Swine flu vaccines and elasticity of supply

The scale of the ordering of swine flu vaccinations by governments across the world is eye-wateringly large! GlaxoSmithKline plc - one of the world’s biggest pharma companies has reported that governments around the world have so far ordered 440 million doses of its pandemic swine-flu vaccine Pandemrix. GlaxoSmithKline has been engaged in a tense race to get new swine flu vaccines onto the market fighting the likes of Sanofi-Aventis, Novartis AG and AstraZeneca to win contracts for public health programmes. 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

The Guardian reports that:

“The company makes the vaccine in Dresden and Quebec but the demand is so great – about 60% higher than for usual seasonal vaccines – that it is also outsourcing production to third-party manufacturers.”

According to the Wall Street Journal

“Glaxo hasn’t released information on cost per dose of the vaccine. However, Chief Executive Andrew Witty said in July that Glaxo was charging wealthy nations $10.26 per H1N1 vaccine shot and developing countries less. The drug maker is also donating 50 million doses to the World Health Organization.”

The Independent reports that

“The United States has begun a massive campaign aiming to vaccinate 250 million people against the illness by year’s end.”

And the Times reports that “total booked orders for the drug are worth about £2.2 billion — a significant sales and profit windfall as a result of the swine flu epidemic”