Flu Vaccine Case Study

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The 2004-2005 U.S. Influenza Vaccine Shortage
Influenza, or the flu, causes approximately 36,000 deaths and 200,000 hospitalizations annually in the United States and costs the American economy between $11 and $18 billion each year (General Accounting Office 2001b, page 1). The primary method for preventing influenza is the flu vaccine, which is generally available in a variety of settings including clinics, hospitals, schools, workplaces, and other convenient locations. The vaccine is typically distributed in October and November in anticipation of the winter flu season, which usually begins in late November and peaks in February. For the 2004-05 flu season, the Centers for Disease Control and Prevention (CDC) recommended that as many as 185 million Americans receive flu shots. Among those 185 million, almost half (90 million) are considered high-risk (Centers for Disease Control 2004, 2; General Accounting Office 2004). The high-risk population includes adults 65 and older, infants six to 23 months old, pregnant women, health care workers, those who care for children under six months old, and people with compromised immune systems or chronic illnesses such as asthma, lung cancer, and cystic fibrosis (Centers for Disease Control 2004; General Accounting Office 2004). In recent years Americans have faced flu vaccine shortages on multiple occasions. At the beginning of the 2000-01 flu season, demand for the vaccine outstripped supply, which resulted in an uneven distribution of available vaccines and sharp price increases for flu shots (General Accounting Office 2001b, 2). The following year supply exceeded demand. In 2003-04, demand exceeded supply when millions of doses were inappropriate for that year’s flu strain (Brown 2004; General Accounting Office, 2001b, 2004). The Institute of Medicine (IOM) notes that these recent shortages have “highlighted the fragility of vaccine supply” which is further complicated by declining financial incentives to develop and produce vaccines (Institute of Medicine 2003, 1). The high-risk market, long-term exorbitant production costs, and low profit margins have reduced the number of vaccine manufacturers in the US. In the last 30 years, the number of vaccine producers has fallen from more than 25 companies to only five in 2003 (Institute of Medicine 2003, 1). The production of the flu vaccination is a challenging enterprise for numerous reasons. First, vaccine production is a risky and long-term venture. Due to the high quality standards set by the US Food and Drug Administration (FDA) opening new facilities can take five or more years. Producing the flu vaccine takes six to eight months and the formula cannot be altered once production has begun. In addition, each year manufacturers must reformulate the vaccine to address new influenza strains. Second, there is extensive risk associated with predicting supply and demand for the flu vaccine. Demand and supply in the flu vaccine market tend to be fickle, shifting from year to year or month to month based on the severity of the flu season, public health efforts to promote vaccination, and the timing of vaccine availability. Recent vaccine delays have shown that if extra dosages hit the market in late December or January, people are less likely to purchase those flu shots. Third, the profit margin for producing the flu vaccine is low. Producing annually administered vaccines is particularly unprofitable in comparison to developing pharmaceutical drugs that a patient will use daily for the rest of his or her life. Therefore, manufacturers exit the vaccine market because of the high expense of meeting safety standards and the small profits available to producers (Institute of Medicine 2003; General Accounting Office 2001a) .The departure of manufacturing firms from the vaccine market raises the question as to why the current producers have stayed in the market. Some argue that vaccines can be a profitable endeavor, particularly...
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