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Vaccine Reports

Economics of COVID-19 Vaccines

This primer outlines key terms and concepts related to COVID-19 vaccines and is intended for members of the general public, policy makers, educators, and key stakeholders.

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Authors:
Deborah Odihi, Research Associate and Health Economist
Elizabeth Watts, Research Associate and Health Economist
Bryan Patenaude, Assistant Professor
Salin Sriudomporn, Research Associate and Health Economist
Cristina Garcia, Assistant Scientist
Gatien de Broucker, Research Associate and Health Economist
December 23, 2020

There are over a hundred vaccines against SARS-CoV-2 in development, including at least 54 vaccines currently being tested on human subjects [1]. Many biotechnological companies and partnerships are involved, collaborating and competing against each other to develop and produce effective and safe vaccines. As the promise of restoring business activities and freedom of movement fuels our attention to the vaccine race, there are several economic questions that remain unanswered:

  • What is the economic value of vaccines against SARS-CoV-2?
  • What will influence the price of the vaccines?
  • What other costs for vaccine rollout should be considered?
  • What financing mechanisms are in place to cover those costs?

What is the economic value of vaccines against SARS-CoV-2?

To estimate the economic value of a preventive measure, economists typically assess the costs associated with the disease prevented. Most often, those costs consist of the average medical and non-medical costs incurred by an individual, the health system, or society, including insurance reimbursement payments and out-of-pocket payments for items such as diagnostic tests, medications, hospitalization, and transportation to and from healthcare facilities. These costs also include indirect costs due to productivity loss, such as lost wages due to illness, disability, or premature death. The classic approach to assessing cost-of-illness assumes that the total cost is encompassed by these medical and non-medical costs. Yet these estimates may undervalue the broader economic impact on society [2].

The considerable economic and social toll caused by the COVID-19 pandemic, however, extends well beyond direct health costs. In addition to costs incurred due to COVID-19 itself, medical and health system accrue additional costs due to delayed elective procedures, forgone routine preventive health services (e.g., vaccination and cancer screenings) during lockdown periods, reduced ability to treat patients due to overcrowding of healthcare facilities with COVID-19 cases, and delays in care-seeking by individuals fearful of COVID-19.

In addition to health sector costs, the necessary business restrictions and lockdowns used as preventive measures – and resulting changes to consumer behavior – expanded the productivity loss beyond the health system and those infected. As such, economists cannot resort to traditional cost-effectiveness or cost-of-illness analysis as many of the benefits of preventing or treating COVID-19 are not health-related. To assess these broader impacts requires economists to forecast economic recovery as well as predict where the global economy would be in the absence of COVID-19.

In addition to quantifying the economic value of returning to normalcy for business activities, other non-health benefits are known to economists and a few can be quantified and costed. Based on a report from the Professional Society for Health Economics and Outcomes Research (ISPOR), Garrison Jr. et al. and Kamal-Bahl et al. suggested consideration of additional types of non-health-related costs [3-5]:

Non-health costsThere is value in…Reference
Fear of contagionReducing the fear of contagion in a pandemic and alleviating concerns attached to the freedom of movement and to congregate.[4]
Severity of diseaseAvoiding getting sick from a potentially lethal or debilitating disease.[4]
Insurance valueReducing a person’s physical and financial risk in this pandemic.[4, 5]
Reduction in uncertaintyIncreasing the “value of knowing” and limiting the uncertainty by reducing the probability of disability or death.[4, 5]
Value of hopeIncreasing a patient’s value of the vaccine beyond the average gain in quality-adjusted life years (QALY).[4, 5]
Scientific spilloversIncreasing the scientific knowledge in vaccine development and rollout, and disease prevention, thus paving the way for more effective vaccines and vaccine rollouts.[4, 5]
EquityReducing the risk associated with the disease in vulnerable populations and in populations most affected by it.[4]

Equity, while missing from many economic analyses, is important to consider when rolling out COVID-19 vaccines as deviations from perceived or explicit fairness may result in backlash and future hesitancy. The plan outlined by the United States National Academies of Sciences, Engineering, and Medicine prioritizes vaccine allocation for first responders, high-risk health workers, and vulnerable populations. In the United States, since the first vaccine (Pfizer-BioNTech) received Emergency Use Authorization on December 11, 2020, over three million doses were distributed to healthcare facilities in all 50 states [6]. It is worth noting that the vaccine rollout is not managed centrally in the United States, but by each state. Each state’s prioritization may differ from the National Academies’ recommendations.

Given the impact of COVID-19 on health systems across the globe – one of the largest disruptions to economic activity in modern history – the broader benefits of vaccines against SARS-CoV-2, along with reducing the need or intensity of future lockdowns and restrictions, most likely far outweigh the expected costs of vaccination globally [7].

What will influence the price of the vaccines?

The price of vaccine doses is driven by two costs: the cost of research and development (R&D) and the cost of production and manufacturing.

