[Ip-health] Wall Street Journal: U.S. Drug Companies Chase Vaccines

[Thiru Balasubramaniam]

     * SEPTEMBER 29, 2009

U.S. Drug Companies Chase Vaccines

By JONATHAN D. ROCKOFF and PETER LOFTUS

Amid rising concern about the threat of influenza pandemics, three big
drug makers announced deals Monday that give them rights to new flu
vaccines, placing bets on one of the pharmaceutical industry's
brightest, but riskiest, segments.

The deals reflect the growing conviction among pharmaceutical
executives that vaccines against a variety of maladies, long an
industry stepchild, will become an increasingly important source of
growth to replace aging blockbusters that are poised to lose patent
protection.
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Vaccine sales are growing faster than sales of other prescription
medicines and are largely immune to the generic competition that is
already costing drug makers billions of dollars in revenues on their
top-selling treatments.

Moreover, government agencies both in the U.S. and around the world
are increasingly reliable buyers of vaccines as they seek to stockpile
medicines that could help protect the public in case of a major flu
outbreak.

"If you have a new vaccine for a new type of meningitis or swine flu,
that clearly is a major public-health issue and, therefore, the
willingness to pay is going to be greater," said Murray Aitken, senior
vice president of health-care insight at IMS Health.

In one of the deals, Johnson & Johnson paid =80302 million ($441
million) for an 18% stake in Dutch biotech company Crucell NV, in
order to jointly develop vaccines. In addition, Abbott Laboratories
confirmed it will acquire a unit of Belgian conglomerate Solvay SA for
=804.5 billion in a deal that includes a vaccine-making business. And
Merck & Co. said it obtained from Australia's CSL Ltd. for an
undisclosed sum the U.S. marketing rights to a seasonal flu vaccine.
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The deals follow Pfizer Inc.'s accord earlier this year to acquire
Wyeth, one of the relatively few big pharmaceutical companies known
for its vaccine expertise.

Low prices, high costs and fear of lawsuits prompted most large drug
makers to abandon the vaccines business in the 1980s and 1990s. Flu
vaccines involved "a clunky old egg-based process fraught with
difficulty, and the economics stunk," said Alan Shaw, a former Merck
vaccines researcher who is now chief executive of VaxInnate, which is
trying to make flu vaccine in E. coli bacteria.

Big drug companies have re-entered the business as prices have risen
and researchers develop new technologies for improving production.
Merck's Gardasil, for human papillomavirus, costs $130 a dose, and
Prevnar, a pneumococcal vaccine from Wyeth, costs nearly $84 a dose.

"Other companies have decided that they really missed out on that
tremendous growth opportunity," said Margie McGlynn, president of
vaccines and infectious diseases at Merck, which never left the
business. With the deal to sell the Afluria seasonal flu vaccine in
the U.S., Merck would market eight of the 10 vaccines recommended for
adults.

Flu vaccines typically average $10 to $20 a dose. Despite their low
price, analysts say companies like them because they provide a steady
source of revenue. Vaccines are expected to generate $21.5 billion in
sales by 2012, according to Sanofi-Aventis SA, a leading vaccine maker.

Vaccines are especially attractive to drug companies looking to
Brazil, China and other emerging markets for growth. Governments are
seeking vaccines to protect their populations from a potential flu
pandemic. They also view other vaccines as good values, since for as
little as $10 a shot the injections prevent illnesses that would cost
far more to treat. Companies, meanwhile, say the relationships forged
in selling vaccines can benefit sales of their other products.

J&J will be working with Crucell on the development of a vaccine that
would protect against all flu strains. "If we developed a universal
vaccine, then there would be no need anymore for annual change of the
vaccine and probably no need anymore for annual vaccinations," said
Paul Stoffels, J&J's global head of pharmaceuticals research and
development.

Vaccines still carry risks for the companies. Some lawyers are trying
to circumvent government efforts, such as a "vaccines court" in the
U.S., that shield drug makers from vaccine-related litigation. Foreign
governments like Russia have pushed companies to lower their prices.
And despite improvements, manufacturing remains difficult and complex.
Seasonal flu vaccines, for instance, are tough to produce because they
are made inside chicken eggs.

Yet there have been so many deals involving big pharmaceutical and
smaller vaccine businesses over the past several years that "there are
not many companies left" to be bought, said Holger Rovini, lead
analyst for infectious diseases at Datamonitor, which advises drug
companies on the vaccines market. One remaining potential target, he
said, is Baxter International Inc., which is making an H1N1 flu vaccine.

Baxter declined to comment.

For Abbott, vaccines are only part of the rationale for the Solvay
deal. In announcing the transaction, Abbott CEO Miles White said he
hopes acquiring the company's pharmaceutical assets -- which include
cholesterol remedies, hormone treatments and a pipeline with new drugs
for hypertension and Parkinson's disease -- will help dispel concerns
about the company's future profit growth.

Analysts have been particularly concerned about the company's reliance
on the arthritis drug Humira, which accounts for 15% of its revenue,
but which has suffered significantly slowing growth in recent quarters.

Investors responded warmly to the acquisition, pushing Abbott's shares
up 2.6% to $48.58 in 4 p.m. composite trading on the New York Stock
Exchange.

Derrick Sung, analyst with Sanford C. Bernstein & Co., said the deal
will boost Abbott's bottom line and help it expand into emerging
markets -- an increasingly important strategy as pressures have
mounted recently on the U.S. prescription-drug market, long a major
profit driver.

But Credit Suisse's Catherine Arnold, while acknowledging the profit
boost, said she would have preferred to see Abbott pursue "more
strategic assets that would add better long-term growth."

Write to Peter Loftus at peter.loftus@dowjones.com

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Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru@keionline.org


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