NCPA - National Center for Policy Analysis


October 21, 2005

Federal health agencies want drug makers to stockpile flu vaccines and are offering companies cash incentives to do so. However, a Securities and Exchange Commission (SEC) ruling penalizes companies that participate in the government stockpile program, says John Berlau of the Competitive Enterprise Institute.

It takes up to a year to produce a new flu vaccine, and it is never known in advance of flu season whether the medicine will be used, or have to be discarded. To give vaccine makers an incentive to produce new vaccines each year, the federal government has agreed to purchase their inventory, whether or not it is used.

  • However, a 1999 SEC staff bulletin says companies cannot book revenue from the vaccines until they are delivered to doctors for distribution -- even if they are paid for in advance.
  • As a result, the balance sheets of companies that participate in the stockpiling program show losses, depressing the value of their stocks.
  • According to Berlau, "Vaccine maker Aventis (now Sanofi-Aventis) specifically cited the SEC policy as the reason it dropped out of the stockpile for children's vaccines in 2004."

The government's Vaccine Advisory Committee has called on the SEC to change the policy, and if it doesn't, wants Congress to act. Given the concern about the U.S. response to a pandemic flu outbreak, it is time for Congress to act, says Berlau.

Source: John Berlau, "Death by Accounting?" Wall Street Journal, October 21, 2005.

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