[Ip-health] Wall Street Journal: Glaxo's Big Bet on Battling Pandemics

[Thiru Balasubramaniam]

     * OCTOBER 9, 2009

Glaxo's Big Bet on Battling Pandemics

By JEANNE WHALEN

LONDON -- GlaxoSmithKline PLC has spent five years fashioning itself
into a one-stop pandemic shop. Now, as the swine-flu virus sweeps the
globe, the U.K.-based drug giant will find out whether the world is
buying.

Glaxo began delivering doses of its new H1N1 vaccine this week, the
biggest push so far in its multipronged effort to combat, and cash in
on, virulent virus strains.

The company has spent more than $3.2 billion on research, acquisitions
and extra manufacturing in anticipation of a flu pandemic. Ranging
from vaccines and antiviral drugs to medicated face masks and
diagnostic tools, Glaxo's portfolio sets it apart from rivals that
have tended to focus on one aspect of flu-fighting, such as Sanofi-
Aventis SA, which makes vaccines, and Roche Holding AG, which makes
the antiviral drug Tamiflu.

"Short of putting beds in the labs, we are throwing just about every
resource we've got into this situation," says Chief Executive Andrew
Witty.

With the new H1N1 strain sparking concern around the world, the
company has faced some accusations of profiteering. This summer,
Britain's Evening Standard newspaper said Glaxo was set to charge the
U.K. about $10 for a shot it claimed cost only $1.60 to make. The
politics of pandemic shots are also tricky, because global vaccine
supplies can't meet global demand: Antipoverty group Oxfam has said
poorer countries will have limited access to vaccines because many
wealthy nations have pre-ordered shots from Glaxo and other makers.

Mr. Witty responds that Glaxo is donating 50 million swine-flu shots
to the World Health Organization for use in poor countries. That,
combined with the high cost of research and production, makes Glaxo's
prices fair, he says. Glaxo confirms that the richest countries pay
about $10 per shot. It won't disclose its profit margins but says they
aren't as high as the British paper reported.

Glaxo's bet is risky because flu pandemics, in which a new or rare
virus spreads easily around a large swath of the globe, are relatively
rare. "That's the danger of being in this business -- you can't count
on demand next year," says Gbola Amusa, a pharmaceutical analyst with
UBS in London.

So far, the gamble appears to be paying off. On Tuesday, Glaxo said
governments around the globe have ordered 440 million doses of its
swine-flu vaccine, which it aims to deliver this year and early in
2010. That represents a 50% increase in orders since the company last
disclosed its totals, in August, and could represent revenues of some
$4 billion, Citigroup said in a research note Tuesday. Glaxo's global
sales last year were about $39 billion.

Glaxo has also received an order from the U.S. for about $250 million
worth of bulk-vaccine ingredients and "pandemic products." Sales of
antiviral Relenza, the company's rival to Tamiflu, spiked to about $96
million in the second quarter of the year, from less than $5 million a
year earlier.

Glaxo's strategy reflects how drug makers are pushing beyond
prescription pills as valuable patents expire. The company has faced
competition from makers of low-cost generic drugs on several of its
big sellers, including antidepressant Wellbutrin and epilepsy drug
Lamictal. A business built on vaccines is less likely to be undercut
by low-cost producers: Vaccines are complicated to make, factories are
expensive to build and maintain, and demand for flu shots can be fickle.

Mr. Witty believes that with governments becoming more concerned about
pandemics, the business has staying power.

"We're more than well aware that people don't want to see companies
somehow exploiting this situation," the CEO said at a recent press
briefing. "We're not trying to generate here some crazy level of
profit -- but equally, our shareholders wouldn't want us to do this
for anything other than a return."

Glaxo's flu strategy is rooted in the last global flu scare. In 2004,
the H5N1 virus was killing scores of birds in Asia. Though it didn't
spread quickly from human to human, it killed about half the people it
infected. In September of that year, the U.S. Department of Health and
Human Services summoned a Glaxo research official to Washington to
give a briefing on Relenza, which Glaxo has sold since the late 1990s
to ease the symptoms of seasonal flu.

Mike Ossi, an infectious disease expert at Glaxo, recalls telling
officials that animal studies suggested Relenza might work against the
H5N1 strain, though there had been no human studies. Still, Dr. Ossi
recalls, the health officials kept asking: "How much can you make, and
how fast?"

That helped crystallize Glaxo's focus. Then-Chief Executive Jean-
Pierre Garnier tapped a lieutenant, David Stout, to assemble a team to
focus on pandemic flu. The group started opening new production lines
for Relenza in Australia, France and the U.S., says Dr. Ossi, who was
part of the team. In 2005, the U.S. government placed a large order
for Relenza. Other countries followed.

Glaxo also raced to develop an avian-flu vaccine. At its main vaccine
center in Rixensart, Belgium, researchers already knew the basic flu-
shot recipe: They would isolate the H5N1 virus, allow it to multiply
in a hospitable environment -- chicken eggs -- then kill the viruses
and blend them together to form the main ingredient in flu vaccine,
called antigen.

