Long, profitable life of vaccines means it's not just the ill clamouring for them

Lucy Tobin
1 Jun 2009

A dirty-brown brick building close to Northern Line station Mill Hill East is an unlikely place to find the saviour of the pharmaceuticals industry. But there, in a “high-containment” laboratory in one of only four World Health Organisation Influenza Centres in the world, scientists are racing to prevent a swine flu pandemic.

Their updates on the H1N1 seed strain are keenly awaited by the pharma industry's vaccine experts. For, as patents expire on the previous generation of blockbuster drugs, allowing generic manufacturers to flood the market with copycats at a fraction of the price, the industry's titans have been forced to look elsewhere for big revenue streams.

Creating new treatments to replace the income from those going off-patent has proved massively expensive and limited in its success.

So it has been to vaccines, rather than cures, that the sector is increasingly turning its attention. After receiving genetically engineered “starting strains” of the swine flu virus from the WHO, Big Pharma's labs can only now start their swine flu vaccine production lines.

The virus is accelerating the worldwide sales growth of vaccines, but they were already on the up. Analysts predict that, after quadrupling in the last seven years to $20.6 billion (£12.8 billion) last year, sales will rise by 60% to $33.9 billion by 2014.

At the moment, when it comes to this outbreak, Britain's GlaxoSmithKline seems to be ahead of the field. Governments in Britain, Belgium, Finland and across Europe have stockpiled more than 150 million vaccine doses from Glaxo in a deal just sealed that is estimated to be worth more than £600 million.

Rival Sanofi Pasteur, the vaccines arm of French giant Sanofi-Aventis, is unlikely to have been impressed that one of those buyers was the French government, which bought 50 million doses from GSK. Sanofi has so far received one swine flu vaccine contract, a $190 million order from the US government, which also paid $288 million to Swiss-firm Novartis and $181 million to Glaxo.

Brentford-based Glaxo is celebrating its contract wins. Philippe Monteyne, head of vaccines at the firm, believes its investment in biotechnology is the reason for the firm's success at picking up worldwide vaccine contracts.

It claims to have been investing more than its rivals, and for longer, in “adjuvants” — additives to vaccines that boost their efficacy. This means smaller doses of the antigen — the active ingredient that attacks the virus — can be used with the same effect.

Monteyne says: “Our spending on adjuvant technology, which allows more vaccines to be produced and ensures it can easily react if the virus changes, has paid off. The adjuvant system is crucial for a pandemic approach, and governments are recognising that.”

With 11,168 cases of swine flu identified so far, including 86 deaths, some health experts are predicting it will return with a vengeance in winter. That could mean another bonanza for pharma firms.

But Panmure Gordon's pharma analyst Savvas Neophytou predicts that all vaccines will become increasingly important to the sector. “Vaccines are big news for drug companies because governments are looking to lower the cost of healthcare, and prevention works out cheaper than treatment,” he said.

Vaccines, which are generally developed through biological science, and harness the abilities of the human immune system, offer significant business advantages over traditional drugs.

High barriers to entry, because of the technology and specific biological know-how required for their manufacture, makes them more difficult to mimic and provides a much longer life-cycle than traditional drugs.

So although it takes a similar amount of money to make a vaccine as a new branded medicine, where traditional drugs are affected by patent expiry, usually after 20 years, vaccine sales can still be growing decades after their first production.

That trend has been a driver behind a number of acquisitions in the sector. When Pfizer went shopping in January, in the biggest merger announced on Wall Street since the start of the credit crunch, the Viagra maker chose to buy vaccine specialist Wyeth for £50 billion.

Likewise, when AstraZeneca was worried about the lack of vaccines in its armoury in 2007, it paid £7.6 billion for biotechnology vaccine firm MedImmune. Now the UK's second-largest drug firm is pushing MedImmune's inhaled flu vaccine FluMist through European licensing hoops after it picked up sales of $104 million in the US last year. Through MedImmune, AstraZeneca also has three vaccines in clinical testing.

The transformation of the vaccine sector, once seen as the ugly sister of the industry next to its more glamorous cure-seeking peers, was clear when US watchdog the Food & Drug Administration last week said it expects to receive as many new vaccines applications in four months this year as it received in the whole of last year.

Panmure's Neophytou believes this trend will only grow. “For many companies, the investment was already in place for seasonal flu vaccines, so when swine flu came along it was just the icing on the cake,” he says.

“No one expected the investment into vaccines to pay off as quickly as it did, but now it's really taking off.”