A vaccine’s R&D costs can be hard to quantify as they include the cost of unsuccessful candidates and profits foregone [8]. Medications and other treatments included, only 0.01-0.02% of compounds screened are ultimately FDA-approved for sale [9]. R&D cost is also influenced by startup production, clinical trials, and regulatory processes [8-10]. Traditionally, R&D often has high sunk costs as most research facilities are vaccine-specific and there often exists a long lag time between production and sales. To produce novel vaccines, the R&D cost may be higher than for established vaccines; new and technologically advanced vaccines often have higher production costs and are likely to be on the market for shorter time periods as they may be quickly replaced by combination vaccines [10]. This said, the Advanced Market Commitment – “a legally-binding agreement for an amount of funds to subsidize the purchase, at a given price, of an as yet unavailable vaccine against a specific disease causing high morbidity and mortality in developing countries” [11] – and overall interest in COVID-19 vaccines will likely shorten any delay between production and sales.

Manufacturing is a large part of the vaccine cost structure. Costs associated with administration, quality control, depreciation and other fixed costs account for 60% of the total vaccine manufacturing cost [12]. The manufacturing cost can be very high if the manufacturer does not have operational facilities in place. This production cost is influenced by vaccine type, time, unaccountable obstacles, and other simultaneous product development and production [8]. To date, the U.S. government alone has spent over $9 billion USD for the development of COVID-19 vaccines, with an additional $200M for vaccine preparedness [13, 14].

Therefore, the price of the vaccine often entails high sunk costs and high fixed costs with low marginal cost per dose. Nevertheless, in the case of SARS-CoV-2 vaccine production, governments, bilateral and multilateral organizations, non-governmental organizations (NGOs), and private companies are funding vaccine R&D and have signed contracts with vaccine manufacturers prior to vaccine approval. This increases incentives in producing the vaccines and lowers the risk of capital loss [15, 16].

Several laboratories developing vaccines against SARS-CoV-2 are partnering with vaccine manufacturers to ease the transition from development to production (e.g., the Oxford University and Astra-Zeneca partnership and the NIH-Moderna partnership). Such partnerships allow phases II and III of clinical trials to occur while simultaneously building up production capacity, leading to a quicker rollout if the vaccine is approved.

What other costs for vaccine rollout should be considered?

Vaccine costs include more than just the price of vaccine supplies. The rollout costs for vaccines also include labor, cold chain storage, transportation, capital, and other recurrent costs including program management, training, social mobilization, waste management, and monitoring and evaluation [17]. These costs are considered immunization delivery costs. Based on the International Vaccine Access Center’s recent study on childhood immunization program costing, delivery costs account for nearly half of the total immunization program costs, globally [17]. Delivery cost varies across regions, ranging from $0.18 to $11.31 per dose delivered, depending on accessibility and countries’ infrastructure [17]. To minimize delivery costs and ensure efficient and equitable access to SAR-CoV-2 vaccines, governments need to leverage the strength of existing delivery infrastructure and integrate partnerships at all levels.

The key challenge awaiting the rollout of vaccines against SARS-CoV-2 is that, unlike most vaccines that target children, these vaccines will target adults – a larger and more difficult population to target effectively. Most countries lack the health system infrastructure or protocols to systematically administer vaccines to adults, particularly in harder-to-reach areas that are further from tertiary healthcare facilities. This is especially the case in low- and middle-income countries, where few policies exist for adult vaccines already on the market and adult vaccination in the private sector is less common. In addition, increased vaccine hesitancy and lack of vaccine confidence will hamper efforts to vaccinate large populations, even during a public health crisis [18-20]. This leads to higher wastage rates and costlier efforts in social mobilization through health communications and community engagement.

Different SARS-CoV-2 vaccines may have different requirements for storage and delivery, and procuring highly specialized equipment may be necessary. For instance, the biotechnology used for the mRNA vaccine developed by Pfizer requires storage at minus 70 degrees Celsius, much colder than vaccines routinely used for childhood immunization [21]. Extreme cold chain requirements do not necessarily preclude low- and middle-income countries from using such a vaccine: several African countries used “ultra-cold” refrigerators to store and deliver the Ebola vaccine in the past decade. However, countries without this infrastructure may opt to wait for a product with less stringent cold chain requirements.

The high wastage rates associated with such a large-scale operation could be an opportunity for several companies to offer new injection technologies. For instance, ApiJect Systems developed an injection platform to replace the glass vials currently used to transport and store vaccine doses, aiming to significantly reduce any wastage at the time of vaccination [22]. The company has applied for U.S. Food and Drug Administration approval.

What financing mechanisms are in place to cover those costs?

Multiple high-income country governments have signed contracts and developed partnerships with R&D and manufacturing companies to cover procurement costs and secure COVID-19 vaccines once released, including the U.S., China, Canada, Japan, and Australia [23]. To ensure equitable and affordable access for all countries, international initiatives addressing public financing for COVID-19 vaccines are essential. The Gavi AMC for COVID-19 vaccines (COVAX), convened by the Coalition for Epidemic Preparedness Innovations, Gavi, and the World Health Organization (WHO), has created the world’s largest and most diverse COVID-19 vaccine portfolio to accelerate affordable access to COVID-19 vaccines [24]. COVAX is one of the three pillars of the Access to COVID-19 Tools Accelerator (ACT-Accelerator), a global collaboration between the Bill & Melinda Gates Foundation, CEPI, Gavi, The Global Fund, Unitaid, Wellcome Trust, the WHO, and the World Bank [25].

