For the purposes of modeling the decisionmaking process and expected returns for a vaccine producer, we chose to model a theoretical new vaccine effective in preventing acute bacterial otitis media (ABOM). ABOM was chosen because otitis media is an infectious disease for which efforts to develop a preventive vaccine are already underway; therefore, we were able to find published studies including data specific to this indication that could be used in our modeling.^{17} The obtained results should be interpreted in the context of this indication and cannot be extended to other areas.
Table 19 presents the point estimates for the private ENPV model parameters and assumptions for vaccines. The following sections discuss the basis for these estimates in further detail.
^{17} See, e.g., O'Brien, et al., 2009.

4.2.1 Real Opportunity Cost of Capital

The real opportunity cost of capital represents the rate of return (net of inflation) that the vaccine developer would otherwise be able to earn at the same risk level as the investment in the new vaccine that has been selected. The cost of capital we use in the model is based on information gathered during interviews with industry experts. While vaccines are biopharmaceutical products, they are often developed and manufactured by divisions of big pharmaceutical companies. Thus, even though the experts interviewed reported that biopharmaceutical companies use rates ranging from 18 to 24 percent, we selected the 11 percent rate deemed appropriate for pharmaceutical developers as was done for the analysis of antibacterial drugs in Section 3.2.1 above.
Table 19: Private ENPV Model Parameters and Assumptions (Point Estimates) for Vaccines
Parameter Point Estimate Real Opportunity Cost of Capital 11.0% Preclinical R&D Time (in Years) 4.3 Preclinical R&D Cost $73,901,395 Preclinical R&D Success Probability 57.0% Sample Preparation for Animal/Human Studies $2,676,066 Phase 1 Clinical Trial Time (in Years) 1.6 Phase 1 Clinical Trial Cost $39,838,628 Phase 1 Clinical Trial Success Probability 72.0% Phase 2 Clinical Trial Time (in Years) 2.4 Phase 2 Clinical Trial Cost $46,515,424 Phase 2 Clinical Trial Success Probability 79.0% Process Research/Development/Design $26,760,658 Phase 3 Clinical Trial Time (in Years) 2.7 Phase 3 Clinical Trial Cost $118,590,265 Phase 3 Clinical Trial Success Probability 71.0% Plant Design $13,380,329 FDA Biologics License Application (BLA) Review Time (in Years) 1.3 BLA Submission to Launch Cost $1,958,800 BLA Success Probability 96.0% Plant Build $508,485,294 Total Time to Market (in Years) 12.48 Total Cost of Development $1,413,891,197 Time to Generic Entry upon FDA Approval (in Years) 12 % Reduction in Revenues due to Generic Competition 0.0% Total Product Life (in Years) 20 Average Expected Price per Dose $63 Number of Doses 4 Product Launch Success Probability 60% Because this parameter value heavily influences private ENPV outcomes, we assign a triangular probability distribution with a lower limit of nine percent, an upper limit of 24 percent, and a likely point estimate of 11 percent for sensitivity analysis purposes.


4.2.2 PreClinical, Clinical Phase, and BLA Submission Costs

We estimated perphase costs for vaccine development using outofpocket preclinical and clinical period costs per investigational biopharmaceutical compound from DiMasi & Grabowski (2006). These estimates were given in 2005 dollars; therefore, we inflated them using a consumer price index for medical care from BLS. This resulted in cost totals of $73.9 million, $39.8 million, $46.5 million, and $118.6 million for the preclinical phase, Phase 1 trials, Phase 2 trials, and Phase 3 trials, respectively.
The reported new drug application fee for those drug or biologic product applications requiring clinical data is $1,958,800 for fiscal year 2013. Thus, we use this figure as the BLA submission cost in the model as we did for antibacterial drug products.


4.2.3 PreClinical, Clinical, and BLA Submission Phase Durations

As with drugs, private ENPV for vaccine development is dependent on the duration of each phase and the distribution of outofpocket costs throughout each phase. To estimate the lengths of these phases, we consulted DiMasi & Grabowski (2006), in which phase lengths of 52.0, 19.5, 29.3, and 32.9 months are reported for the preclinical phase, Phase 1, Phase 2, and Phase 3, respectively. The regulatory review period is estimated by the authors to last 16 months (for a total timetomarket of 12.5 years). These phase lengths, applicable to biopharmaceutical compounds, translate to point estimates with the following bounds (in years):
 Preclinical: Lower bound of 3.5, upper bound of 5.2, point estimate of 4.3 years,
 Phase 1: Lower bound of 1.3, upper bound of 2.0, point estimate of 1.6 years,
 Phase 2: Lower bound of 2.0, upper bound of 2.9, point estimate of 2.4 years,
 Phase 3: Lower bound of 2.2, upper bound of 3.3, point estimate of 2.7 years, and
 Regulatory Review: Lower bound of 1.1, upper bound of 1.6, point estimate of 1.3 years.


