Pediatric Vaccine Stockpile at Risk

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Pediatric Vaccine Stockpile at Risk

Sun Apr 17, 1:00 AM ET

By David Brown, Washington Post Staff Writer

Just three years after the largest and most serious shortage of childhood vaccines in two decades, the federal government's stockpile of childhood vaccines, designed as a buffer against shortages, is nearly empty -- and without immediate prospects of being filled.

Three of the four companies that produce the shots recommended for every American child told the federal government last year that they would not sell their products to this little-known but important piece of the nation's public health infrastructure.

Although opinions differ, it appears that the Pediatric Vaccine Stockpile has become an innocent bystander wounded in the government's crackdown on deceptive accounting practices.

No one has accused the vaccine manufacturers of wrongdoing. However, they can no longer treat as revenue the money they get when they sell millions of doses of vaccine to the stockpile because the shots are not delivered until the government calls for them in emergencies. Instead, the vials are held in the manufacturers' warehouses, where they are considered unsold in the eyes of auditors, investors and Wall Street.

Today, the stockpile contains 13.2 million doses of vaccine, less than one-third of the goal of 41 million doses. It is supposed to hold supplies of eight shots that together protect against 11 childhood diseases. However, for two of those products -- including the workhorse DTaP, which protects against diphtheria, tetanus and pertussis -- it contains no doses. The vaccine is not in storage in company warehouses or anywhere else. It simply does not exist.

Created by Congress in 1983, the stockpile is supposed to contain enough vaccine to supply the nation's needs for six months. Its virtual collapse is an acute embarrassment to the Department of Health and Human Services, the Centers for Disease Control and Prevention, and the vaccine makers.

The stockpile has never reached its full target amounts, but its depleted state now means the nation could not easily weather another big vaccine shortage, potentially putting the health of millions of children at risk. Only two vaccines -- measles, mumps and rubella (MMR), and varicella (chickenpox) -- are warehoused in the desired amounts.

Memories are still fresh of 2001 and 2002, when the country did not have adequate supplies of five vaccines that together protect against eight diseases. That shortage did not lead to an increase in death or disease, but it did require physicians and clinics to ration and temporarily change the routine schedule of shots.

In testimony before Congress, Walter A. Orenstein, then head of CDC's National Immunization Program, called the situation "unique and unprecedented."

Last winter, the United States experienced a shortage of influenza vaccine. That product is not in the pediatric stockpile, but the near hysteria that erupted when contamination in a factory cut the supply of flu shots in half was further evidence of how vulnerable the nation is to the decisions and fortunes of the few remaining U.S. vaccine makers.

Although there have been informal discussions among the CDC, HHS, the Securities and Exchange Commission, vaccine companies and congressional staffers, there has been no concerted effort to find a solution that will persuade the companies to resume sales.

"If it was up to me, I'd start the meeting at 1 o'clock, lock the door, and wouldn't let anyone leave until they had found a solution," said Jerome O. Klein, a pediatrician at Boston University School of Medicine and a member of the National Vaccine Advisory Committee.

Klein's frustration is starting to be reflected in Congress.

"It's inexcusable that even though the administration had the money for this, they haven't made any progress," Rep. Henry A. Waxman (news, bio, voting record) (D-Calif.) said recently. "I don't care how they solve it -- they should just solve it."

The ranking Democrat on the Committee on Government Reform, Waxman said he is willing to sponsor legislation to carve out a legal exception that would allow companies to "recognize" revenue from sales to the vaccine stockpile -- if such a radical step becomes necessary. One of the companies, however, said its problem is not with "revenue recognition" but with the details of managing the vaccine inventory.

Other parties were reluctant to discuss possible solutions or who, if anyone, is to blame for the empty shelves. The SEC, which enforces accounting practices, would not speak on the record. HHS officials would not make available the person talking to the SEC on the matter. The department referred questions to its subordinate agency, the CDC, whose officials said important decisions about the stockpile are being made at the department level.

The firms that have stopped selling vaccine to the stockpile provided some information. Merck & Co. Inc., the one company still making new contracts with CDC, was silent.

The stockpile's usefulness is not theoretical. The government has gone into it nine times since 1984, the year after it was established. This was done to get vaccine for immediate use in a disease outbreak, or to prevent supply disruptions when a manufacturer had production problems or shut down a plant.

In January 2002, the government withdrew 700,000 doses of MMR vaccine when Merck, the manufacturer, had problems at a factory. In August 2003, CDC used 46,000 doses to fight a measles epidemic in the Marshall Islands.

In both cases, the government took out vaccine stored by the manufacturer but owned by HHS under a "buy-and-hold" contract. That long-standing arrangement benefits the government because it includes a provision to prevent the stockpiled vaccine from expiring and having to be discarded. While the government owns the vaccine, the companies are paid to store and rotate the stock. When a vial's shelf life falls below 12 months, it is sold on the open market and immediately replaced by newly made product.

Historically, companies could list as revenue the money they got for vaccine sold to the stockpile this way. That is no longer true.

Although the vaccine makers may use income from the sales any way they want, in accounting terms the money can no longer be "recognized" as revenue. Because the amounts of vaccine are large -- the stockpile has a target of 10 million doses of DTaP, for example -- excluding those sales from the bottom line makes some companies unhappy.

The accounting change came after the SEC issued a bulletin in December 1999 seeking to clear up confusion about revenue recognition.

Booking phony, theoretical or incomplete sales is the most common way companies make themselves look more profitable than they are. According to the Huron Consulting Group, over the past five years problems with revenue recognition were the leading reason U.S. corporations had to amend or refile financial reports. There were 253 such restatements last year, a record.

The SEC does not believe it created new accounting standards with its bulletin, but it gave companies a timetable for compliance. Accounting giant PricewaterhouseCoopers, which audits all four vaccine makers, sent clients an analysis in January 2001 noting that "we expect the implementation . . . to have a significant impact on the revenue recognition reporting practices of a number of [companies]."

The vaccine situation came to a head late last summer when CDC asked the manufacturers to make new sales to the stockpile. Three said no. Only Merck said yes.

Sanofi Pasteur (formerly Aventis Pasteur) wrote on Aug. 26: "Almost 2 years ago, AvP raised the 'revenue recognition' issue with CDC. . . . We understood from our conversations that we were the first manufacturer to do so. . . . We stated then that short of SEC changes in the interpretation of Staff Accounting Bulletin # 101, and/or changes to the stockpile terms, that AvP would be out of the stockpile business."

Wyeth, which had previously sold vaccines against polio and Haemophilus influenzae type b to the stockpile, did not mention revenue recognition when it, too, declined. Nor did GlaxoSmithKline, which had never participated. GlaxoSmithKline told CDC on Aug. 31 it would not sell DTaP, DTaP-hepatitis B-polio vaccine or hepatitis A vaccine until "the structure for a . . . stockpile agreement can be resolved."

A GlaxoSmithKline senior vice president, David Pernock, said that accounting issues are not a sticking point but that "costs associated with managing and rotating inventory" are.

All three companies say they support the idea of a stockpile. A Sanofi Pasteur vice president, Phil Hosbach, termed its diminished state "really a threat to public health."

Without a solution, the stockpile is likely only to get smaller, and its failure to meet its purpose even more glaring.

Neisseria meningitidis bacteria cause about 2,800 infections a year in the United States, many in college-age adults. Ten to 15 percent of those infected die, and up to 20 percent are made deaf or otherwise permanently disabled.

In January, the Food and Drug Administration approved a vaccine against N. meningitidis infection. Next month, CDC will add it to the list of shots all American youngsters should get -- which means it, too, should be stockpiled.