Not many pharmaceutical executives can say with a straight face that if they are successful, they will really help millions of people live significantly longer and healthier lives around the world.
Julie Gerberding, the former director of the U.S. Centers for Disease Control and Prevention, has been in one of those rare positions for about the past 18 months as president of Merck’s vaccine unit. At Merck (NYSE: MRK), she has been learning the ins and outs of a $5-billion-a-year operation that makes 14 of the 17 vaccines the CDC recommends for children, and nine of the 10 recommended for adults. It would be an understatement to say this job carries a huge social responsibility, both to insure steady supplies of vaccines already on the market, and to develop new ones.
I met with Gerberding earlier this week while she was in Seattle for the Pacific Health Summit, an invitation-only gathering of health leaders in academia, industry, and government. She was there to discuss the next big challenges in the field of vaccines. Part of what brings Merck, Pfizer, GlaxoSmithKline, and other major vaccine companies into the conversation is the realization that vaccines are no longer just a low-margin, high-liability corporate backwater. New technologies propelled the vaccine market to more than $22 billion in sales in 2009, and projections are that it will keep growing by 10 percent a year over the next five years, according to Kalorama Information, a market research firm. For a diversified company like Merck, with $46 billion in total sales in 2010, vaccines are a sizable business segment.
Here’s what Gerberding had to say about the opportunities she sees in the vaccine business, plus a bit about what she’s learned in making the switch from the public sector to the private sector. The interview is edited for length and clarity as always.
Xconomy: Can you talk a little about what kind of scope you have in Merck Vaccines, in terms of people, facilities, and the R&D portfolio?
Julie Gerberding: Vaccines have been in Merck’s DNA forever. We have a tradition of being the scientific source of many of today’s modern vaccines. It’s been a core part of the company, and it will remain a core part of the company. It’s just one of those things Merck has been committed to, and it’s one of the ways we bring value to people. We have a very strong pediatric portfolio, and one of our unique strengths is our adult portfolio. We have a very broad spectrum of vaccines available for adults, either manufactured by Merck or licensed for sale by Merck.
Where we haven’t traditionally focused is in the global environment. The company was very focused in the U.S. and Europe, and now in the last few years has initiated a very broad expansion into new markets. I don’t refer to them as emerging markets. They are new markets that have certainly emerged. We see tremendous unmet need, and tremendous opportunity for Merck to leverage our innovations in ways that bring these products to the kids who need them most.
X: You occasionally hear market research reports say the vaccine market is poised to grow, and build on the success of Gardasil and Pfizer’s pneumococcal vaccine (Prevnar). Do you see that phenomenon happening? Are vaccines taking on increasing importance, or a higher priority, within Merck? And if so, is there a tension between building up a market with high-value vaccines, and some of what these people here [health officials] are looking for, which is low-priced vaccines that are used for a lot of people in the developing world?
JG: It’s very synergistic. No matter what market you are in, we want to deliver value at the best possible price. The fastest way to achieve a price improvement is through volume. So, the more manufacturing we do, the more we cover our fixed costs, and the less expensive on a per-dose basis our vaccines will become. So the more global our outlook, and the more we reach people in the developing world that are the hardest to reach, the more value we bring.
X: What are the biggest challenges in this job? I heard you talk on the panel about so many different priorities people have. There is getting vaccines we already have to people who need them, developing novel ones, optimizing existing ones, stockpiling for pandemics. What are your top priorities, and lower priorities?
JG: Our top vaccine priority is to get vaccines to the people who need them most. We are really working hard on access and coverage and completion. We have some products where we can give the first dose, but we need to make sure people get all the doses they need so they are completely covered. We have some challenges in opening markets in new environments, and really reaching the people there. And we have challenges in financing, in things like GAVI (Global Alliance for Vaccines and Immunizations) mechanisms, getting them to work in a reliable, long-term way. One of the things I think all the manufacturers face, whether they are in an emerging market environment or a multinational company, is that we need stability of forecasting. We can’t live in a situation where we might be able to provide 60 million doses to GAVI this year, but next year, they might not have money. We need stable, long-term commitments so we can do our own production forecasting, and achieve those cost savings that will allow us to be able to offer vaccines at the access price. That seems like an easy thing to do. GAVI is talking about five years of funding, but one of the things people don’t understand about vaccine manufacturing is that they have a much longer runway than pills. Our planning horizon is 10 years, not five years. We’ve got to know what we are doing 10 years from now, because if we have to scale up our production capability or change something, it takes that long to commission a vaccine production facility, or de-commission one and change it to do something else.
X: Do you see a real advantage here, though, with vaccines in terms of not having the patent cliff issue like you see with drugs? Because these products aren’t as easy to cheaply copy like conventional small-molecule pills.