4.2.4 Preclinical, Clinical, BLA Submission Success Probabilities

Success probabilities (phase transition probabilities) applicable to vaccines were found in Struck, 1996. These were used as likely point estimates in the model, bounded as follows:
 Preclinical: Lower bound of 27.0 percent, upper bound of 77.0 percent, likely point estimate of 57.0 percent,
 Phase 1: Lower bound of 52.0 percent, upper bound of 92.0 percent, likely point estimate of 72.0 percent,
 Phase 2: Lower bound of 59.0 percent, upper bound of 99.0 percent, likely point estimate of 79.0 percent,
 Phase 3: Lower bound of 51.0 percent, upper bound of 91.0 percent, likely point estimate of 71.0 percent, and
 BLA Approval: Lower bound of 76.0 percent, upper bound of 99.0 percent, likely point estimate of 96.0 percent.


4.2.5 Costs of Supply Chain Activities

Vaccine developers, like drug sponsors, need to undertake a variety of additional activities concurrently with clinical development, including sample preparation, process research, process development, process design, and plant design and construction. These activities are discussed in greater detail in Section 4.2.5, and Table 9 in Section 4.2.5 presents the cost estimates for each of these supply chain activities as available from Blau et al. (2004). We use the same figures for vaccines as were used for new drugs, with the exception of plant build costs. For this parameter, we used a vaccinespecific cost estimate found in Murphy (2002) and inflated to 2012 dollars to arrive at a total of approximately $500 million. This is substantially higher than the plant build cost used for development of a new antibacterial drug and reflects the unique challenges of vaccine manufacturing. As vaccines are complex products that are created from living organisms and are mainly given to healthy people (making any side effects highly undesirable), vaccine development involves processes and regulatory requirements that are different from those for drugs intended for use by sick people; therefore, construction of special facilities is a necessity in most cases (Murphy, 2002).


4.2.6 Total Product Life

As for drugs, we use 20 years to characterize the average life cycle of a new vaccine upon market approval (DiMasi, Grabowski, & Vernon, 2004). Though the span of time over which a vaccine is used may extend beyond this 20year period, expected revenues from sales in years beyond 20 contribute very little to private ENPV due to discounting, and the model allows the user to vary this parameter for whatif scenario analysis if needed.
It should be noted that the threat of generic competition which we took into consideration for new drug products is virtually nonexistent for vaccines in the United States. Barriers to generic entry include the lack of an abbreviated application process for biologics such as exists for generic drugs (thus generic entrants would have to undergo the same costly steps of demonstrating safety and efficacy as a vaccine originator would), small markets, and the proprietary nature of some vaccine strains. However, vaccine products may still be superseded in the market by newer, more effective products (Danzon, Pereira, & Tejwani, 2005).


4.2.7 Product Launch Success Probability

According to Griffin (1997), only about 60 percent of new product launches end up being commercially successful. As we did for antibacterial drugs, we use this as our basis for new vaccines. For sensitivity analysis, we use a triangular distribution for the product success probability with a lower bound of 40 percent and an upper bound of 80 percent.


4.2.8 Average Expected Price per Dose and Number of Doses

Before calculating the expected revenues that would be earned by the manufacturer of a new ABOM vaccine, we first estimated the total number of doses that would be required per patient and the average expected price per dose. These were then multiplied by the projected portion of the population that would use the vaccine over the next 20 years (total product life). Consistent with the assumptions made in O’Brien, et al. (2009), in which the authors estimated the projected benefits and costeffectiveness of new vaccines for otitis media that were being developed, we chose to assume that its theoretical new vaccine would require four doses. To estimate an average price per dose, we consulted the most recent Vaccine Price List, available on the Centers for Disease Control and Prevention (CDC) website, and took the average of the minimum and maximum prices reported in the pediatric vaccine list ($9 and $116, respectively) to get an estimated price of $63.

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