Lessons learned: New procurement strategies for vaccines

1. Lessons learned:New procurement strategies for vaccines

2. Project objectives and deliverables Vaccine Market and Economic Fact Base and Implications Procurement Process, Roles and Responsibilities • Renew market and industry fact base • Map the market by segment, doses and revenue • Model the economics by vaccine and in the aggregate • Develop set of procurement strategy priorities • Map forecasting and procurement processes • Map forecasting and procurement roles and responsibilities • Identify gaps against procurement strategy priorities Analytics Deliverables • What procurement options, with what impact on GAVI and Vaccine Fund objectives? • What optimal forecasting and procurement processes? • What definition of roles and responsibilities? GAVI Objectives • Balance affordability with other objectives • Balance within other objectives • Send consistent messages • Execute well

3. Market growth: RevenueHigh income markets buying proprietary, enhanced or adult products have driven revenue growth. Spend By Product Segment Spend By Buyer Segment $ in millions $ in millions CAGR CAGR $6,016 $6,016 Adult/Travel 12% 12% Adult/Travel High Income Pediatric 8% Proprietary Pediatric N/A $ 2,870 $ 2,870 Middle Income Pediatric 16% Enhanced Pediatric 8% Low Income Pediatric 15% Basic Pediatric (6%) Doses (bn) 4.0 5.3 4% $0.72 $1.11 6% Average Price Source: team analysis, 1992 Vaccine Report.

4. Demand divergenceLow and middle income markets increasingly represent the sole source of demand for basic pediatric vaccines. DTP Coverage in High Income Countries OPV Coverage in High Income Countries BCG Coverage in High Income Countries Source: team analysis, 1992 team report, WHO coverage statistics

5. Vaccine cost behaviorProduction costs can be grouped into three different categories, based on how they behave. Average Cost Contribution1 Cost Category Definition Examples Variable Costs • Unit cost is constant • Cost increases directly with increased volume • Vials, stoppers, labels, packaging, in-sourced components 15% Semi-Variable Costs • Batch cost is constant, regardless of number of doses • Cost per dose falls with an increase in batch size • Labor (production and testing) • Animals 25% Fixed Costs • Cost is independent of volume • Cost per dose falls with increased number of doses produced, to capacity limit. • QA and admin. labor2 • Depreciation • Other manufacturing overhead 60% Determined by: Vaccine-Specific Characteristics Company-Specific Characteristics Factor Costs 1 Average contribution to cost per dose for three major European suppliers; fixed costs exclude R&D and sales. 2 R&D and sales labor are also fixed costs, but are excluded from the analysis of production costs.

6. Factors impacting vaccine cost variabilitySix factors drive production cost differences between vaccines. • Presentation • Scale of operations • Supply policy for vaccine inputs • Supply base location • Vaccine batch size • Vaccine production characteristics Customer-specific Supplier-specific Vaccine-specific

7. Presentation effectSingle dose presentation drives higher variable and semi-variable filling costs and increased depreciation burden, particularly for lyophilized vaccines. Average cost per Dose Across Vaccines1 – Liquid Form2 Average cost per Dose Across Vaccines1 – Lyophilized Form3 $1.40 Other Fixed Depreciation Cost per Dose Cost per Dose $0.87 Other Fixed Semi-variable Depreciation $0.49 $0.36 Semi-variable Variable Variable 1 Multinational producers only. 2 Includes TT, DTP, Hep B. 3 Includes MEA, MMR, Hib.

8. Batch size effectThe cost impact of batch size, typically fixed at the time of scale-up, varies by vaccine and diminishes at higher absolute scales of production. Batch Size Effecton Bulk Cost1 (Based on a Representative Multinational Supplier) Current bulk cost per dose Cost per Dose Bulk cost per dose with batch size of 5MM doses $0.12 OPV $0.02 Hep B Batch Size (MM Doses) 1 Includes bulk production and testing labor and animal costs.

