Colbeck Capital Management Examines Whether Vaccines Are a Good Investment

What’s the return on investment for a vaccine? Colbeck Capital Management asks just that question on their Limited Liabilities Medium blog. By looking back at the polio epidemic and the way in which it paved the way for the modern vaccine efforts, we can recount how terrorizing the disease of polio was, causing paralysis in children, especially boys. Wealth and privilege were no replacement for immunity.

Thus, when a vaccine was finally developed, this fear-filled pandemic led to a mobilization like never before, one marked by impressive cooperation (Eisenhower even offered the Soviets the vaccine). The way in which public health was financed was changed, with non-profit organizations like March of Dimes becoming important players. Another major change brought on by the polio vaccine was the role of the government as a regulatory agency. After an accident where 200,000 children were given live poliovirus instead of the vaccine, causing 10 to die and 200 to be paralyzed, the government saw the need to act as a safety agency. The discovery of the polio vaccine also marked the United States' entrance onto the world stage of medical research, where they would become the number one inventor of vaccines.

The 2019 global vaccine market generated $33 billion, which is less than 3% of the total pharmaceutical market. However, the vaccine market displayed regular growth and it's important to note that the primary target for vaccines is generally healthy children.

From here there is a major division in the market, with a big difference surrounding those vaccines going to developed countries and those going to developing ones. The developing countries receive their vaccines from localized providers that are smaller and known as developing-country vaccine manufacturers (DCVMs). These DCVMs account for over 65% of the global volume share of vaccines and offer those vaccines at a discounted rate that is just over 1/3 of the price offered by big pharmaceutical companies. Some DCVMs are quite large. For instance, there is the Serum Institute of India (SII), which manufactures the largest number of doses of vaccines in the world. Over 65% of the world's children have had at least one vaccine made by SII.

But even the largest DCVM is not comparable to those which serve the developed country in terms of profit. There the market is completely controlled by four of the major big pharmaceutical companies: Sanofi, Pfizer, Merck, and GSK. These are the players still left after years of consolidation, and now make up 85% of the global value share of vaccines.

In terms of regulation of vaccines, this is done at the national level in the United States, where testing and development, licensing, manufacturing, disposal, transport, and storage are all monitored at the federal level. Deciding who receives what vaccines when is generally determined on the state level.

Which is why Colbeck Capital Management asks, can vaccine development create a profitable business model? At first glance, the task seems difficult. Vaccine development requires an enormous investment and there are many government regulations to manage. Plus, it can only be marketed to a very specific population. This has led many companies to steer clear of vaccine development.

This was further exacerbated by a 1979 court case, Toner v. Lederle Laboratories. In 1979, then three- month-old Kevin Toner received a DPT vaccine, and developed a rare spinal infection that paralyzed him from the waist down. While this vaccine had been on the market for nearly 40 years with no increase in spinal infections found, the court awarded Toner’s parents $1.3 million stating that Lederle could have created a safer vaccine.

This led to an exodus in the industry, and the federal government tried to counteract this by creating the Vaccine Injury Compensation Program (VICP) that allows the government to take on the risk when a vaccine injury is proven.

Since the VICP, there is more opportunity of a return on investment (ROI) on a vaccine, but it is left in the hands of the big 4 pharmaceutical companies for the developed countries market. So, while a vaccine can now provide a more predictable and long-lasting cash flow, it is very limited who may benefit from it.

However, many are reconsidering the overall ROI for vaccines when factoring in developing countries' markets. Colbeck Capital Management cites a Johns Hopkins study that found for every dollar spent in low and middle-income countries, the return rate was 16 times the cost. Meaning there is definitely opportunity, as long as a company is prepared to mitigate associated risks.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes