliesarrive (UNICEF 1999b).

Main Characteristics

The international vaccine marketdiffers in many ways from thegeneral pharmaceutical market.

Its major features are:• Dominance by a few manufacturers• The limited number of worldwide

buyers• High degree of market segmentation

and tiered pricing• Scale sensitivity of vaccine develop-

ment and production

Dominance by a few manufacturersUntil quite recently, the international vac-cine market was dominated by a fewmanufacturers. These manufacturers canbe divided into three main groups:

• Multinational private-sector manu-facturers in industrialized countries,usually owned by large pharmaceu-tical companies

• Public-sector manufacturers in indus-trialized countries, which producesolely for their domestic use

• Manufacturers in developing coun-tries, usually government-owned

About 20 manufacturers are currentlycertified by WHO to supply vaccines.However, the global vaccine market isdominated by four multinational firms,

making it a “quasi-monopoly.” In theearly 1990s, SmithKline Beecham (SKB),Pasteur Merieux (PMSV), Merck & Co.(MSD), and Lederle had an estimated 75percent share of the global market for allvaccines (Poirot and Martin 1994). Fig-ure 6 shows each producer’s share of theworld and UNICEF markets in the early1990s.

Despite the entry of new producers,especially from Asia, since the early1990s, multinationals continue to domi-nate the international market. In fact,mergers and acquisitions among thesefirms in the 1980s and 1990s have con-centrated the international market evenfurther. PMSV, for example, acquiredConnaught in 1994 and became Pasteur-Merieux-Connaught. Its parent company,Rhone Poulenc, merged with a Germancompany in 1999, creating the new com-pany Aventis, and the vaccine division isnow called Aventis-Pasteur.

Limited worldwide buyersThe market is also distinguished by thelimited number of worldwide buyers. In1990, UNICEF, PAHO, and WHO pur-chased about 62 percent of the total vol-ume of vaccines consumed globally and69 percent of the classic EPI vaccines(EFPIA 1994; Guerin et al. 1993).

The International VaccineMarket: Major Issues


FIGURE 6

Producers’ Shares of the World and UNICEF Vaccine Markets

Source: Schwabe (1993)a Since acquired by Chironb Since merged with Pasteur Merieux

World market 1992 UNICEF market 1991

Merck (26%)

SmithKlineBeecham (25%)

PasteurMerleux (24%)

Others (25%)PasteurMerieux (30%)

SmithKlineBeecham (20%)Sclavoa

(9%)

Connaughtb(7%)

JapanBCG (7%)

Others (27%)

UNICEF procured vaccines for 88 coun-tries in 1996, while PAHO currently pro-cures vaccines for more than 30 countriesin the Latin American and Caribbean re-gion. Market dominance has given largebulk purchasers significant negotiatingpower, keeping prices low. Consequently,according to the International Center forChildhood and the Family (CIDEF), “vac-cine prices can be seen as the outcome ofmore or less implicit negotiations betweenthe few producers and institutional buy-ers, or certain states which can exert aninfluence in the market” (CIDEF 1998).

High degree of segmentation andtiered pricingThe vaccine market is highly segmentedand has an associated high level of tieredpricing. Market segmentation for vaccineshas two dimensions:

• Industrialized vs. developing coun-tries

• Public vs. private sector, within acountry

In industrialized countries, adult vac-cines and the newer proprietary (or pat-ented) vaccines such as Hepatitis A, Hepa-titis B, and Hib dominate in terms of vol-ume of vaccines consumed. The flu vac-cine (administered largely to adults), forexample, accounted for an estimated 35percent of all vaccines used in industrial-ized countries in 1990, whereas tradi-tional EPI vaccines accounted for 57 per-cent (CIDEF 1998).

This contrasts with the public-sectordeveloping-country market, where, in1990, 99 percent of vaccines procured byUNICEF and PAHO consisted of the tra-ditional EPI vaccines. OPV alone ac-counted for nearly half of the total vac-cine usage in these countries. However, agrowing number of governments in de-veloping countries have introduced Hepa-titis B vaccine and MMR into their na-tional immunization programs, and planto introduce Hib, potentially breakingdown product segmentation by incomelevel of the country.

THE INTERNATIONAL VACCINE MARKET: MAJOR ISSUES 23

The government sector and the privatesector also represent quite different seg-ments of the vaccine market, especiallyin developing countries. Most govern-ment programs in developing countriesprovide the traditional EPI vaccines only.However, the private sector offers (topeople who can afford it), Hepatitis A,Hepatitis B, Hib, yellow fever, and othervaccines not available through govern-ment services in their countries.

Vaccine prices are highly tiered accord-ing to these segments, as is true for phar-maceuticals in general. As shown in Table5, the catalog (list) price that the US pri-vate health sector pays for vaccines is, onaverage, three times the price the USGovernment pays for vaccines to supplypublic-sector providers. These prices areanywhere from 2 to 17 times the pricescharged to UNICEF and PAHO for lessdeveloped countries, for the same vaccinesand same presentations. Vaccine prices inthe private sector in developing countriesare also considerably higher than those

paid by the public sector. Tiered pricingis made possible by the cost structure ofvaccine development and production.

Most vaccines are consumed in devel-oping countries because of their largepopulation and the tremendous growthin immunization coverage in the 1980sand 1990s. Developing and in-transitioncountries accounted for about 88 percentof the volume of vaccines purchased in1990 (CIDEF 1998). However, as shownabove, the vaccine industry generates itsprofit in industrialized countries. Whileonly 12 percent of the total volume ofvaccines purchased in 1990 went to in-dustrialized countries, this represented 75percent of the total value of sales. Simi-larly, UNICEF and PAHO purchased fordeveloping-country use about 50 percentof EPI vaccines produced by major manu-facturers in 1992, but this represented lessthan 5 percent of the total revenues fromvaccine sales worldwide (UNICEF 1994a).Table 6 summarizes the characteristics ofthe public-sector vaccine market.

TABLE 5

Price of a Pediatric Dose of Vaccine in the US Domestic Market and PAHO, 1999

Sources: CDC website, PAHO price lista Includes $0.75 per dose excise tax

Private-Sector Government Private Difference: Price Difference:(catalog) CDC price Private vs Price US Government

Vaccine per Dosea per Dosea Public Sector per Dose vs PAHO

OPV $10.93 $2.9 3.8x $0.087 33.3x(1-dose vials) (1-dose vials) (10-dose vials)

MMR (1-dose vials) $27.46 $14.69 1.9x $0.88 16.7x

Measles (1-dose vials) $10.40 $6.51 1.6x $0.68 9.6x

Recombinant Hepatitis B(1-dose vials) $24.20 $9.00 2.7x $0.92 9.8x

Hib (10-dose vials) $15.88 $4.75 3.3x $2.18 2.2x

US Market PAHO


Clearly, industrialized countries areheavily subsidizing the developing-coun-try vaccine market. But, as discussed be-low, this is changing, as is the huge dis-crepancy between volume and profit, asmore and more middle-income countriesfinance their own vaccines and purchasenewer, more costly vaccines such as Hib.

Scale sensitivity of vaccinedevelopment and productionThe cost of production of vaccines dependsgreatly on the fixed cost and, as a result, ishighly scale-sensitive. According to a studyconducted by Mercer Management forUNICEF in 1994 (UNICEF 1994a), onaverage, 85 percent of the total costs ofdeveloping and producing a vaccine arefixed. About 50 percent of these are re-lated to labor costs throughout the busi-ness, including research and development,quality control, and marketing and sales.

Vaccines are produced by batch (or lot)and a large portion of the fixed cost islinked to the production of each batch.Therefore, the more vaccine a producermanufactures, especially by increasing thesize of each batch, the lower the cost perdose or vial. Unit costs also decrease overtime as manufacturers learn to make thevaccine more efficiently, and this is re-ferred to as the “learning effect.” Giventhe dominance of fixed costs and the in-fluence of the learning effect, vaccine pro-duction is therefore highly scale-sensitive.A large manufacturer can produce thesame vaccine for up to one-fifth of thecost per dose of a smaller producer, ac-cording to the Mercer study. Indeed, thepharmaceutical industry considers a vac-cine market of less than 40 million peoplenot profitable because of these “econo-

mies of scale” (CIDEF 1998). It is there-fore in the interest of manufacturers tomaximize production, as this will lowerthe cost per unit.

These economies of scale have enabledvaccine manufacturers with excess capac-ity to significantly (and easily) increasetheir output to meet the growth in de-mand resulting from EPI and UCI ef-forts, without a substantial rise in costs.Because of this, it has been possible forless developed countries, throughUNICEF and PAHO, to be charged themarginal cost for a vaccine. This minimalprice covers the direct cost in personneland materials of producing an additionaldose, plus a small share of overhead costs.According to Mahoney (1999b), the mar-ginal cost of producing vaccine beyond 20million doses is basically the cost of thediluent, vial, and stopper. The full valueof fixed costs, including research and de-velopment, equipment depreciation, andprofit, are charged to industrialized coun-tries and to the private sector in develop-ing countries.

The scale sensitivity of vaccine devel-opment and production has thereforemade the system of tiered pricing betweenless developed and industrialized countriespossible.

Factors Affecting PricesThe main factors that have affected, orcontinue to affect, the price of vaccinesare listed in Table 7. Some of these fac-tors, such as the system of tiered pricingand the power of a few bulk purchasers,were discussed above. Other factors andtheir likely effect on prices, particularlyfor newer vaccines, are discussed below.


TABLE 6

The Segmented Public-Sector Vaccine Market, 1990

Source: CIDEF (1998)

Industrialized Countries

Can include DTaP, IPV, MMR, Varicella(chicken pox), Hepatitis B, Hib

12%

75%

Full costs, including R&D, equipmentdepreciation, promotion/advertising,taxes, profit

Developing Countries

Basic EPI vaccines (DPT, measles, BCG,OPV, TT), Hepatitis B (in a growing number),some Hib

88%

25%

Marginal costs (raw materials, direct labor,some overhead, very small profit margin)

Aspect

Number and types of vaccines in childimmunization schedule

Share of world vaccine market in volume

Share of vaccine market in value

Costs included in price

Development and production costsThe marginal cost of producing EPI vac-cines in bulk is negligible, as discussed inScale Sensitivity of Vaccine Developmentand Production above. However, the newvaccines, such as Hib and pneumococcal,require (advanced) conjugate technology,which is more costly than traditional vac-cine production.

The newer vaccines also require a con-siderable investment in research and de-velopment, as they use genetic engineer-ing techniques. Developing, getting ap-proval for, and launching a new vaccinecan cost as much as $500 million(Rosegrant 1998a). SmithKline Beechamestimated that it cost $230 million tobring recombinant Hepatitis B vaccine tothe market, even though the basic tech-nology was developed elsewhere (Poirotand Martin 1994).13 Manufacturers willtry to recoup these investment costs be-fore patents expire (see Intellectual Prop-erty Rights below), such that new vac-cines remain relatively expensive.

13 However, it had to pay royalties to the company thatinvented the technology and held the primary patent.

The increased upfront and ongoingcosts of the new technology may preventthe price of these vaccines from ever com-ing down to the level of EPI vaccines, evenas global competition and volume in-crease over time.

DemandThe demand for vaccines surged duringthe 1980s and early 1990s as a result ofthe EPI and UCI programs and the sub-sequent increase in coverage rates from5 percent in the mid-1970s to 80 percentin 1990. The substantial and steady ex-pansion in the volume of vaccines suppliedby UNICEF between 1982 and 1995(Figure 7) reflected this increase in de-mand.

Economic theory suggests that risingdemand will lead to higher prices. How-ever, for EPI vaccines the increase in de-mand has been largely in developing coun-tries, which need a low-cost product pro-vided through the public sector. When thetremendous growth in demand occurred,these vaccines were being purchasedthrough a procurement mechanism (a fewlarge purchasers, such as UNICEF, PAHO,


FIGURE 7

Volume of Vaccines Procured by UNICEF, 1983–1995

1983 1985 1987 1989 1991 1993 19950

200

400

600

800

1,000

1,200Number of doses (million)

BCG DPT TT/DT Measles Polio

147

377

618

789885 846

1,065

Source: CIDEF (1998)

and WHO) with enough negotiating powerto keep prices low. Therefore, althoughdemand has increased, the nature of themarket has effectively kept prices low.

Demand for vaccines in less developedcountries also depends, to a large extent,on donor funding. For example, a suddenincrease in donor funds available fornewer vaccines may create significantchanges in the market, particularly if pro-curement is centralized in one agency. Forexample, the expected dramatic growthin demand for Hepatitis B vaccine gener-ated by GAVI (see discussion underTrends in Grant Financing for Vaccinesand Immunization Programs above) andsupplied through UNICEF will heavily in-fluence the price of the vaccine.

Predictability of demandVaccine producers say they need credibleforecasts and predictable demand to man-age production costs efficiently. UNICEFand PAHO have been able to negotiate lowprices for developing countries, in part byproviding producers with accurate require-ments of need and a guaranteed volume.

Production capacityAs mentioned above, if manufacturershave excess capacity they can reduce theircost per dose by increasing production,especially by increasing the size of a batch,but only up to full capacity. According toBatson (1998a, p. 488), “given the im-pact of scale and learning, a large volume‘global’ manufacturer can benefit from arapid decline in costs per dose and canattain a more competitive position thansmaller manufacturers.”

Once the maximum production capac-ity is reached, a manufacturer would haveto expand the plant facilities, and make alarge capital investment in the process, toachieve any further increase. In the early1990s, the Universal Child Immunizationinitiative drove demand beyond productioncapacity worldwide. Manufacturers there-fore invested in larger production infra-structure—the main reason given by in-dustry for the 22 percent average increasein EPI vaccine prices charged to UNICEFand PAHO between 1991 and 1992.14

Higher prices allowed manufacturers torecoup their investment costs, but thenincreased competition from new interna-tional producers caused prices to plateauor even fall again in 1994 and 1995, as aresult of increased production capacity.

The cost savings from maximizing theproduction of the newer vaccines that useconjugate technology may be somewhatless than for the traditional EPI vaccines.According to Hausdorff (1996, p. 1180),increasing the batch size of these vaccinesmay be “disproportionately more com-plex and costly than for the current vac-

14 Although a drop in competition as producers consoli-dated and increased research and development costswere likely factors as well.


cines.” If this is true, the price differencebetween what less developed countriesare charged and what industrialized coun-tries pay may narrow.

CompetitionProbably the greatest factor determiningvaccine prices is competition. As price isthe biggest determinant of vaccine prof-itability (see page 35), private-sectormanufacturers will seek to maximize prof-its by charging the highest price a marketwill bear. For example, vaccine prices insome industrialized countries can be asmuch as 250 times the price charged todeveloping-country governments(UNICEF 1994a).

TABLE 7

Main Factors Affecting Vaccine Prices

Cost Research and development costs: Significant portion of new vaccine costs; thesegrow as new technologies are developedProduction costs: Low variable costs (e.g., materials, additional labor). Newtechnologies (e.g., conjugate) and more stringent quality control requirements areraising costs

Production capacity Maximized use of existing capacity reduces cost per dose

Price tiering Prices for industrialized countries and private sector in developing countries coverreturn on investment, including R&D and profit. This allows low prices to be charged todeveloping countries, covering only marginal costs

Patents/IPRs An issue only for new vaccines, for both basic technology (e.g., recombinant DNA) andspecific vaccines. Creates monopolies, limits competition, and keeps prices high. Canbe extended by licensing to other producers, tiered royalties, or other arrangements

Demand/Volume Demand in developing countries has grown tremendously but is mainly for low-costvaccines. Excess capacity, sharply tiered pricing, and donor funding allowed producersto meet growing demand in 1980s and 1990s

Number of buyers/Bulk purchasing The fewer the buyers, the greater their influence in negotiating prices with producers.Bulk purchasing by UNICEF and PAHO has kept prices for basic vaccines low

Predictability of need Predictability of need and planning are conducive to more cost-efficient manufacturing.Guaranteed volume by UNICEF and others should help keep costs low

Competition Has increased for classic EPI vaccines with new developing- country producers.Consolidation among large international producers and the high cost of newtechnologies and patents for new vaccines are limiting competition for new vaccines

Existence of local producers Can prevent lower-cost competitors from other countries from entering the local market

The entry of several Asian manufac-turers into the market in the 1980s and1990s had a significant impact on vaccineprices during those years. For example,the price per dose of plasma-derivedHepatitis B vaccine dropped suddenlyfrom $15–$30 to less than $1 when twoKorean manufacturers new to the mar-ket tendered an international bid for In-donesia. PAHO also attributes the declinein most EPI vaccine prices in 1995 to theentry of other new Asian manufacturersinto the international market.

