The economics of the market for swine flu vaccine

I would like to call attention to a short article entitled “Swine flu vaccines and elasticity of supply”.  The author of this article, Geoff Riley, claims that most of the swine flu market is being contested by only four companies: GlaxoSmithKline, Sanofi-Aventis, Novartis AG and AstraZeneca.  He also notes that “For students of the price mechanism it is a fascinating example of many supply and demand concepts at work: the challenge of scaling up production to meet huge levels of demand – this has involved out-sourcing, the relative importance of fixed and variable costs in developing and manufacturing/distributing a new drug, the elasticity of supply of vaccines to meet short term health requirements, the oligopolistic race to win and protect market share, economies of scale in production, the balance of power between the major buyers and the multinational drug suppliers, price discrimination tactics.”  I hope that Mr. Riley will expand further upon these topics in future blog postings.  If he does, I will be sure to pass this information along.

It appears (to me, anyway) that the U.S. is not all that well prepared this time around for either the seasonal flu or the swine flu.  Both types of flu appear to be in full swing, and yet there are pervasive shortages of both types of vaccines.  I can only hope that the situation does not deteriorate as badly as it did in 2004, which was the last time that a major vaccine shortage occurred.  Back then, the U.S. government had contracted with just two companies, Aventis (now Sanofi-Aventis) and Chiron (now a division of Novartis AG), for each firm to supply roughly 1/2 of the entire U.S. flu vaccine market that year.  The problem then was that in early October 2004, the UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) suspended Chiron’s license to manufacture influenza virus vaccine in its Liverpool facility, which in turn prevented the company from releasing any of its flu vaccine product during the entire 2004-2005 influenza season.  In fact, the shortage became so severe in the U.S. that by late October 2004, numerous articles began to appear touting medical tourism to Canada for the purpose of getting vaccinated for the seasonal flu; e.g., see my 10/27/2004 blog entry entitled “Some Canadian Flu Shot Alternatives”.  Considering that (according to the Centers for Disease Control (CDC)) seasonal influenza by itself typically accounts for 140,000 hospitalizations and 40,000 deaths per year in the United States, this demonstrates how hazardous it can be to rely upon such a small number of suppliers.

Print Friendly, PDF & Email

Leave a Reply