COVAX uses financing mechanisms similar to previous AMCs aimed at promoting equitable access to pneumococcal and Ebola vaccines [26]. COVAX incentivized vaccine manufacturers to invest in production capacity by guaranteeing purchasing volumes before a vaccine is licensed. The 92 AMC-eligible countries – Gross National Income (GNI) per capita under US$4,000 and World Bank International Development Association (IDA) eligible – will be able to access the subsidized vaccine cost (up to US$1.60 – US$2 per dose) while fully self-financing countries can either participate in a Committed Purchase Arrangement or Optional Purchase Arrangement [24, 27, 28].

Committed Purchase requires the country participants to pay US$1.60 per dose upfront or 15% of the price per dose and commit to pay the rest of the balance later. The Optional Purchase country participants will have to provide higher upfront payment of US$3.50 per dose (US$3.10 per dose plus a risk-sharing guarantee of US$0.40 per dose) but have the ability to opt out without penalty [24]. Through COVAX, no receiving country (the AMC-eligible economies) will be able to secure vaccine doses for more than 20% of its population until all countries have received sufficient doses for at least 20% of their population [24, 27-29].

Currently, COVAX has raised US$1.4 billion toward the efforts and is aiming to raise at least US$2 billion by the end of 2020 [24]. As of November 24, 2020, 184 countries were participating in COVAX, including 94 low- and middle-income countries eligible to access the SARS-CoV-2 vaccines through Gavi’s COVAX Advance Market Commitment [30].

The considerable public investments in research and development and the manufacturing of vaccines against SARS-CoV-2 have shifted much of the financial risk away from the pharmaceutical industry, thus reducing the vaccines’ cost and accelerating production. With such terms, governments are left to ensure that their health systems have the adequate cold chain and infrastructure to store and deliver those vaccines. Countries with limited resources to adjust their cold chain will benefit from other vaccines currently nearing approval (as of December 14, 2020) with less constricting requirements. Low- and middle-income countries will benefit from Gavi support through the Advanced Market Commitment, which implies a staged worldwide distribution of the new vaccines: all countries will receive vaccines at the same rate. With these mechanisms in place, we hope that vaccines will be available to all, everywhere, and without any financial challenges.


References:
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2. Bärnighausen, T., et al., Valuing vaccination. Proceedings of the National Academy of Sciences, 2014. 111(34): p. 12313.
3. Lakdawalla, D.N., et al., Defining Elements of Value in Health Care-A Health Economics Approach: An ISPOR Special Task Force Report [3]. Value Health, 2018. 21(2): p. 131-139.
4. Kamal-Bahl, S., et al. The Case For Using Novel Value Elements When Assessing COVID-19 Vaccines And Therapeutics. Health Affairs Blog 2020 [cited 2020 November 20th]; Available from: https://www.healthaffairs.org/do/10.1377/hblog20200616.451000/full/.
5. Garrison, L.P., Jr., S. Kamal-Bahl, and A. Towse, Toward a Broader Concept of Value: Identifying and Defining Elements for an Expanded Cost-Effectiveness Analysis. Value Health, 2017. 20(2): p. 213-216.
6. Healy, J., et al. COVID-19 Live Updates: U.S. Starts Vaccine Rollout as Shots Given in New York. 2020 [cited 2020 December 14]; Available from: https://www.nytimes.com/live/2020/12/14/world/covid-19-coronavirus.
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Deborah Odihi, Research Associate and Health Economist

Deborah Odihi, MHS, is a Research Associate and Health Economist at the International Vaccine Access Center, Johns Hopkins Bloomberg School of Public Health

Elizabeth Watts, Research Associate and Health Economist

Elizabeth Watts, MHS, is a Research Associate and Health Economist at the International Vaccine Access Center, Johns Hopkins Bloomberg School of Public Health

Bryan Patenaude, Assistant Professor

Bryan Patenaude, MA, ScD, is an Assistant Professor in the Department of International Health and Health Economist at the International Vaccine Access Center, Johns Hopkins Bloomberg School of Public Health.

Salin Sriudomporn, Research Associate and Health Economist

Salin Sriudomporn, MHS, is a Research Associate and Health Economist at the International Vaccine Access Center, Johns Hopkins Bloomberg School of Public Health

Cristina Garcia, Assistant Scientist

Cristina Garcia, MHS, PhD, is an Assistant Scientist in the Department of International Health and Health Economist at the International Vaccine Access Center, Johns Hopkins Bloomberg School of Public Health

Gatien de Broucker, Research Associate and Health Economist

Gatien de Broucker, MA, MHS, is a Research Associate and Health Economist at the International Vaccine Access Center, Johns Hopkins Bloomberg School of Public Health