While increased competition hashelped maintain or lower the price of EPIvaccines and Hepatitis B vaccine, the situ-ation for newer and upcoming vaccines,


including Hib and combinations such asDPT-Hepatitis B-Hib vaccines, is quite dif-ferent. These vaccines are or will be pro-duced exclusively by European and Ameri-can manufacturers. This will likely be thecase for sometime for two main reasons:

• New vaccines are more costly to pro-duce than the traditional EPI vac-cines, as they depend on conjugateand other new technologies.15 Per-haps more importantly, the invest-ment costs, particularly for produc-tion facilities, are high. Smallermanufacturers, especially those fromdeveloping countries, often cannotafford these investment and produc-tion costs.

• Some of these vaccines, such aspneumoccocal conjugate vaccine, areprotected by patents (see IntellectualProperty Rights), which are currentlyheld only by European or Americanproducers.

Competition in the new vaccine mar-ket may be further limited by the stronglikelihood that European and NorthAmerican vaccine producers will continueto consolidate, reducing the number ofmajor global producers to a handful. Forinstance, before 1985, there were threeseparate companies producing vaccines:Institut Pasteur and Institut Merieux(both French), as well as Connaught Labs(Canadian). By 1994, they were all onecompany—Pasteur-Merieux-Connaught(PMC)—owned by the large pharmaceu-tical firm Rhone-Poulenc. PMC has sinceformed a joint venture (Pasteur MerieuxMSD) with the US company Merck to

supply the European vaccine market. Fur-thermore, Rhone-Poulenc merged in 1999with another company, creating Aventis;the vaccine division is now called Aventis-Pasteur. Similarly, RIT (Belgium),SmithKline of the US, and Beecham (UK)consolidated into SmithKline Beecham(SKB), which was recently acquired byGlaxo Wellcome and is now known asGlaxo-SmithKline.

Local producersMore and more developing countries areproducing EPI vaccines for domestic con-sumption through state-owned compa-nies. Several manufacturers in developingcountries in Asia, including the People’sRepublic of China, India, and Viet Nam,also produce Hepatitis B vaccine. The ex-istence of local state-owned producers canlimit competition within a country and dis-courage the government from invitingbids through international tenders, thuskeeping prices artificially high.

Intellectual property rightsPatents are a form of intellectual prop-erty rights (IPR), which allow manufac-turers to have a monopoly on their in-vention for 20 years. Patents can be filedfor vaccines, their components (such as abacterial or viral strain), or the manufac-turing process. Patents encourage com-panies to invest in research and develop-ment for new vaccines or new vaccinetechnology by allowing them to recoupcosts (over the period of the patent)through high prices, which can be main-tained because of a lack of competition.Patent holders can also grant licenses forthe use of their invention to other com-panies in exchange for royalty payments.

15 Others dispute this claim; how the production processaffects price is still an unanswered question, they say.


As patents for EPI vaccines have longexpired, these “public domain” vaccinescan be produced by anyone with accessto the technology. However, the newervaccines—DNA recombinant HepatitisB vaccine being the first—are usuallycovered by patents.

The monopolies or limited competitionthat patents create and, to a lesser extent,the royalties paid to the original patentholder by the licensed companies tend tokeep vaccine prices high. For instance,Biogen’s broad patent for all recombinantmethods of making Hepatitis B virus an-tigens limited the competition for recom-binant Hepatitis B vaccine for many years

to two firms that Biogen licensed (Cook1996). According to James Maynard of theProgram for Appropriate Technology inHealth (PATH) (personal communica-tion), this broadly defined patent, whichwas later found by a British court to beinvalid, prevented competition from driv-ing down the price of recombinant Hepa-titis B vaccine for 10 years. After the patentexpired a few years ago in most parts ofthe world, other manufacturers, particu-larly in Asia, began making the vaccine,and the price came down considerably.

Conjugate technology used to make theHib vaccine and other vaccines such aspneumococcal is in the public domain and

TABLE 8

Status of New Vaccines: Producers, Patents, Technology

Technology Typeand Complexity

DNA recombinant, usingyeast cells; relativelyinexpensive

Conjugate technology; morecomplex and costly thanrecombinant

Easier

Complex and costly

Complex and costly

Conjugate technology

7- to 11-valent conjugatevaccine; more complex andcostly than monovalentvaccines

Producers in International Market

Aventis Pasteur, SmithKlineBeecham, Korean Green Cross,Lucky Goldstar (Korea), BoryungBiopharma Co. (Indonesia), Merck

Aventis Pasteur, SmithKlineBeecham, Wyeth Lederle,Chiron (Italy)

SmithKline Beecham

SmithKline Beecham,(Aventis Pasteur planning toproduce)

Aventis Pasteur, SmithKlineBeecham, Wyeth/Lederle

Wyeth/Lederle withdrew frommarket in 1999

Wyeth/Lederle; PMC and SmithKlinegearing up

VaccinePresentation

Hepatitis B(recombinant)

Hib (liquid orlyophilized)

DPT-Hepatitis B(quadrovalent)

DPT-Hepatitis B–Hib(pentavalent)

DPT-Hib

Rotavirus

Pneumococcal

Brand Name

GenHevac BPasteur,Engerix-B

AHIB, PHIB,ActHib;HibTITER

ProHIBit-DPT;DPT-ActHIB,TriHIBit;Trivax-Hib;Tetramune

Rotashield

Status of Patent

Biogen DNAtechnology patent stillconsidered valid only inUS and Canada

Conjugate technologyis in public domain, asis PMC vaccine

Same as forrecombinant Hepatitis B

Same as forrecombinant Hepatitis B

Vaccine developed byNIH (US); licensegranted solely to Wyethso far

Some process patents


thus not controlled by patents. However,what will likely limit competition for thesevaccines is, as mentioned above, the morecomplex production process and thehigher capital investment costs involved.This is especially the case with the newpneumococcal vaccine, which are polyva-lent (7-, 9-, or 11-valent) to provide pro-tection against different serotypes, as op-posed to the monovalent Hib vaccine.

Effects of These Factorson Vaccine Price TrendsPAHO data for DPT and OPV from 1979to 1999 show how the above marketforces have affected prices over the past20 years. The price pattern for DPT issimilar to that for BCG, TT, and DT.

DPTThe pattern for DPT, as shown in Figure8, reflects consistently low prices (lessthan $0.10 per dose) over the past 20years. The price from 1979 to the mid-

1980s remained stable; according toPAHO, this was due to low demand andexcess production capacity (PeterCarrasco, personal communication). Theincrease in demand under the UCI, whichstarted in 1987, led to an initial sharp rise,a decline, and then steady increases overthe next three years. The price jumped,however, from 1991 to 1993 (as it didfor nearly all EPI vaccines) and manufac-turers attribute this to the upgrading andexpansion of facilities necessary to meetthe increased demand. Consolidation ofcompanies during this time, increasedresearch and development costs, and theexpenses incurred to maintain WHO qual-ity control standards may also have playeda role in these price increases (Schwabe1993). The price decreased again after1995; PAHO ascribed the drop to theentry of a new Asian supplier into the in-ternational market and the increased com-petitiveness of other established produc-ers with newly increased capacity.

OPVThe picture for OPV, shown in Figure 9,is somewhat different, particularly after1993. Similar to DPT, the expansion ofproduction facilities (among other factors)drove up the price per dose of the 10-dosevial to nearly double between 1989 and1993 (from $0.0425 to $0.08). However,the price did not decrease to the sameextent as DPT after this, and the 1999price was the highest in 20 years. Since1999, the price has again jumped by 33percent. One explanation for this is thatthe complexities involved in manufactur-ing OPV have kept lower-cost manufac-turers out of the international market andheld competition to a minimum, while

FIGURE 8

Price per Dose of DPT Vaccines Obtained through thePAHO Revolving Fund, 1979–1999

Source: PAHO

1979 1983 1987 1991 1995 1999

0.00

0.02

0.04

0.06

0.08

0.10

0.12$

DPT-10 DPT-20


demand has increased dramatically withthe worldwide Polio Eradication Program.