JG: Sure. The business model is very different. It’s not about trying to maximize your unit profitability fast before your patent wears out. With a vaccine, it’s about how can we continue to position the product, or evolve the product in its life cycle so that it continues to deliver value to people. That can be forever. Our measles vaccine has been around a long time, and it’s still delivering enormous public health value. We don’t have the patent cliff in our way. A bigger challenge is that we, all of us in the world of vaccines, can imagine innovations, bio-process improvements, other things that might improve our ability to lower costs, or speed up production, or localize production in new markets, but the regulatory environment hasn’t caught up with our innovation capability. For me, the biggest single issue is improving regulatory science so that we have the opportunities to implement and execute on bio-process innovations that we think will accelerate market access for poor people.
X: What exactly is the problem at the regulatory level?
JG: In vaccines, the process is the product. Any change you make in how you process your route to the vaccine actually changes the product. Often, you are faced with needing to do clinical studies, or make macro investments in a way that would simply discourage you from moving in that direction. That’s a little different from making a tablet. As long as at the end of the day you have the stated composition of matter, and quality, there’s more flexibility. There are more stringent controls of biologics, for safety purposes. The intent is right, but we need to figure out mechanisms where we can have a continuous quality improvement process that works for the regulators and also allows us to accelerate innovations that allow greater market access.
X: When you talk about regulatory agencies, and government agencies that are the purchaser of vaccines, you get into politics. That brings the whole vaccine-denier world into the equation. How big of an obstacle is that, and how do you deal with it?
JG: On a global basis, it’s a small issue today. Most people in the world are so grateful to have their child immunized. They see the diseases, and understand how life-saving those vaccines can really be. If you are thinking globally, it’s not the most important obstacle we face. But it’s clearly a powerful local issue in many westernized or developed countries. It’s a growing issue. We have to work harder to engage people in the conversation. And that conversation needs to be led by trusted and credible people, not necessarily vaccine manufacturers.
X: So do you just get out of the way then?
JG: No, we have a responsibility. The most important component of our contribution is that we do make trustworthy, reliable products that address health needs. We should be proud of it. These are critically important products for global health and local health. We don’t need to be silent about the contribution we are making, and our employees should take pride in it. Having said that, for people who have already made up their mind that there are issues around the need for vaccines, the manufacturers are not likely to be the best resource for changing their minds. People need to hear balanced information from trusted peers, and/or their doctor. That’s what we need to learn—what really does motivate people’s behavior. The old model would say ‘we just need to give people better information. If they have the facts, they’ll make the right choice.’ The new model is that it’s not a left-brain decision for many parents—this is a right-brain, heartfelt decision. While they can understand objectively that vaccines are important means of protection, when they are sitting with a child on the lap and deciding to give them a shot, it becomes emotional for the parent. Not all parents respond to that situation the same way.
X: When you look at the landscape of vaccines, there are maybe five or so major producers of vaccines left. Do you see much innovation out there beyond those companies, in small biotechs, and in the nonprofit world?
JG: I’m very bullish on vaccines, I think there is incredible innovation going on in the biotech environment. Innovations in antigens [new vaccine targets] and adjuvants [immune-boosting compounds], but also innovations in delivery methods and stability, in combinations that put more than one vaccine in a vial. There’s innovation in vaccine logistics, innovation in vaccine financing, and in partnerships, and translational research. The problem with vaccine innovation is that it isn’t fast. There’s a long runway for these products, and it takes a long time for these products to be commercially relevant and available. You have to be very patient. I’m learning.
X: What’s life been like for you in industry?
JG: I love it. The biggest surprise for me is working in a company where the passion and the commitment to science and integrity of science is as strong as it was when I was working for the CDC. I don’t feel like my work environment has changed very much in terms of what gets people up in the morning and motivates them to come to work. We have an incredibly passionate group of people, and I’m privileged to have a chance to work here.
X: Have you had surprises in the switch to industry, or impressions that might surprise your peers?
JG: From a personal perspective, there’s an enormous amount of learning. I’m not trained, and wasn’t brought up in a marketing environment. I have to learn how to think about value in ways that are focused on respecting what people really need and want, while at the same time keeping in mind what’s practical and feasible from a private sector perspective. Sometimes that balance is challenging. We have lots of great ideas about things we’d like to be able to do, but if they don’t make business sense, it’s going to be a lot harder for us to do them. Or, we have to creative and think about who we can partner with. How can we move this into a nonprofit? Or how can we get a venture capitalist to share risk on this? Can we create a joint venture? The exciting challenge for me is how we can figure out creative ways to do the things we want to do, because they are the right thing to do even when the business model isn’t oriented toward the blockbuster.
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