9. Supplier overviewThere are five kinds of suppliers. Multinationals U.S. Multinationals European Multinationals OECD Local Emerging Suppliers Developing Country Local Product Range Narrow Broad Narrow Narrow (Hep B) to Moderate (Traditional EPI & Hep B) Narrow Scale Low High Low Moderate-High Low-High Customer Focus Mostly industrialized All buyer segments Mostly in-country In-country & other developing countries All in-country R&D Activity High High Low Low-Moderate Low Merck Wyeth Aventis-Pasteur GSK Staten Serum Inst. CSL Powderject Serum Inst. of India BioFarma Green Cross China Egypt Vietnam Chiron

10. Supplier relevance to GAVI objectivesEmerging and multinational suppliers have different things to offer relative to GAVI’s objectives… Multinational Suppliers Emerging suppliers • Low cost • High potential capacity • Potentially improves local commitment to immunization • UNICEF/GAVI an important customer/high profit • Significant R&D capability • Product pipeline • Broad product range • Process know-how • Reliability Pros • Limited R&D resources • Narrow product range • Political instability • Mixed record on reliability • High cost • UNICEF/GAVI not “core” business/low profit • Regulatory divergence • Potential capacity constraints Cons Investment in R&D Capacity? Affordability Capacity?

11. Required procurement approachMeeting its objectives from suppliers requires that GAVI and the Vaccine Fund provide: • Appropriate returns for suppliers • Credible and predictable demand • Open, collaborative relationships with suppliers • A credible, profitable market today • Focus, both in terms of priority and supplier, to maximise leverage To ensure supply To encourage R&D

12. Review of 2000/2001 procurement activityAs a result of GAVI activities, there are significant efforts to expand DTwP-based combination capacity. Supplier Plans for DTwP-Based Combinations with Hep B and/or Hib Supplier Product Timing/Status • GSK • DTP capacity in Hungary for combinations • Additional capacity available in 2004 • Aventis-Pasteur • Hep B and combinations • 2006 for monovalent, 2008 for combinations • Chiron • DTP-Hib • In production, available from August 2002 • Chiron/Green Cross • DTP-Hep B-Hib • Available by 2005 • Serum Institute of India • DTP-Hep B, DTP-Hep B-Hib • In clinical trials on quadrivalent, pentavalent 3-5 years away • Biofarma • DTP-Hep B, DTP-Hep B-Hib • 2-3 years away on quadrivalent, 5 years away on pentavalent • Chendu • DTP-Hep B • In clinical trials Source: Company interviews, WHO

13. Review of 2000/2001 procurement activityForecasting, RFP issuance and awards did not support the objective of credible and predictable demand. All Vaccines1 Hepatitis B Monovalent 98 81 Number of Doses (MM) Number of Doses (MM) 68 18 7 % of Award Delivered 18% 11% Source: RFP (August 14, 2000), UNICEF Supply Division self-assessment, UNICEF Supply Division website. 1 Includes Hep B and Hib volumes, based on number of antigens (e.g., DTP-Hep B-Hib counts as 2 doses).

14. Issue Causes Lessons learned • Pressure of time • Focus on financing (vs. program or supply) • Effectiveness of a loose alliance in implementing (vs. developing policy) • Discomfort with suppliers as partners First GAVI vaccine procurement : Issues and lessons learnedTo implement effectively, GAVI needs to adopt a multidisciplinary project management model • Define and agree on “next initiatives”: Strategy • Start planning now • Mismatch between contract awards and offtake • Overlapping roles and responsibilities amongst partners; lack of clear accountability • Weakness in collaborative and open relationships with suppliers • Must align and coordinate supply, financing and program activities to implement successfully • Planning and execution require an active, properly resourced and accountable project management function • Best practice thinking supports maximum information sharing • Favor bilateral routes and level playing field

15. Strategy Execution Planning Lessons learnedThere are three distinct phases to introducing a vaccine. Coordinating Function StrategyDevelopment Program Finance Forecast Procure Deliver Supply Multi-year, iterative process

16. Program(UNICEF PD or WHO) Finance(Vaccine Fund) Supply(UNICEF SD) • Country by country offtake accuracy (volume, time) • Overall offtake accuracy • Coverage trends • Committed fund offtake • Financing return • Uptake of vaccine covered by committed funding • Availability/pricing trends • Accuracy of availability assessments • Delivery reliability • Price forecasting accuracy • Supplier information sharing Next stepsThe urgent need for a forecast for 2004-6 procurement represents an opportunity and a need to pilot this approach. Oversight body(Working Group?)(Sub-committee of board?) • Forecast accuracy • Percent committed funding • On time delivery of forecast • Meeting deliveries for coverage targets Project manager(UNICEF PD or WHO) Metrics