Recent DevelopmentsFormalizing andExpanding Tiered PricingVaccine manufacturers and consumershave been using tiered pricing for manyyears. Developing countries have greatlybenefited from industrialized countries(and to a lesser extent, private-sectormarkets in developing countries) subsi-dizing their public-sector vaccines. By ac-cessing high-quality vaccines at ex-tremely low (marginal) prices, oftenthrough UNICEF or PAHO, countrieshave been able to increase their immu-nization coverage rates significantly overthe past 15 years.

By the early 1990s, however, thissimple two-tiered price system was be-ginning to appear unsustainable both todonor and multilateral agencies and to thevaccine industry. The emergence of anumber of factors has contributed to this.These factors include:

• Increases in the price of traditionalEPI vaccines in the early 1990s

• The likelihood that new vaccine priceswould remain high for some time,largely because of the limited com-petition (the result of patents and highproduction costs) and the need tomaintain high profit margins to re-coup heavy research and developmentinvestments

• The decline in immunization cover-age rates after 1990 in a number ofcountries, especially in sub-SaharanAfrica (Taylor 1996)

• Decreases in donor support for im-munization programs once UCIended in 1990, and the reluctance ofdonors to finance the new, more ex-pensive vaccines

• The slow introduction of the newvaccines, such as Hepatitis B, into de-veloping countries, where they aremost needed

• The growing reluctance of the vac-cine industry to continue selling vac-cines at marginal cost throughUNICEF and PAHO to countrieswhich they believed were wealthyenough to buy them, and represented“legitimate,” higher-priced markets.According to Batson (1998b) of theWorld Bank, industry has insisted toUNICEF that it would sell the newproprietary vaccines at the lowest-tiered price only to the poorest coun-tries and not to all developing coun-tries, as was done in the past.

Given these challenges, UNICEF andWHO concluded that without changes in

FIGURE 9

OPV Purchased through the PAHO Revolving Fund,1979–1999

Source: PAHO

1979 1983 1987 1991 1995 19990.00

0.02

0.04

0.06

0.08

0.10Cost per dose ($)

Polio-10 Polio-20/25Number of doses

0

20

40

60

80

100Number of doses (million)


the current procurement system and vac-cine price structure:

• New vaccines would not be accessibleto the countries that needed themmost (and were often the poorest).

• The current coverage rates for theEPI vaccines would become increas-ingly difficult to sustain.

The Mercer studyThe first step in developing a new, moresustainable vaccine procurement and fi-nancing strategy was taken by UNICEFwhen it commissioned Mercer Manage-ment Consulting, Inc., in late 1993 tocarry out a study of the global vaccine in-dustry. The intent was to gain a betterunderstanding of the global market, theeconomics of the industry, and UNICEF’simpact on the world market.

The study demonstrated that througheconomies of scale, large producers havebeen able to sell vaccines (produced byusing their excess capacity) to UNICEF andPAHO at low prices without losing money.In addition, the study concluded that:

• Marginal profits generated from thelarge bulk sales to developing coun-tries through UNICEF were notenough to drive research and devel-opment programs.

• Producers could sell new vaccines to de-veloping countries and still recoup theirresearch and development costs if theymaximized economies of scale fromthe beginning. This would effectivelyshorten the typical product life cycle,16

which usually meant a 10- to 20-yeardelay in introducing a new vaccine intodeveloping countries. However, ashortened life cycle would be acceptableto the industry only if different pricetiers within the developing-countrymarket were created, based on thecountries’ ability to pay.

The natural tensions between the largevaccine purchasers and the vaccine indus-try (buyer and seller) must be minimizedif vaccines are going to reach developingcountries quickly. As such,

UNICEF and the global communitymust recognize the inherent tradeoffs be-tween gaining the lowest price for existingvaccines and the option of accessing newvaccines. Early access to new vaccines willrequire a procurement strategy emphasiz-ing greater collaboration and partnershipwith vaccine manufacturers… (UNICEF1994a, p. 12)

The “banding”strategyThe Mercer study, decreases in donor fund-ing, and industry’s insistence on having ac-cess to more developing-country marketsled to the development in 1994 of a new“targeting strategy” by UNICEF, WHO,and industry representatives. This strategygrouped developing countries into fourbands (A–D) on the basis of their relativewealth (per capita GNP), total market size(based on overall GNP), and population size(a measure of market influence).

The resulting grid, shown in Figure 10,provided a framework for UNICEF andother donors to target vaccine assistance.

• Bands A and B are the poorest andsmallest countries, which cannot pro-cure or produce vaccines without as-sistance.

16 A new product is first introduced into industrializedcountries and private sectors in developing countriesat high prices and does not “mature” for 10 to 20 yearsuntil the patent expires and other manufacturers be-gin to compete, driving down the price.


• Bands C and D are considered “self-sufficient” and thus no longer eligiblefor donor assistance.

• Band C countries could still useUNICEF to procure EPI vaccines butare encouraged to procure new vac-cines through direct negotiation withmanufacturers.

Band D countries would no longerhave access to UNICEF’s procurementservices and marginally priced vaccines.According to Batson (1998b), “marketforces in these countries [Bands C andD] will result in a realistic but affordableprice for vaccines.”

The strategy would effectively reduceUNICEF’s market intervention (throughthe procurement of low-cost vaccines) onbehalf of about 80 percent of the world’spopulation to 25 percent (Band A and Bcountries only). It also created at least onenew price tier because Band C and D andeven many B countries would now nego-tiate prices for new vaccines directly withproducers. These prices would fall some-where between the marginal-price tier of-fered to the poorest, smallest countriesand the high-price tier paid by industrial-ized countries and private-sector markets.This strategy has been referred to as“planned tiered pricing” or “differentialpricing.”

ObjectivesApart from providing industry with

increased access to “legitimate” markets,the strategy was also meant to improveself-financing for vaccines and to speedup the introduction of new vaccines intodeveloping countries.

To encourage self-financing, the follow-ing targets were set for each band:

• Band A countries: 10 percent to 25percent, within four years

• Band B countries: 80 percent to 100percent, within four years

• Band C and D countries: 100 percentself-financing, as quickly as possible

The VII (see page 12), established in1991, was available as a mechanism tohelp countries (especially those in BandsB and C) achieve financing self-sufficiency.Countries that produced their own vac-cines were also able to access WHO tech-nical assistance to assess and strengthentheir production capacity.

The second objective was to introducenew vaccines, especially Hepatitis B, morequickly into the poorest (Band A and B)countries, where the need for the vaccinewas often the greatest. Donor assistancewould be targeted to these countries andUNICEF would negotiate with produc-ers to obtain an affordable low-tieredprice. To finance this scheme, a GlobalVaccine Fund was to be established, anddonors would pool their resources to fi-nance new and existing vaccines for the

FIGURE 10

WHO/UNICEF Global Banding Strategy

$6,000

$500

Log population10 million 50 million

Log

GN

P/c

apita

Canada

GreecePortugal

Argentina

GermanyJapan

USA

TurkeyThailand

IndonesiaChina

India

Bangladesh

Zaire

Mozambique

MyanmarBurkinaFaso

Malaysia

CameroonCote d lvoire

Yemen

SomaliaLaos

LesothoHaitiGuinea

SenegalCongo Jordan

NamibiaBotswana

Gabon

A

CD

Switzerland

PhilippinesSyria

Morocco

PakistanNigeriaBangladesh

Mauritania AngolaSudan

Viet Nam

Ghana

Mexico RussiaBrazilIran

OmanLibya

MaliB

PNG

Egypt

Togo

A = Financial support, B = Gradual hand-off, C = Self-sufficient, D = Rapid independence


targeted countries, strengthening theirvaccine supply overall (UNICEF 1994c).

SupportIndustry readily accepted the targeting

strategy, as it would increase the numberof “legitimate markets” where new vac-cines could be sold directly. This would,in turn, increase the opportunity to re-coup research and development costs aswell as profit margins. Industry viewedUNICEF’s efforts to introduce new vac-cines into developing countries “not as apotential pricing threat, but as a kind ofpre-marketing service” (Rosegrant1998b, p. 3).

Donors also generally favored the strat-egy, as it focused their assistance and de-creasing resources on the neediest coun-tries. The possibility that countries mostin need of Hepatitis B vaccine and otherproprietary vaccines could obtain the vac-cines much sooner than if they had to waitfor these vaccines to reach “maturity”made the strategy attractive.