The challenge was that it takes months to make antigen, and Glaxo's
vaccine plants couldn't make unlimited amounts. Should an avian-flu
outbreak turn into a pandemic, Glaxo would need to stretch its antigen
supply. Also, the company wanted to make a vaccine that would protect
people even if the H5N1 virus mutated into new forms, says Thomas
Breuer, chief medical officer in Glaxo's vaccine division.

The answer to both of these problems, Glaxo decided, was an adjuvant
-- a booster ingredient that makes antigen more powerful. In the
summer of 2005, Glaxo paid about $300 million for a Washington state
company that made the adjuvant it wanted.

Glaxo increased its potential flu-vaccine output, doubling capacity at
a plant in Germany. In September 2005, it announced plans to buy a
Canadian flu-vaccine maker, ID Biomedical Corp., for about $1.4 billion.

The investments helped make Glaxo a leading flu-shot maker. France's
Sanofi is considered the flu-vaccine industry's biggest producer,
followed by Novartis AG of Switzerland and Glaxo. Other large
producers are AstraZeneca PLC of the U.K. and CSL Ltd. of Australia.

With its bird-flu vaccine in hand, Glaxo started promoting the shots
hard, says David Fedson, a vaccine expert who once worked for Aventis
Pasteur MSD, a vaccine venture now partly owned by Sanofi.

The U.S., Switzerland and Finland ordered H5N1 vaccine from Glaxo,
helping it sell about $230 million worth in 2007 -- nearly as much as
the company's sales of seasonal-flu vaccine that year. Bird flu
continued to spread, slowly, among humans. But it failed to be
classified a pandemic. In 2008, Glaxo's sales of H5N1 vaccine fell, to
about $105 million.

Glaxo kept pushing. It signed contracts with governments, promising to
supply millions of doses of vaccine should an H5N1 pandemic -- or any
other flu pandemic -- arise. Sweden says it signed such an advance-
purchase agreement with Glaxo in late 2007. Denmark, Switzerland and
others signed similar deals.

In May 2008, Mr. Witty took over as Glaxo's chief executive and put
even more focus on flu. He aimed to make Glaxo a "one-stop shop" for
managing influenza, and reorganized Glaxo's marketing effort to
emphasize the "integrated package of products and services" the
company could offer governments, says Peter Cook, chief executive of
Biota, an Australian company that developed Relenza and licensed the
rights to Glaxo.

Throughout 2008, as bird flu continued to circulate, Glaxo
representatives made frequent house calls to countries' health
ministries. At a flu conference in September, Glaxo issued new data on
a test of its H5N1 vaccine, arguing that the shots were still valuable
to damp a pandemic's impact should one emerge.

When swine flu surfaced in Mexico and the U.S. in April, Glaxo quickly
shifted gears. It says it asked governments how much Relenza they
needed, and switched on spare factories to churn out more. It also
started building new production lines with the aim of tripling overall
Relenza production, to more than 190 million packs a year.

Glaxo also doubled the number of people working on pandemic flu
vaccines in order to develop an H1N1 shot quickly, Dr. Breuer says.
Vaccine-unit members called the governments that had signed advanced-
purchase deals. Many activated the orders.

As the swine-flu virus spread, Glaxo flu experts intensified their
visits to national health ministries. Some in the industry say the
company walked a fine line between educating government officials and
making a hard sell.

Glaxo says its visits are aimed at telling governments about the
changing state of the swine-flu virus and about the company's progress
making vaccine and Relenza. "It's not selling," says Jean Stephenne,
head of Glaxo's vaccines business. "You are bringing a public-health
solution."

Glaxo is supplying H1N1 vaccine or vaccine ingredients to the U.S.,
the U.K., France, Germany, Canada and other countries. Last month, it
said that in a clinical trial, one dose of its vaccine with adjuvant
gave more than 98% of people a high level of protection against the
swine-flu virus.

Glaxo sought other angles on the pandemic. From its talks with
governments, it saw officials were worried about keeping key workers
healthy during a pandemic -- "doctors, nurses, people who work in
power plants," says Eddie Gray, president of Glaxo's pharmaceutical
business in Europe.

Glaxo decided that a quick flu-diagnosis tool could help hospitals and
other workplaces determine whether workers were infected. "We talked
to some [governments] and said, 'Does this sound like something you'd
be generally interested in?'" Mr. Gray recalls.

The answer was yes. In July, Glaxo announced a deal with Enigma
Diagnostics, a U.K. company, to develop a machine that would diagnose
flu viruses from swab samples in 60 minutes or less. The partners aim
to get the kit on the market by early 2011.

One of Glaxo's R&D scientists came up with another idea: medicated
face masks. When swine-flu fear kicked in this spring, some people
sought to protect themselves by donning standard surgical masks in
public. Glaxo produced Actiprotect, a mask with a coating that it says
helps block viruses by killing them on contact. The company says its
own tests have shown the mask kills more than 99% of many types of flu
viruses within a minute of contact.

Glaxo is pitching the masks as useful for health-care workers and
others, and says it has so far sold 15 million to various governments.
The company declined to say how much the masks cost and says it is
still deciding whether to offer them to consumers.

Write to Jeanne Whalen at jeanne.whalen@wsj.com
Printed in The Wall Street Journal, page A1



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


Tel: +41 22 791 6727
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