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Pediatric Vaccine Stockpile at Risk

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.


Rita Lamb administers vaccine to Chandler Campbell, 5, at a health center in Las Cruces, N.M. The nation's stockpile of childhood vaccines is depleted. (Norm Dettlaff -- Las Cruces Sun-news Via AP)

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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.


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