ResultsThe targeting strategy has had mixed

results. According to UNICEF, the goalsestablished for this strategy have beenmet. By 1999, over 75 percent of donorsupport for vaccines was going to BandA countries and about 78 percent of vac-cines purchased for routine programs indeveloping countries were self-financed(Sakai 1999).17

Self-financing. Whether increased self-financing is attributable to the targeting

17 As noted earlier, a number of countries reported to beself-financing are using alternative funding sources suchas the EU Initiative (using structural adjustmentgrants) and World Bank loans.

strategy, or general decreases in donorfunding, or both, is difficult to determine.

New vaccines: The strategy has not fa-cilitated the introduction of Hepatitis Band other newer vaccines into the nationalprograms of poorer countries. Manufac-turers responded to a UNICEF tender in1995 “with creative bids” (Rosegrant1998b, p. 4), but funding from donorsdid not materialize. UNICEF thereforepurchased Hepatitis B vaccine only onbehalf of the 10 countries participating inthe Pacific Island Hepatitis B ControlProject, and for periodic orders from in-dividual countries (e.g., the Philippines).

Increased “legitimate” markets. Therehas been only a limited opening up of newmarkets to major manufacturers for newvaccines since the strategy was developedin 1994. Although some countries, includ-ing Iraq, Zimbabwe, Egypt, and Philip-pines, now buy Hepatitis B vaccine di-rectly from the original manufacturers inthe West, the growth in the number ofmanufacturers (and the consequent de-crease in price) has led to many countriespurchasing from non-Western manufac-turers. Indeed, Hepatitis B vaccine is fastbecoming a generic vaccine like the clas-sic EPI antigens (see The Price Historyof Hepatitis B Vaccine: A Case Study be-low) making its sale to developing coun-tries less attractive to the traditional ma-jor manufacturers. Aventis Pasteur, forexample, now distributes the KoreanLucky Goldstar Hepatitis B vaccine in-stead of its own product.

The relatively high price of Hib haskept it out of the immunization programsof most developing countries. The great-est inroads in introducing it have beenmade in Latin America but most coun-


tries are buying it through the PAHORevolving Fund, at a single low price, pre-venting manufacturers from dealing di-rectly with the “legitimate” markets.

In addition, not all the organizationsconcerned have adopted the targetingstrategy. PAHO never agreed to the con-cept and, in fact, has encouraged morecountries, including Brazil (Band D), tojoin the Revolving Fund since the bandingstrategy was introduced. Instead of havingwealthier or large countries negotiateprices independently, PAHO prefers to in-crease its purchasing power to be able tonegotiate a single, low price for each vac-cine. Therefore, all but two Band C and Dcountries in the Latin American and Car-ibbean region (Chile and Argentina) cur-rently take advantage of PAHO’s Revolv-ing Fund for all or some of their vaccinepurchases.

GAVIEfforts to speed up the introduction ofnew vaccines into the poorest countriesusing the multi-tiered pricing concept re-ceived a considerable boost with the cre-ation of the GAVI (see page 4). GAVIwill provide funds for new vaccines onlyto the poorest countries (those with a percapita GNP of less than $1,000). Thesecountries will procure the vaccines en-tirely through UNICEF, negotiating aspecific low-tiered price. For countries noteligible for the fund, UNICEF will issueseparate tenders for new vaccines on theirbehalf, but prices will generally be higherthan those obtained for GAVI countries.

GAVI operations will effectivelyimplement “planned tiered pricing” whileincreasing the use of new vaccines—bothobjectives of the targeting strategy.

The tiered pricing vs. bulk purchasingapproaches to vaccine pricing are discussedfurther below.

Different Approaches toPricingThere are two schools of thought regard-ing how pricing can be structured to bestfacilitate and speed up the introductionof vaccines, particularly new ones, into thecountries that need them most.

The first model, promoted by WHO,UNICEF, the World Bank, and GAVI,and supported by the industry, is plannedor formalized tiered pricing or “differ-ential pricing,” discussed above. Underthis model, developing countries are di-vided into tiers, depending on the vi-ability of their commercial market fornew vaccines. Those too poor or toosmall to have a viable market receive alow price for the new vaccines, througha procurement system such asUNICEF’s. Countries considered tohave commercial markets must, in mostcases, negotiate directly with manufac-turers (or through UNICEF) and pay ahigher price.

The second model, championed byPAHO, among others, promotes bulkpurchasing with pooled funding frommany countries as the most effective,efficient, and equitable means of intro-ducing new proprietary vaccines intoless developed countries. This is calledthe bulk purchasing or uniform pricingstrategy.

Both models assume that industrializedcountries will continue to pay a higherprice than developing countries for thesame vaccines (the high-priced tier), as


shown in Figure 11. The main argumentsfor and against each approach are de-scribed below, and summarized in Table9 and Table 10.

Planned tiered pricingThis approach responds to manufactur-ers’ arguments that they cannot afford toprovide the new (patented) vaccines atmarginal prices for the entire developing-country market. However, it is main-tained that low prices can be offered tothe poorest countries, and the introduc-tion of vaccines accelerated in those coun-tries, if higher, more commercially viableprices are negotiated for wealthier orlarger developing countries. Such an ap-proach shortens the normal product lifecycle by creating a large demand for thevaccines from the beginning.

Arguments forProducers can afford to offer a low price

to a limited number of countries because:• The increase in volume to supply

these countries can achieve econo-mies of scale and learning effects.

• Higher prices charged to other de-veloping countries will improve theproducers’ overall profit margin.

The nontargeted countries in the middletier will still be charged prices that “are‘affordable’ given their economy” (Batson1998a, p. 489). Without this approach, itis argued, the introduction of new vaccineswill continue to be delayed. Only thewealthier countries, such as Thailand, In-donesia, and a number of Latin Americancountries, will be able to add new vaccinesto their national immunization programs.

At the same time, low prices for a lim-ited number of poor countries will alsoencourage donors to contribute to theprocurement of the new vaccines. Untilnow, donors have been reluctant to financeHepatitis B and other newer vaccines be-cause of the high costs involved and thepotentially huge demand from develop-ing countries.

One of the strongest price-tiering ar-guments is that limiting low prices andallowing manufacturers to increase prof-its in the rest of the developing world willencourage producers to invest in researchand development for other vaccines, suchas those for malaria and schistosomiasis.Vaccines for malaria and other “develop-ing-country diseases” “for which no sig-nificant commercial market exists” havereceived very little attention mostly be-cause of the lack of profitable markets.Under the price-tiering strategy, however,research and development costs could berecouped from all but the poorest devel-oping countries, serving as an incentiveto manufacturers to invest more in theseneeded vaccines.

Proponents also argue that plannedtiered pricing would increase competition

FIGURE 11

Two Models of Vaccine Pricing

Industrialized countries(14% of world

population)

Higher-incomedeveloping countries(61% of population)

Poorest countries(25% of population),using global fund or

other marketintervention

Industrialized countries(14% of world

population)

Developing countries(86% of population):

obtain low-cost pricesthrough bulk

purchasing via regionalor global fund

Pric

e

Planned price tieringBulk purchasing

with uniform prices

Pric

e

TABLE 9

Planned Tiered Pricing: Arguments For and Against

For

The slow introduction of Hepatitis B and other newvaccines in poorer countries shows the limits of theexisting two-tiered price system (industrialized vs.developing countries) and the need for a new pricestructure.A guaranteed low price from the beginning for theneediest countries will shorten the normal product lifecycle, accelerating access to newer vaccines for thecountries that need them the most.

Strategy should encourage manufacturers torespond to UNICEF bids for lowest-tiered countries,in return for free entry into more lucrativedeveloping-country markets. This will increasecompetition among producers and keep lowest-tiered prices down.

Will result in affordable (low-tiered) price of newvaccines for poorest countries. Prices gained,through international tenders, for better-offdeveloping countries will be higher but still affordablefor their economy.”

Profits from industrialized countries currently driveresearch and development. Therefore focus hasbeen on developing vaccines for these markets. Thisis one reason for the slow development of malariavaccines.Reducing the number of countries benefiting frommarginal prices, and thereby increasing revenues formanufacturers, will allow a quicker return onresearch and development investments. This willencourage research and development investmentfor vaccines against diseases predominant mainly indeveloping countries.

Providing new vaccines to the neediest countries bylowering prices and targeting external aid is anequitable approach. It enables countries to payaccording to their means.

It is the only viable way for donors to fund theintroduction of new vaccines since new vaccinescannot be added for the whole world. Limited donorfunds will be used to fill critical gaps.

