NCPA - National Center for Policy Analysis


June 19, 2009

Giving products away free, from browsers to newspaper articles, is commonplace in the technology and media industries.  The trend has now spread to vaccines.  Pharmaceuticals companies, scarred by years of losing the public relations battle to campaigners over the price of HIV/Aids drugs in Africa, are eager not to be caught out by swine flu, says John Gapper, the chief business commentator of the Financial Times.

The argument goes that if pharmaceutical companies are now making such healthy profits from vaccines in the developed world, why not give them away free in developing countries to save the lives of poor children?  It is a seductive idea, but there are two reasons for them to charge, says Gapper.

First, if developing countries do not pay for vaccines, there is a danger that drug companies will stop producing enough of them:

  • Vaccines (unlike drugs) have a high marginal cost of production because they have to be cultured in eggs, and stored and distributed carefully.
  • Making vaccines is more capital-intensive and the losses from donating them mount up faster.

Second, while there is a benefit to one-off donations of vaccines against adult pandemics such as swine flu, there is no point in a developing country vaccinating children one year with a donation of free medicines if it cannot afford to carry on with the program:

  • Developing countries obtain far greater benefits from being offered guaranteed low prices for a vaccine over several years, enabling them to plan vaccination properly.
  • What matters most is not one-off initiatives but the long-run cost of a vaccine.

Tiered pricing for new vaccines seems to be working.  For instance, Latin American countries can buy vaccines against rotavirus, which causes diarrhea, at $6 per treatment, compared with a U.S. price of $80.  Giving vaccines away free may sound like a more generous approach but the hidden cost is too high, says Gapper.

Source: John Gapper, "The Hidden Cost of Giving Away Vaccines," Financial Times, June 18, 2009.


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