Vaccine Marketing - Innovation and Marketing in the Pharmaceutical Industry - page 397

Tiered pricing has a number of advantages. If fi rms were to charge only one
price, this price would generally be what higher-income consumers can pay, which
would make vaccines unaffordable to many lower-income consumers (Danzon et al.
2011 ). Tiered pricing increases equity by making vaccines available to most people
regardless of their ability to pay. At the same time, it increases manufacturers' prof-
its as long as the lowest price exceeds marginal cost. Profi tability provides incen-
tives for existing manufacturers to remain in the market and invest in R&D, resulting
in better vaccines in the future (Lichtenberg 2011 ). It may also attract new entrants,
a socially desirable outcome although less favorable for incumbents.
The main danger of tiered pricing is that the low prices will trigger pressures to
reduce prices to buyers who previously purchased at higher prices. Such reductions
lower profi tability, which may result in insuffi cient investments in manufacturing
capacity and R&D, and lead fi rms to exit the market. The pressure to reduce prices
is particularly high when the low prices are public and used as reference prices by
high-price buyers. Price transparency, as recently implemented by UNICEF
(McNeil 2011 ), can have the unintended effect to increase prices paid by the poor,
deter entry in low-income markets, reduce competition, and lower investment (Kyle
and Ridley 2007 ).
Price referencing across countries is one reason why vaccine manufacturers tend
to launch their products in high-income high-price countries fi rst, even when the
burden of disease may be highest in low-income countries. For example, the HPV
vaccines were fi rst launched in high-income countries, in which cervical cancer
mortality is low thanks to the widespread use of pap tests, while the major burden
of cervical cancer arises in low-income countries with little pap testing. Another
reason for the launch sequencing is the difference in the burden of disease of HPV
in the high-income countries, where most other infectious diseases are of lower
concern, whereas other infectious diseases take precedence over HPV in low-
income countries.
Vaccine manufacturers and most public buyers in high-income countries use
cost-effectiveness analysis to set and assess vaccine prices. Cost-effectiveness is a
value-based pricing method in which a vaccine's incremental cost per unit of health
gain (often measured as quality-adjusted life-year or QALY) is compared with the
buyer's maximum incremental cost per QALY gained. For example, the UK NITAG
uses the guideline that the vaccine should result in an incremental cost of less than
£30,000 per QALY gained (Hall 2010 ). The Australian NITAG initially rejected
Gardasil because it found that it was not cost-effective at the proposed price of
$450. When Gardasil was resubmitted at a signifi cantly lower price, it was found to
be cost-effective and publicly funded (Roughead et al. 2008 ).
In many high-income countries, the cost-effectiveness methods used by public
buyers to assess vaccines are the same as for other pharmaceuticals. But vaccines
have specifi c features. They may provide herd immunity (unvaccinated or poorly
vaccinated people may benefi t), prevent illness in young children, which causes
extra care and work loss, and prevent illness in distant years, which makes the cost-
effectiveness results highly sensitive to different discount rates. They may also
eradicate some infections, and prevent or control pandemics with potentially major