Directing donor financing for new vaccines to alimited number of countries makes this approachmore sustainable than the existing two-tiered pricingsystem.

Against

Price is not the only reason some important vaccineshave not been incorporated into immunizationprograms. For example, MMR and yellow fevervaccine are reasonably priced but underused. Otherfactors (e.g., governments’ insufficient appreciation ofthe value of vaccines) are also in play.The life cycle of new vaccines can be shortened, andlow prices obtained, as effectively through bulkpurchasing.

Planned tiered pricing decreases competition bypreventing middle-tiered countries from obtaining thelowest price.Natural “friendly adversarial” relationship betweenpurchasers (e.g., UNICEF) and producers helpsmaintain competition and should not be eliminated.

Strategy constitutes a form of “price fixing.” Thisinterferes with the ability of economies of scale tolower prices, as wealthier or larger developingcountries (representing around 60% of the world’spopulation) will not have access to the best prices.The strategy therefore keeps prices of new vaccinesrelatively high for the majority of the world’spopulation.

A substantial portion of research and developmentfunding for vaccines comes from the public sector.Public-sector funding will always be a driving force indeveloping vaccines of interest mainly in developingcountries. What is needed is increased public-sectorfunding for vaccine development (e.g., for malaria).

Strategy discriminates against countries with largercommercial markets. The majority of the population indeveloping countries will not obtain the lowest-tieredprice; hence, this approach is inequitable.

Establishing a special fund for the poorest countries,as part of a bulk purchasing system, can achieve thesame results. Fund sources can include donorcontributions, contributions from member countries,and accumulated capital from fees.

The introduction of new vaccines in the neediestcountries under this strategy depends totally ondonor funding. What will happen when the funds runout?

Issue

Access to andavailability ofnew vaccines

Competition

Price

Research anddevelopment

Equity

Availability ofdonor fundingfor newvaccines

Sustainability/Viability ofstrategy


TABLE 10

Bulk Purchasing Model with Uniform Prices: Arguments For and Against

For

All but one of the developing countries that haveintroduced both Hepatitis B and Hib belong to a bulk-purchasing system (the PAHO Revolving Fund orthe GCC in the Middle East). This shows theeffectiveness of the system in getting developingcountries to introduce new vaccines by driving downprices. The neediest countries can obtain thevaccines, at the same low price, with donor funding.

Instead of the price fixing of the tiered pricingapproach, this strategy increases competition byencouraging producers to compete for very largeorders through international tenders. It thus allowsnormal market forces to drive down prices.

The promise of large-volume purchases, coupledwith international competition, results in very lowprices, which benefit all developing countries, not justthe poorest or smallest.

Since this approach does not discriminate betweenvery poor or smallest countries and larger, wealthierdeveloping countries, it is much more equitable thanplanned tiered pricing.

This is the only sustainable approach since it usesclassic market forces to drive down prices and doesnot depend on any deal with producers or time-limited funding from donors.

Against

The neediest countries will not have access to thenew vaccines for a long time, since prices will still beunaffordable to them.

The large difference between the one, low price foreach vaccine for all developing countries and theprice paid by industrialized countries hasdiscouraged US manufacturers from supplyingUNICEF/PAHO and has laid them open toaccusations from US politicians of pricediscrimination against the US market.

The resulting prices for new vaccines will still be toohigh for many of the neediest countries to afford. Thisstrategy can work only if mainly wealthier countriesare involved, as is the case in Latin America with thePAHO Revolving Fund.

Since the poorest countries still will not be able toafford the newer vaccines, the tiered approach isactually more equitable. Also, it is not fair forindustrialized countries to continue subsidizingmarginal prices for middle-income countries.

For the foreseeable future, many of the poorestcounties will be relying on donors to support theirprograms independently of the mechanism used forprocurement.

Issue

Access to andavailability ofnew vaccines

Competition

Price

Equity

Sustainability/Viability ofstrategy

by encouraging more manufacturers torespond to UNICEF bids. For example,two US manufacturers were believed tobe reconsidering entering the UNICEFmarket after the targeting strategy becameofficial policy by UNICEF and WHO(Rosegrant 1998b). Competition wouldalso be increased for the vaccine market inthe “middle tier” of countries, wheremanufacturers can make greater profits.

Arguments againstCritics of this strategy contend that it

constitutes a form of “price fixing,” which

limits the free-market forces of competi-tion and economies of scale from drivingdown prices as much as possible. Thisresults in larger, middle-income countriesnot having access to the lowest tieredprice. As such the policy discriminatesagainst poor people in these larger orslightly wealthier countries, where mostof the people in the world live. Not onlywill these countries have to pay more forthe same vaccines than their smaller orpoorer neighbors, the higher prices of-fered to them may continue to delay theintroduction of these vaccines.


It is also argued that research and de-velopment for vaccines against malariaand other diseases affecting mainly de-veloping countries have been, and willcontinue to be, heavily supported by thepublic sector in industrialized countriesand not entirely by industry. For example,the National Institutes of Health in theUS developed both the new rotavirusvaccine and the original plasma-derivedHepatitis B vaccine. Also, the slow de-velopment of vaccines is often due to thescientific complexity of the process.There is no malaria vaccine yet, for ex-ample, because it is extremely difficultto develop one that must act against aparasite (as opposed to much smallerviruses or bacteria). Indeed, critics ofplanned tiered pricing are not convincedthat procurement initiatives developedby multilateral agencies will influence theresearch and development decisions ofmanufacturers.

Bulk purchasing/Uniform pricingThis approach centralizes vaccine ordersfrom various countries in one mechanism(such as the PAHO Revolving Fund) andinvolves international tenders and bids forbulk purchases of each vaccine. Thepromise of bulk orders to producers helpsensure very competitive prices—a feasibleprospect due to the associated economiesof scale. Therefore, the more countriesparticipating in a regional or even globalfund, the greater the volume to be pur-chased, and the lower the prices obtainedfrom manufacturers through large annualor multi-year contracts. Competition alsodrives down prices, as evidenced by thedecrease in prices for Hepatitis B, DPT,and other vaccines offered to the PAHO

Revolving Fund in recent years after newAsian producers entered the picture.

Arguments forThis strategy takes advantage of the

effects of demand, economy of scale, andcompetition to drive prices down to thelevel where, according to its proponents,most developing countries can affordthem. It is argued that these market forcesapply not only to EPI vaccines but also tonew vaccines. “In the future, as in the past,volume will make production costs lowand competition will be the factor in keep-ing vaccines affordable” (PAHO 1999,p. 3). According to this argument, the wayto shorten the natural product life cycleis, therefore, to intensify or enhance theeffects of volume and competition inbringing down prices and not to createartificial price tiers or otherwise interferewith natural market forces.

PAHO points to the fact that price quotesfor DNA-recombinant Hepatitis B vaccinepurchased through its Revolving Fund de-creased from $11 per dose in 1994 to $0.69per dose in 1999 as evidence of the forcesof bulk purchasing and increased compe-tition driving down prices. During thisperiod, the number of countries purchas-ing Hepatitis B vaccine through the Re-volving Fund increased from one or two(through spot buys) to twenty.

Rather than limiting access to new vac-cines, proponents of this strategy arguethat bulk purchasing systems enhance it.In 1998, for example, of the seven devel-oping countries that had introduced bothHib and Hepatitis B vaccines, all but onewere part of a bulk purchasing program(either the PAHO Revolving Fund orthe Gulf CC in the Middle East). Also,


several countries in Latin America nowpurchase the pentavalent DPT-HBV-Hib(at $3.50 per dose) through the Revolv-ing Fund.

The bulk purchasing approach may alsobe considered more equitable. Theplanned tiered pricing approach willlower prices only for countries where aminority of the people in the world live.This is especially true if the WHO/UNICEF bands are used to determineprice tiers, since large C and D countrieswith poor populations, such as India, willnot have access to the lowest-tier priceand this could delay the introduction ofthe newer vaccines into these countries.Bulk purchasing, on the other hand, al-lows all developing countries to benefitfrom competitive prices.

Finally, one of the primary argumentsfor this approach is its long-termsustainability. It does not depend on anyspecial arrangement between manufac-turers and large procurers like UNICEF,and it depends less on donor funding toprovide needier countries with access tothe newer vaccines than the price-tieringapproach. Indeed, it may be possible todevelop a sustainable fund that grows incapitalization from an accumulation of ser-vice fees and that could be used to financeor subsidize the procurement of vaccinesfor the neediest member countries.

