Creating Value in Vaccines

The COVID-19 pandemic drove unprecedented demand for vaccine development and commercialization. Efforts such as Operation Warp Speed in the U.S., other ex-U.S. government programs and global private investment facilitated the entry of new and existing pharmaceutical products to fight infectious diseases. 

The valuation of vaccine companies skyrocketed after the World Health Organization (WHO) declared a public health emergency in January 2020, peaking at a more than tenfold increase in value by September 2021 compared to January 2018. The drastic increase in perceived value significantly exceeded that seen for the overall biotech sector, which doubled during that period.

As a result of this growth, many biotech and pharmaceutical leaders were increasingly likely to consider entering the vaccine space in order to capitalize on this prevailing interest and investment. While the overall biotech sector has lost considerable value since its 2021 peak, the even more precipitous drop experienced by most vaccine companies highlights the challenge in driving sustainable value creation in the vaccine space (see Figure 1).

Of the more than 450 different vaccine candidates that entered development to prevent COVID-19, only five have been approved across major markets and only two, Comirnaty and Spikevax, have driven sustained growth in shareholder value. The fact that only two out of more than 450 vaccines being developed have to date demonstrated sustained commercial success — despite the deployment of emergency use authorizations (EUAs) and unprecedented public funding and collaboration — underscores the myriad challenges and barriers that companies face even after successfully developing a vaccine.

In this Executive Insights, L.E.K. Consulting assesses the challenges associated with the vaccine market and what is required for a new or recent entrant to succeed.

The vaccine space is complex and challenging 

In the excitement to participate in the vaccine space, emerging, mid-cap and large pharmaceutical companies underestimated the unique challenges present in the market. Not recognizing or adapting to the differences between therapeutic and prophylactic vaccines can quickly lead to development, regulatory and/or commercial failure. We identified four key challenges that vaccine developers must address to ensure success (see Figure 2).

The barriers to success in the vaccine space, particularly within infectious diseases, stem from the challenges of vaccinating a large, healthy and global population. Regulators such as the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) are reluctant to approve a vaccine in the absence of a clear and convincing risk-benefit ratio. Obtaining this data is difficult, as rare side effects may only be observed after inoculating many patients. 

Vaccine developers need to design trials with large, diverse sample sizes to ensure all possible rare adverse events and comorbidities are captured. These trials can be lengthy and costly, impacting both development timelines and return on investment. In addition, in the case of seasonal vaccines, there are often annual regulatory requirements that create additional development and regulatory costs as well as operational burdens for vaccine companies.

Policymakers such as the Centers for Disease Control and Prevention’s (CDC) Advisory Committee on Immunization Practices (ACIP) in the U.S., the National Advisory Committee on Immunization (NACI) in Canada, the Joint Committee on Vaccination and Immunisation (JCVI) in the U.K., the Technical Committee on Vaccinations (CTV) in France, and other advisory boards assess not only safety and efficacy in making their recommendations but also cost-effectiveness. A positive recommendation from these organizations is a prerequisite for high uptake.

Other market stakeholders that influence uptake include governments, physicians, pharmacies, distributors and patients. The level of influence of these diverse market stakeholders on vaccine uptake, pricing and access may differ by market or geography. In many high-income countries, retail pharmacies have gained increasing influence, creating additional pricing pressure and another layer of stakeholders for vaccine manufacturers to navigate. 

The high-volume development, global commercialization, and associated tight and unpredictable operational timelines (e.g., seasonality, guidance windows, regional complexities) illustrate that developers must have access to both flexible manufacturing at scale and regional distribution networks.

Regulator preferences on strain selection and number of strains (e.g., monovalent vs. bivalent) included in a vaccine also can stress various parts of a biopharma company. R&D and commercial teams must be able to predict and develop updated versions of vaccines on a regular basis, while manufacturing capacity may need to be left idle when off peak. A diversified manufacturing and supply network, while not easy to come by, provides the flexibility needed to update, scale and distribute to the different stakeholders across markets in a timely manner. 

In a competitive marketplace, new entrants may have a harder time creating necessary manufacturing and supply networks, resulting in likely tech transfer challenges as well as development and distribution delays. Additionally, keen oversight of the supply and manufacturing network, no matter how large or small it may be, is paramount. As was clearly illustrated during the COVID-19 pandemic, millions of vaccine doses had to be discarded due to a manufacturing error that led to the contamination of two vaccines being made in the same contract development and manufacturing plant.

Governments and other payers may be unwilling to pay high prices for a widely distributed vaccine even if it is cost-effective. For example, in the U.S., the average noninfluenza vaccine costs approximately $110 per dose in the private sector. Most influenza vaccines are priced quite a bit lower, in the $20-$60 range. Even the most expensive vaccines, such as Gardasil, Prevnar and Bexsero, are priced at a few hundred dollars per dose. These prices are far lower than the cost of most novel branded prescription therapeutics.

Additionally, unlike with treatments for chronic diseases, patients may only receive a vaccine course once (e.g., a pediatric hep B vaccination requires three doses over six to 18 months), seasonally (e.g., for influenza) or even less frequently (e.g., a Td or Tdap vaccination every 10 years), which can further limit recurring revenue. To that end, many COVID-19 vaccine manufacturers have signaled that they will increase prices from about $20 per dose to $110-$130 per dose as they transition to the commercial market.

