While perhaps not as lucrative or – prior to COVID-19 – as attention-grabbing – as other areas of the pharmaceutical industry, vaccines are also not the forgotten backwaters that many industry insiders seem to view them as. While the inherent complexities related to vaccine R&D do impose high barriers to entry and significant costs, new collaboration models and new entrants offer compelling reasons for optimism for the sector’s future.
Are vaccines bad business?
The global COVID-19 pandemic has undoubtedly thrusted the vaccine industry into the spotlight after a number of years of fading interest and investment. A number of prominent exits by major Pharma players in recent years – including Novartis – as well as shelved programs by the remaining major vaccine developers prompted widespread fears that a critical but chronically unprofitable segment of the global healthcare sector was slowly but surely sinking.
But is the global vaccines industry as unprofitable as both its proponents and detractors seem to lament? Looking at the past two decades, the global vaccine market has grown seven-fold – from USD 5 billion in 2000 to USD 35 billion in 2020 – with a CAGR of 9 percent, compared to the overall pharmaceutical market’s CAGR rate of 6.3% over a similar period. Between 2007 and 2017, the number of vaccines in the global pipeline doubled.
The dwindling of players has certainly benefited the market leaders – and the vaccine industry is a highly concentrated one. The top four players – GSK, Pfizer, Sanofi and MSD (Merck & Co. in the US and Canada) – together occupy over 80 percent of the global market.
That said, overall market growth does not mean that everything is rosy within the global vaccine sector. The industry has always had to confront a number of challenges:
- Extremely stringent regulations: since vaccines are generally given to healthy individuals, the safety requirements are – understandably – far higher than for therapeutics. This will likely always be a limiting factor in new vaccine development and deployment. In the US, for instance, it takes longer for the FDA to approve vaccines compared to other product categories. To accelerate the regulatory process for the COVID-19 vaccine, the FDA actually issued a guidance titled ‘Development and Licensure of Vaccines to Prevent COVID-19’, which was, in the words of Center for Biologics Research and Evaluation (CBER) director Dr. Peter Marks, “intended to place some boundaries on what is acceptable for a COVID-19 vaccine. We wanted to make sure that people had an idea of what we are looking for so that when we receive EUA or BLA submissions they are consistent with our expectations. We want to make sure that there is a reasonably good chance that we will see a vaccine with good efficacy.”
We want to make sure that there is a reasonably good chance that we will see a vaccine with good efficacy.
Dr Peter Marks, director CBER, US FDA
- Inherent biological complexity: as they say, the product is the process. The inclusion of the pathogen antigen within the vaccine means that the manufacturing process for vaccines is inherently variable, requiring highly sophisticated manufacturing and testing technologies. This creates high barriers to entry for potential players in terms of both expertise and cost.
- Lack of incentives: the high costs and lengthy development and manufacturing periods, compounded by the relatively small market size in relation to other areas such as oncology, mean that pharma companies are often not incentivized to invest in vaccine R&D. This challenge is exacerbated for infectious diseases that are more prevalent in developing countries. For instance, three of the main killers in the developing world – AIDS, tuberculosis and malaria – still lack an effective vaccine, even though these three diseases take around five million lives each year. Sanofi Pasteur SVP Thomas Triomphe lamented in an article on Devex that “despite these and other important benefits of vaccinations, health care systems are not generally set up to reward the prevention of disease and instead favor reimbursements for costly treatments. It’s harder for governments to justify broad vaccination to avoid thousands of cases of influenza — a disease known to trigger life-threatening pneumonia — than it is to reimburse the hospital stays for patients who don’t get vaccinated and end up in the hospital with severe cases of pneumonia.”
Emerging epidemic response
Vaccine development efforts have proceeded at an unprecedented pace in 2020 in response to the global COVID-19 pandemic, with pharma companies and other related stakeholders including regulators and service providers essentially working 24/7 to address the global health crisis. These efforts have certainly paid off, with a number of COVID-19 vaccines now available for emergency use in a number of countries globally, barely a year after the novel coronavirus was first discovered.