Arguments againstCritics of the bulk purchasing/uniform

pricing approach say the history of pricesfor classic EPI vaccines does not serve asa good model for the new proprietaryvaccines. The prices of the newer vaccineswill not decline to the level of the tradi-tional EPI vaccines for many years, if ever.For example, although the price of Hepa-titis B vaccine has decreased markedly inrecent years, it is still higher than the priceof all other EPI vaccines combined. Verypoor or smaller countries will not be ableto afford the new vaccines for many yearsif they have to wait for patents to expire,new producers to enter the market, andeconomies of scale to drive down theprice. In addition, many of the newer vac-cines are costly to produce and econo-mies of scale and competition can onlybring the price down so far, probablynever to the level of the traditional EPIvaccines. Therefore, this approach canwork only in a region or area that hasmostly larger, better-off countries (suchas Latin America). It will not work insub-Saharan Africa, for instance, or on aglobal scale.

Critics of this strategy also argue thatit will not encourage producers to investin research and development for vaccinesagainst diseases that affect mainly devel-oping countries.

This section will analyze the pricechanges that Hepatitis B vaccinehas undergone since its develop-

ment in the 1980s and discuss the majorfactors contributing to these pricechanges.

IntroductionIn 1992 the World Health Assembly rec-ommended that all countries incorporateHepatitis B vaccine into their EPI by1997. This was the first proprietary vac-cine to be added to the EPI since the pro-gram began in the mid-1970s. By 1999,more than 90 countries had incorporatedthe vaccine into their national programs.

There are two types of Hepatitis B vac-cine:

• Plasma-derived vaccine• Recombinant DNA vaccineDeveloping countries now obtain

prices as low as $0.40–$0.50 per dosefor the plasma-derived vaccine, and aslow as $0.54–$0.69 per dose for the re-combinant DNA vaccine. An examina-tion of the price changes in the vaccineover the past 18 years and the main fac-tors involved could be relevant to thefuture price patterns of other new andupcoming vaccines. The history of thechanges in the price of Hepatitis B vac-cine for developing countries is shownin Figure 12.

The Price Historyof Hepatitis B Vaccine:A Case Study

FIGURE 12

Changes in Hepatitis B Vaccine Prices for Developing Countries (lowest prices obtained)

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999

0

10

20

30

40$ (FOB)

Plasma-derived rDNA

Korean firms(Chiel, KGCC)acquire technology and enter market

Philippinestender(plasma):$0.65

Biogen DNApatent expires in most of world

Currentplasma price($0.45 to$0.57/dose)

Merck,then Pasteur,sole producers

Indonesiainternationaltender and bid($0.95/dose)

Merck soleproducerof rDNA

InternationalHepatitis BTask Forceformed (1986) PAHO’s first

HBV contract(for rDNA at$0.82/dose)

Asian and otherproducers enterrDNA market;price drops toclose to$0.54 to$0.69/dose


Plasma-derived vaccineThis is made from the blood of infectedpeople, and was developed by the USNational Institutes of Health in the 1960s.The technology was first acquired byMerck and Co. (US), which put it on themarket in 1981, at a price of about $30per dose, or nearly $100 for the completeseries of three shots. Because of its highcost, the vaccine was first used mainly toimmunize health workers and others athigh risk in industrialized countries.

Recombinant DNA vaccineThe Hepatitis B surface antigen is pro-duced in yeast or mammalian cells usingbioengineering technology. When Merckand SmithKline Beecham brought the re-combinant DNA vaccine to the market inthe mid-1980s, it also carried a high priceof between $30 and $40 per dose.

Plasma-Derived VaccineWhen Merck’s plasma-derived vaccinefirst appeared on the market at $30 perdose, it was labeled by some in the in-ternational public health community as “arich man’s vaccine and a poor man’s dis-ease” (Muraskin 1995, p. 21). The vac-cine used a technology involving chemicalpurification, which some experts found tobe too elaborate and expensive to be ap-propriate and affordable for most devel-oping countries. According to Muraskin,

the plasma-derived Hepatitis B vaccineshad all been originally developed for the lim-ited purpose of servicing the small market inthe developed world. The developers desireda perfect vaccine, one that would receivequick approval by their regulatory authori-ties. To achieve this goal they chose to utilize

high technology and expensive methods toguarantee the highest level of safety. Onlyafter the companies were successful at pro-ducing such a Hepatitis B vaccine did theyrealize that the real need was not in theWest but in the countries of Asia and Africa.(1995, p. 44)

Within 10 years however, simplifiedtechnology, a proliferation of manufactur-ers, the integration of the vaccine intonational immunization programs in anumber of developing countries (espe-cially in Asia), and a sharp decline in theprice paid by the public sector in develop-ing countries changed the above picture.The main developments accounting forthese changes are the following.

• More accessible technology and anincreased number of manufacturers

• The work of the International TaskForce on Hepatitis B Immunization

• The pilot Hepatitis B vaccination pro-gram and international tender in In-donesia

• Increased competition, productioncapacity, and interest in recombinantDNA vaccine

More accessible technology andincreased number of manufacturersWith the aim of developing a Hepatitis Bvaccine more appropriate for use in de-veloping countries, Alfred Prince of theNew York Blood Center invented a vac-cine using a flash heat purificationmethod, a much simpler and cheaper pro-cess than the chemical process used forthe existing Hepatitis B vaccines. Also,much smaller doses of the vaccine wererequired for it to be effective. Prince trans-ferred this technology to Cheil SugarCompany of Korea, a subsidiary of

THE PRICE HISTORY OF HEPATITIS B VACCINE: A CASE STUDY 43

Samsung Corporation, which brought thevaccine into production by 1982. Withina short time, other companies had ac-quired the technology, including anotherKorean manufacturer (Korean GreenCross Corporation, or KGCC), threeJapanese manufacturers, and a Taiwan-ese company. The Japan Kitasato Insti-tute transferred its technology to thePeople’s Republic of China, which wasproducing the vaccine in five productioncenters by the late 1980s. By 1987 therewere nine producers of Hepatitis B vac-cine on the international market and by1989, there were twelve (Muraskin 1995;Maynard and Hadler 1989).

Creation of the Hepatitis B Task ForceIn 1986, several Hepatitis B expertsformed the International Task Force onHepatitis B Immunization. The overallgoal of the Task Force was to improvethe control of Hepatitis B worldwide by:

• Forcing down the high price of thevaccines through international ten-ders and through efforts (ultimatelysuccessful) to facilitate the technol-ogy transfer of the Prince vaccinefrom Chiel to local producers in de-veloping countries. The Task Forcealso assisted countries in undertak-ing international tenders to maximizecompetition.

• Convincing developing countries andthe international health communityto make Hepatitis B control andmass immunization of infants a toppriority. As mentioned above, in1992 the World Health Assembly rec-ommended worldwide routine im-munization of infants with HepatitisB vaccine.

• Proving that developing countriescould successfully integrate Hepati-tis B vaccination into their immuni-zation programs, without overtaxingtheir existing programs. To do this,the Task Force helped design andmanage pilot or model projects inseveral countries. Even in countriessuch as Thailand, where interestwithin the Government for mass in-fant Hepatitis B immunization wasalready high, the Task Force provideda critical “outside push” to “help breakbureaucratic logjams and conflictsthat had immobilized [the Thais]”(Muraskin 1995, pp. 152–153).

The model Hepatitis B program andinternational tenderIn 1987, a pilot Hepatitis B vaccinationprogram was conducted in Lombok, In-donesia, with assistance from the TaskForce and political commitment from theIndonesian President. The Task Force so-licited international tenders for the sup-ply of the vaccine, which generated re-sponses from all suppliers registered inthe country. An important condition of thetender was a commitment by the biddersto offer Indonesia the same price once itintroduced the vaccine nationwide, to pre-vent them from offering promotionalprices at the start and then increasingprices substantially later on. Bidders alsocommitted to offering the same low priceto other developing countries. The win-ning bid, by Korean Green Cross at $0.95per dose, was a “price-shattering achieve-ment,” which instantly drove down thecurrent world price of $15–$30 per doseto less than $1. According to Muraskin,“the sealed bid and tender, followed by


the public announcement of the winningoffer, broke the price of the vaccine andremoved the chief obstacle to an effectivewar against Hepatitis B.” The low priceobtained also “demonstrated that if amass market was created, an affordableprice could be achieved” (Muraskin 1995,p. 97).

