AIDSWEEKLY Plus; Monday, May 25, 1998
Daniel J. DeNoon, Senior Editor
The key to global vaccine access is a tiered pricing system, argues Amie Batson of the World Bank's Human Development Network.
"Tiered pricing allows appropriate prices to be set for different markets early in the product lifecycle - when there are only one or two suppliers of a product," Batson wrote. "Rather than waiting 15 years for a product to enter the mature stage of its lifecycle, tiered pricing allows a new product to gain its normal high introductory price in some markets while providing a marginal, more affordable price to the neediest countries in the world."
Batson's commentary appeared in the Vaccine Supplement to the journal Nature Medicine ("Win-Win Interactions between The Public and Private Sectors," Nat Med, 1998;4(5S):487-91).
At the heart of the tiered pricing solution to vaccine- distribution inequity is the economy of scale afforded by large-scale vaccine production.
"Large volumes help drive down costs not only through scale effects but also through very steep learning effects," Batson wrote. "Given the impacts of scale and learning, a large volume 'global' manufacturer can benefit from a rapid decline in costs per dose and can attain a more competitive cost position than smaller manufacturers."
The costs of vaccine production and development would be recovered by charging a higher price for a vaccine to richer nations; a marginal price (the simple cost of making additional doses) to poorer nations; and a reduced price to public agencies such as the United Nations Children's Fund (UNICEF), which would distribute vaccines to the very poorest nations.
UNICEF and the World Health Organization (WHO) have already developed a global targeting strategy upon which a tiered pricing system could be based.
"The new targeting system limits intervention in markets (such as centralized UNICEF procurement of vaccines at a lowest tiered price) to a small group of countries in which market forces do not result in prices within a country's capacity to afford," Batson wrote. "Manufacturers are not interested in these markets and do not normally sell product into these markets and as such are willing to provide a special marginal price for these countries."
The culprit usually blamed for vaccine distribution inequities - industry - actually supports such a scheme, Batson noted. The problem lies with public-sector acceptance of higher prices in the richer nations and with the long-term commitment of governmental policymakers.
"Because of the three- to five-year lead times required to build and validate new production facilities, a manufacturer must make plant capacity decisions well in advance of real demand," Batson wrote. "The decision to invest in adequate capacity to serve the global markets is made on the credibility of demand estimates provided by the public sector. The more credible the public sector and the estimates, the more probable the investment. Currently, public-sector credibility is quite low."
She called upon policymakers to develop the economic mechanisms that would permit them to guarantee purchase of a minimum quantity of vaccine products.
"In the absence of planning, future expansion of capacity to meet global demand is at best slow and at worst financially unjustifiable," Batson warned.
Correspondence may be addressed to Amie Batson, Health Specialist, The World Bank, Human Development Network, 1818 H Street NW, Washington, D.C., 20433.
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