These pricing pressures are a major reason why only five non-COVID-19 vaccine brands exceeded $1 billion in estimated worldwide sales in 2022, accounting for approximately 55% of the market (see Figure 3). Parallel to lower revenues, lower pricing also reduces profit margins. This is especially critical for small and emerging biotechnology companies that may not be able to benefit from economies of scale. 

Entrenched players dominate the vaccine landscape

To mitigate these challenges, a company must possess certain characteristics. Access to capital and a strong balance sheet enable a company to make at-risk investments and accelerate the pathway to market. Strong clinical development and regulatory affairs teams use these investments to rapidly conduct trials and file for approvals. As mentioned above, manufacturing scale, flexible and diverse supply networks, and relationships with distributors enable a developer to react to unexpected market dynamics and provide alternative development and distribution pathways when supply chain challenges arise.

A diversified portfolio and pipeline can mitigate lower vaccine margins, and large, well-utilized manufacturing and supply chain infrastructure can provide economies of scale that reduce costs. Not surprisingly, only a handful of large pharmaceutical companies possess these characteristics and therefore dominate the non-COVID-19 vaccine space (see Figure 4). These companies also have entrenched relationships with key stakeholders that can make it even more difficult for newcomers to compete.

Novel vaccine technologies have great potential, but questions remain 

The COVID-19 pandemic stimulated an increase in innovative vaccine technologies. While mRNA may be the most popularly known, DNA and viruslike particles (VLPs) have advanced in recent years. These technologies have the potential to meet several unmet needs and have already begun to address some of the challenges and barriers to successfully entering the vaccine market. For each of these novel technologies, however, there are questions that must be addressed before their long-term utility is proven (see Figure 5). 

• mRNA: mRNA accelerated development timelines for COVID-19 vaccines in part because it requires generating only the protein-coding nucleic acid (and lipid capsule) rather than the protein itself. This has potential to accelerate the timelines for developing novel vaccines and updating existing ones — as an example, updated protein-based COVID-19 vaccines may take up to six months to develop and manufacture, while updated mRNA vaccines may be ready in as little as 100 days. Despite their utility, some safety concerns remain (e.g., myocarditis) and the drug product itself has intensive cold-storage requirements. Additionally, the long-term durability and efficacy of mRNA vaccines compared with more traditional approaches remains an open question.

• DNA: DNA vaccines may be able to overcome some of the drawbacks associated with mRNA. Most importantly, DNA is substantially more stable than mRNA, reducing the cold-storage requirements and some manufacturing complexity. The benefits are also similar to mRNA when compared to traditional approaches — protein does not need to be synthesized, and both manufacturing and administration are thought to be safe. However, immunogenicity varies with the transfection method and no intradermal vaccine has worked in humans, nor has any been approved to date.

• VLPs: VLPs are noninfectious particles that resemble viruses in structure but do not contain any genetic information, increasing safety even as they cause a similar immune response to an infection, theoretically increasing efficacy as well. These particles are manufactured to express relevant viral proteins on their surface with an implied ability to target multiple epitopes. This has potential to broaden coverage across strains and perhaps even improve durability. Although the manufacturing timeline may be more rapid than more traditional approaches, VLPs are likely to trail mRNA and DNA in development time. Though VLPs have seen clinical and regulatory success in certain vaccines, particularly Gardasil, there is substantial room for growth. 

New or recent entrants to the vaccine market must carefully consider several important questions

Although COVID-19 has increased interest and investment in vaccine development, potential players need to carefully evaluate their ability to compete. Smaller vaccine developers should be realistic about their ability to scale and self-commercialize. Larger players intending to develop and commercialize novel vaccines should make sure they have the right capabilities at scale to win. The vaccine market is often winner takes all, so given the inherent difficulties of succeeding, there are several questions that a new or recent entrant must consider before pushing its chips into the center of the table:

• Which indications are attractive to enter based on commercial potential as well as development requirements? 

• Do we have a differentiated vaccine/technology/capability uniquely positioned to address an unmet need in these attractive indications?  

• What performance thresholds must be met to drive adoption, and what is the probability our vaccine/technology can meet them? 

• Do we have the R&D, regulatory affairs, clinical management consultants, supply chain and commercial capabilities to compete and win? 

• Are there opportunities to drive greater value via partnerships, mergers or other creative deal types?  

• What is the ideal go-to-market strategy?

Though the infectious disease vaccine space is crowded by incumbents, there is a substantial amount of innovation spread across a long tail of smaller vaccine players. Since these new technologies could have the potential to address unmet patient needs and overcome many of the hurdles associated with vaccine development, they could provide the substrate for success that could be paired with the domain expertise, capital and scaled capabilities required to win. This will not be easy and may require creative deal structures and nontraditional funding sources, but it could offer an opportunity to address a key public need more profitably.

The authors would like to thank Sarah Joseph and Brian Weil for their important contributions to this Executive Insights.

For more information, please contact lifesciences@lek.com.