The Lombok project proved that Hepa-titis B vaccine could be successfully inte-grated into an immunization programwithout overburdening it, and, in fact,could result in dramatically higher immu-nization coverage rates for all childhoodvaccines. Buoyed by this success, theIndonesian Government adopted univer-sal Hepatitis B immunization of infantsnationwide in 1991. Model programs de-veloped with the Task Force’s assistancefollowed from 1988 to 1991 in Thailand,the People’s Republic of China, Kenya,and Cameroon. The Task Force alsohelped countries to develop internationaltenders in several countries, including thePhilippines. By 1992, a number of Asiancountries, including the People’s Repub-lic of China, Thailand, Indonesia, the Phil-ippines, and Mongolia, had introducedHepatitis B into their immunization pro-grams. The price decreased further, to aslow as $0.65 per dose offered to the Phil-ippines in 1991.

Increased competition, productioncapacity, and interest in recombinantDNA vaccineIn the late 1990s increased demand forplasma-derived vaccine (at least in Asia)led to excess production capacity and drovedown prices. This was followed by a shiftin demand from plasma-derived to the re-combinant DNA vaccine, further contrib-

uting to overcapacity as well as to a de-cline in prices. Responding to an ADB sur-vey, countries in Asia reported payingaround $0.50 per dose in a 10-dose vialFOB18 for the plasma-derived vaccine. Arecent price quote from Korea was $0.24per dose (PMC, personal communica-tion). The plasma-derived vaccine is there-fore becoming a “generic” vaccine, withprices approaching those of some EPIvaccines. However, it took 18 years forthis to occur.

Recombinant DNAVaccineThe price history of the recombinantDNA vaccine parallels, to some extent,that of the plasma-derived vaccine, asshown in Figure 12 above. However, pat-ents on the basic vaccine production pro-cess played a much larger role for thisvaccine than for the plasma-derived vac-cine. The existence of the patent, alongwith the considerable capital investmentcosts involved, limited the number ofmanufacturers for a number of years.Consequently, the price remained highand took twice as long to get below $1than the price of the plasma-derived vac-cine (12 years vs. 6 years). The main fac-tors and events that affected the price ofthe recombinant vaccine were as follows:

• Limited number of licensees for theBiogen patent

• Competition with the plasma-derivedvaccine

• Increased international competition• Increased demand

18 Free on board, i.e., before insurance, shipping, andhandling charges are added to the price.


Limited number of licensees for theBiogen patentThe first successful technology using re-combinant DNA to make Hepatitis B vac-cine was developed by the American firmBiogen in the late 1970s. Biogen wasgranted a broad patent covering all meth-ods of making Hepatitis B vaccine anti-gens using recombinant technology, in-cluding methods not used by Biogen.19

For several years, Biogen granted a licenseto scale up production of the vaccine toonly two companies—Merck and Co. andSmithKline Beecham—both of whichcharged prices as high as $40 per dose atfirst. Merck offered prices to the US pub-lic sector (Centers for Disease Controland Prevention) of around $7–$8 begin-ning in 1990, but charged private-sectorproviders in the US nearly double. None-theless the price, kept high by the lack ofcompetition, stayed out of the develop-ing world’s reach.

Competition with theplasma-derived vaccineA major factor that drove down the priceof the recombinant DNA vaccine wascompetition with the plasma-derived vac-cine. Hepatitis B vaccine manufacturerstend to make either the recombinant orthe plasma-derived vaccine, but not both.The recombinant vaccine could dominatethe Hepatitis B vaccine market if the pricewere only marginally higher than that ofthe plasma-derived vaccine. As such, by1993, prices as low as $1.25 to $2.00 perdose (for 10-dose vials) for developingcountries were quoted (Kane 1993).

These prices, however, were still manytimes the cost of the traditional EPI vac-cines.

Increased competitionBy the mid-1990s the Biogen patent hadexpired in many parts of the world, espe-cially once the General Agreement onTariffs and Trade (GATT) went into ef-fect in 1995. Now able to acquire the tech-nology, a number of new manufacturersentered the market. These included twoKorean manufacturers, KGCC and LuckyGoldstar. At least ten producers now sellthe DNA recombinant vaccine on the in-ternational market. These include threeIndian firms with the capacity to supplyboth the domestic Indian market (onceHepatitis B is added to the national im-munization schedule) and the export mar-ket (PMC, personal communication).

Increased demandAs shown in Figure 13 below, when PAHOpurchased recombinant DNA vaccine on

FIGURE 13

Price of Recombinant Hepatitis B Vaccine and AmountPurchased through the PAHO Revolving Fund, 1994–1999

Source: PAHO

1994 1995 1996 1997 1998 19990

3

6

9

12

15Cost per dose ($) Number of doses (million)

Hepatitis B (average price)Number of doses

0

5

10

15

20

25

19 This broad patent was found to be invalid by a Britishcourt in 1996.


behalf of individual countries in 1994–96,it paid a very high price per dose ($9–$14). However, by the time it enteredinto its first Revolving Fund supply con-tract in 1998 (24 million doses), the pricehad fallen to $0.82 per dose FOB (for 10-dose vials). In 1999, after KGCC andLucky Goldstar began producing the vac-cine, the price had fallen again to $0.69per dose, illustrating the power of in-creased demand and the impact of newcompetition on prices. Indeed, FOBprices as low as $0.54 per dose for therecombinant vaccine were quoted in 1999.The price has been forecasted to continuedeclining to $0.30–$0.40 per dose in thenear future (PMC, personal communica-tion), approaching the price of the plasma-derived vaccine.

SummaryIn summary, the price pattern for bothplasma-derived and recombinant DNAHepatitis B vaccine shows a sudden dropin price in the late 1980s, followed by amore gradual decrease over the next 10years. The drop in price of the plasma-derived vaccine was due to a simultaneousincrease in competition (and thereforecapacity) from new manufacturers out-side Europe and the US and an increasein demand, specifically from several Asiancountries that held international tenders.The International Hepatitis B Task Forceserved as the catalyst for both demand-and supply-side forces.

While it took six years (1981–1987)for the price of plasma-derived vaccine to

FIGURE 14

Factors Affecting the Price of Hepatitis B Vaccine

Costly processingFew producersLow demand (industrialized countrieshealth workers)

Plasma-derived

Development of simpler technologyTechnology transfer to Asia (Koreans,China)Demand from several Asian countriesInternational tenders (Indonesia, others)

More producers and greater capacity (e.g.,Asia)Shift in demand to recombinant vaccine

1981 1987$15 30/dose

1987 early 1990s<$1/dose

Mid late 1990sPrice around $0.50

Patent held by Biogen royalty paymentsrequiredLicensed to only two firms

Recombinant

Integration into industrialized countrychildhood immunization schedulesCompetition with plasma-derived vaccine

Increased number of producers (withexpiration of Biogen patents, technologytransfer more producers (Asia, LAC)Increased demand:Developing countries start to introduce itInternational tender through PAHO

1986 late 1980sUp to $40/dose

Early-mid 1990sLowest price:$1.25 $2

Mid late 1990s$0.50 $0.70/dose

Low pricesAs low as $0.54/dose< $0.50/dose


dip below $1, it took twice as long (1986–1998) for the price of the recombinantvaccine to drop to this level. The delaywas due to high capital investment costs,limited competition (partly a result of thebroad patent), and limited demand. Theprice of recombinant DNA vaccine is nowdeclining fast, and approaching that of theplasma-derived vaccine.

The main factors affecting the price ofthe Hepatitis B are summarized in Fig-ure 14.

Lessons learnedSome of the main lessons learned fromHepatitis B vaccine price trends over theyears are:

• Simple and inexpensive productionprocesses for effective vaccines mustbe developed. For example, thePrince plasma-derived vaccine usingflash heat technology is as effective

as the vaccines using chemical pro-cesses, but much easier and cheaperto produce.

• Technology transfer to producersoutside Europe and the US is criticalto increasing competition and thusaccess to vaccines by developing coun-tries.

• International tenders and bids havebeen effective in driving down prices,as long as there is enough competi-tion.

• The patent on the technology usedto make the recombinant DNA vac-cine limited competitors from pro-ducing this vaccine for 10 years orso, keeping the price high. Innova-tive approaches, such as tiered royal-ties, need to be found to reduce thenegative impact of intellectual prop-erty rights, including patents, oncompetition.

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