However, this is perhaps the exception rather than the rule. Pharma companies have previously expressed that they face a lot of disruption – and risk – when they are summoned out of the blue to address emergency epidemics. For instance, following the 2009 H1N1 flu pandemic, flu vaccine manufacturers like GSK, Sanofi and Novartis rushed to develop vaccines that only became ready after the initial outbreaks – and public concern – had subsided. Some countries refused to accept (and pay) for their full orders.
In 2017, the US Biomedical Advanced Research and Development Authority (BARDA) abruptly pulled its funding from Sanofi’s Zika vaccine efforts right before the Phase 3 trial, leading the French drugmaker to pull the plug on that program shortly after. BARDA had committed USD 43 million in research funding, but an additional USD 130 million intended for late-stage trials was pulled, a result attributed to what Sanofi called the “evolving epidemiology” of the Zika virus – i.e. the slowing of the virus spread globally.
In a press release regarding the decision, Sanofi Pasteur highlighted that in February 2016 when the Zika virus emerged as a threat, the company had “urgently responded to the WHO’s declaration of a public-health emergency of international concern (PHEIC). In doing so, we assumed significant opportunity costs and delayed other internal pipeline priorities to lend our expertise to the Zika global public health threat. The epidemiology of the disease has changed significantly since that time, but we continue to believe that public-private partnerships are the right model to address these public health challenges and should continue to play a major role in response to emerging infectious diseases.”
The fundamental issue with these kinds of last-minute research efforts in response to public health outbreaks as they emerge and evolve has been called out by a number of global stakeholders, and in 2017, the Coalition for Epidemic Preparedness Innovations (CEPI) was established with the mission to invest in and accelerate vaccine research before future epidemics occur.
To untie the knot of unaligned or misaligned incentives, public-private partnerships have been established to offer novel models for the discovery, development and deployment of vaccines to developing markets. The Global Alliance for Vaccines and Immunizations (GAVI), the Coalition for Epidemic Preparedness Innovations (CEPI), the Innovative Medicines Initiative (IMI), and the European Vaccine Initiative (EVI) are all examples of global efforts to bridge demand and supply.
The Bill and Melinda Gates Foundation is one of the world’s most prominent investors in and proponents of vaccine R&D. In 2010, they pledged a staggering USD 10 billion because, as Bill Gates exhorted, “we must make this the decade of vaccines. Vaccines already save and improve millions of lives in developing countries. Innovation will make it possible to save more children than ever before.” Melinda Gates added, “we’ve made vaccines our number-one priority at the Gates Foundation because we’ve seen firsthand their incredible impact on children’s lives.”
But PPPs are not guaranteed to work. As Dr. Pierre Meulien, executive director of Innovative Medicines Initiative (IMI), the world’s largest life science PPP – between the European Union and the European pharmaceutical industry – advises, “I always say that PPPs are not for everyone nor for everything – but for certain topics, they are the only way to make progress and tackle some huge challenges. There are some essential elements that need to be present for a PPP to work.” For him, what is necessary and non-negotiation is “alignment on the final goal, so that there is public money addressing a public health challenge, and the industry can be incentivized to come in and support because their expertise is necessary to develop solutions. Wherever the end game lies, there has to be a win-win scenario that is clear from the beginning.”
As a 2019 McKinsey article summarized, “vaccine development has slowed over the past five years, but changes to investment strategies and a shift in focus to more technical and complex vaccines could renew the innovation engine.”
COVID-19 has certainly rejuvenated the vaccine industry, with a number of newer actors having successfully developed vaccines approved for emergency use, including AstraZeneca, but also smaller players like German biotech BioNTech and US biotech Moderna, both of whom were not even dedicated vaccine developers before 2020. In the first few tracts of the race, start-ups from China and India were some of the first companies to take COVID-19 vaccine candidates into clinical trials. As McKinsey pointed out, “the increase in the number of new vaccine programs [is] largely driven by small biotechs and emerging-market players.”
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