Drug Makers No Longer Sneeze at Vaccines
By JOHANNA BENNETT
ONCE UPON A TIME, drug makers avoided vaccines like the plague.
And who could blame them? Widely considered less profitable than traditional drugs, vaccines are also financially risky to discover and difficult to manufacture.
But GlaxoSmithKline's decision last week to buy Canadian flu-vaccine maker ID Biomedical, and Novartis' recent offer to acquire the 58% of U.S. vaccine maker Chiron it doesn't already own, are the latest moves by large pharmaceutical makers hoping to generate big profits from vaccines.
"The drug industry finally realizes that there is money to be made in vaccines," says Les Funtleyder, a health-care strategist for Miller Tabak.
Amid fears of bioterrorism, a global flu pandemic and new viruses like avian flu, drug makers are revisiting and even expanding their vaccine businesses.
Plagued by weak pipelines, patent expirations and lagging sales growth, drug makers hope to capitalize on a $9.5-billion global vaccine market that could more than double by 2010 after a string of new vaccine launches.
Worldwide vaccine sales should reach $25 billion by 2010, says Zach Wagner, an analyst with Edward Jones.
Commonly used to prevent influenza and a host of childhood diseases such as measles, mumps and rubella, vaccines expose people to weakened or dead germs, so they can develop antibodies that fight off diseases.
For now, the spotlight is on influenza vaccines, which were in short supply in the U.S. last year after contamination problems stopped Chiron from delivering about 50 million doses, or half the U.S. supply.
Sharing center stage: Avian flu, which affects birds in Asia and Russia, but could, according to health experts, mutate and cause a global epidemic. In the absence of a vaccine, the job of holding pandemic flu at bay will rest largely on a limited stockpile of antiviral drugs.
But pipelines at Glaxo, Merck, Sanofi-Aventis and Wyeth include vaccines for various debilitating and life-threatening ailments, including new markets such as HIV and cervical cancer.
"In a sense, all the planets are in alignment," says Dr. Pascal James Imperato, former New York City health commissioner and chairman of the department of preventative medicine at SUNY Downstate Medical Center. "A confluence of events [has] given rise to pharmaceutical companies once again showing an interest in producing vaccines."
By 2008, Glaxo says it should double its flu vaccine business. It already has a new and improved flu vaccine in early development. Plus Glaxo, Sanofi and Chiron are working on avian flu vaccines. Glaxo also is in the early stages of developing an HIV vaccine.
But Wall Street remains most excited about the race between Merck and Glaxo to launch the first vaccine that attacks the human papillomavirus (HPV), a sexually transmitted disease contracted by 5.5 million Americans and linked to cervical cancer.
Expected to generate sales of $8 billion by 2010, it's an untapped market. Both Merck and Glaxo could launch their vaccines as early as next year.
Merck, which may face thousands of lawsuits over the arthritis drug Vioxx, could depend heavily on its vaccine business in the years ahead.
As patents expire on the cholesterol drug Zocor and other blockbusters, Merck plans to launch four new vaccines in the coming years to help offset those revenue losses.
By 2010, vaccine sales should account for 20% of Merck's revenues -- or about $4 billion. Last year, vaccines generated only 5% of the company's revenues.
At 28.70, the stock trades at 11 times projected profits over the next four quarters compared to a five-year median of 15.2x, according to Thomson Financial/Baseline.
"[Vaccine sales] are not enough to offset the patent losses. But vaccines are growing. Actually, on a proportional basis, they will explode," says Wagner.
Much larger and facing fewer problems than Merck, Glaxo depends less on vaccine sales, which generated 6% of revenues in 2004.
But Glaxo plans to launch five vaccines by 2010 as part of plans to expand that business.
Over the next five years, vaccine sales should grow by about 16% annually, says Wagner. By 2010, vaccine sales should account for 13% of Glaxo's total sales, he adds. That's about $6 billion.
"They have a long history of focusing on vaccines. They are going to make a real contribution in this area," says George Fulop, an analyst with Needham & Co.
Up 18% over the last 12 months, Glaxo's stock trades at 15.4x projected profits over the next four quarters, compared with a five-year median of 22.3x forward earnings, according to Thomson Baseline
But the vaccine market is hardly immune to problems.
Clinical trials and manufacturing are expensive, and companies face tough regulatory obstacles. Wagner and other analysts worry that vaccines may actually drag down drug makers' profitability in the short run.
Also, failures or delays in getting new vaccines through the Food and Drug Administration could scare away investors.
But as fears of pandemics boost demand for flu vaccines, and with several hot new products in development and new manufacturing methods on the horizon, vaccines may be just the shot in the arm that Big Pharma needs. |
