How Much Flu Vaccine Do Pharmaceutical Companies Need to Produce?

When you picture the intersection between business and health care, you might see social impact – innovators who design new ways to make us all healthier.

Take, for instance, Medha Sharma, who plans to graduate with a Wharton School MBA degree in 2025. While Medha is studying to be a doctor, she is also in Wharton’s Health Care Management Program because she hopes to build a healthier world through innovation. Medha is moved by the idea that health outcomes are influenced by non-medical factors like education and economic stability – otherwise known as social determinants of health (SDOH). She founded a Social Determinants of Health Accelerator, funding medical students to work as consultants for SDOH-focused start-up companies that work to improve health challenges like addiction and chronic absenteeism in schools.

Wharton Global Youth will be exploring more about how the entrepreneurial mindset is making a difference in medicine – for both patients and practitioners.

Studying the Flu

But first, we want to stop by Wharton’s OIDD, better known as the Operations, Information and Decisions Department, where students are learning to make better data-driven decisions that have a very different impact on the business of health care – and how companies operate and manage public health.

Hummy Song, a Wharton associate professor of operations, information and decisions, as well as health care management, visited some 300 high school students learning in Wharton Global Youth’s summer programs on the school’s Philadelphia campus, to offer a look into her data-informed research about the pharmaceutical industry, which discovers, develops and manufactures drugs to treat illnesses.

The goal of OIDD, noted Dr. Song, is to give students frameworks, tools and analytical skills to make more informed, data-driven decisions as future business leaders and managers.

She dug into the data to illustrate the decision-making and operations of pharmaceutical companies that produce flu vaccines (think Sanofi), a core part of the health care industry that must balance business priorities like supply, demand, costs, and profits.

“Every year pharma companies are developing flu vaccines,” noted Dr. Song, whose research focuses on identifying ways to improve the performance of service systems, with a particular emphasis on the health care sector. “In the U.S., they’re going to pay attention to data from Australia or New Zealand, where the flu season comes much earlier. So, we’re looking at strains of mutated virus that are being captured and studied there and the U.S.-based pharma companies that develop vaccines for the U.S. market are going to use that to try to come up with a vaccine that’s going to be more up to date in terms of a strain that might show up in the U.S. Every year this cycle is happening and every year in addition to the R&D [research and development], pharma companies are going to have to make some decisions about how many doses of vaccine they need to produce.”

How do the numbers inform those decisions? Dr. Song offered a few examples:

Flu season at a glance. The Centers for Disease Control and Prevention or CDC releases data that helps to guide decision making in the health care industry, including the annual estimated number of flu-related illnesses, medical visits, hospitalizations and deaths. This helps pharmaceutical companies understand the scale and impact of the previous year’s flu season.

Vaccine effectiveness. “The idea behind having flu vaccines ultimately is to try to prevent serious illnesses and deaths,” noted Dr. Song. Data revealing how many flu-related illnesses, medical visits, hospitalizations and deaths were estimated to be prevented by flu vaccination in the previous season is important intel for pharmaceutical companies as they make decisions about vaccine production.

Who is getting a shot? Data tracks the vaccination coverage rates among different adult age groups over time. This gives the pharmaceutical companies insight into the demand patterns and trends for flu vaccines, which is crucial for forecasting expected demand.

“How much flu burden is there? How many people actually want the shot? This is the kind of data companies want to understand…to determine how many doses of flu vaccine they should be producing,” said Professor Song, adding that pharmaceutical companies have to decide on vaccine supply before they know the actual demand since production begins well before the arrival of flu season each year.

Dr. Song detailed other critical information (OIDD!) related to operations management, pricing and risk management that influences pharma decisions about vaccine production:

💊 The optimal decision is to supply exactly the amount of vaccine that matches the expected demand, which will maximize profits by avoiding unsold vaccines (overproduction) and lost sales (underproduction).

💊 You need to know the costs that the producer of vaccines will incur for producing each dose and also the vaccine producer’s revenue. So, in addition to demand, how much does it cost for me to produce these things? And if I sell them, how much am I going to make off of that?

💊 Companies need to consider the costs of underproduction (lost revenue per unsold dose) versus overproduction (cost per unsold dose) to determine the profit-maximizing supply level, which is typically slightly below the expected demand.

💊 Not every question decision-makers are faced with is about expected profits. Sometimes you’re going to have competing objectives that you need to weigh and balance, like the overall welfare of the population and preventing illnesses and deaths.

Aligning supply and demand in the health care industry can be challenging, prompting pharma companies to use data and analytical models to make smarter vaccine-production decisions. Critical ratio, an equation that helps optimize supply decisions in the face of demand uncertainty, is one framework that OIDD students learn to guide operations and production management.

Concluded Dr. Song: “The biggest compliment I hear from our students once they’ve learned about these things — especially as they worked on summer internships or maybe they are MBA students who were working at different companies – is that they say, I wish I knew about [data-driven decisions] because I would have not only made better decisions, but also been able to defend them better in meetings, and confidently would have been able to say: here’s the data I utilized, and here’s the reason why I think you should make this decision.”

Conversation Starters

How does data help to inform pharmaceutical companies about the challenge of supply and demand for flu vaccines?

What is OIDD? Does it sound like something you would study? Why or why not?

Take a look at the CDC’s estimated flu burden data. What interests you about this information? How might it inform your own decisions, in business or otherwise?