For drug makers, a shot in the arm

The quest for an H1N1 vaccine has been good business for some firms

Novartis, which develops vaccines at its Cambridge lab, expects to generate $1.2 billion from its swine flu vaccine. Novartis, which develops vaccines at its Cambridge lab, expects to generate $1.2 billion from its swine flu vaccine.
(David L. Ryan/Globe Staff
By Robert Weisman
Globe Staff / October 22, 2009

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For a handful of drug makers, including the Novartis AG vaccine division in Cambridge, the global effort to combat the swine flu is turning out to be good business, bringing them a $7 billion windfall.

The race to produce the H1N1 vaccine, at the urging of the World Health Organization and governments here and abroad, has strained supply chains and forced manufacturers to untangle production snags. That has led to supply shortages and delays in shipping the medicine to clinics and other health care providers.

But the urgency also has taught the companies valuable lessons about handling pandemics; helped them hone emergency response programs; and fueled new research, acquisitions, and investments in vaccines for viruses and infections ranging from hepatitis to meningitis.

That will benefit them long after the H1N1 alert is over. The global market for vaccines is projected to more than double from $16 billion in 2007, the most recent year for which data are available, to $35 billion in 2014, according to Cambridge consulting firm Scientia Advisors.

“With a pandemic like this, the upside for us is clearly significant,’’ said Andrin Oswald, chief executive of Cambridge-based Novartis Vaccines and Diagnostics, a unit of the Swiss pharmaceutical giant. “The quicker we can ramp up our volume, the better it will be for people in the United States and around the world.’’

Novartis and four other drug makers - Sanofi-aventis, GlaxoSmithKline, CSL Limited, and MedImmune - heeded the call to action by health officials when swine flu was identified last spring.

They quickly accelerated production of seasonal flu vaccine to free up capacity to make H1N1 vaccine, revamping their distribution systems and wrestling with low “yields’’ of inactivated virus strains in their egg-based swine flu vaccine production system. Shipments began last month and are expected to continue into next year.

Novartis expects to generate $900 million in the US and $1.2 billion worldwide from swine flu vaccine orders. That represents a small fraction of the $40 billion the company rings up annually in global biopharmaceutical sales, but it’s a big revenue boost for its vaccine division, which reported $1.7 billion in sales for 2008.

All of the makers of swine flu vaccine for the US market are producing injectable doses, except MedImmune, which is producing a nasal spray. Together, the companies have received worldwide orders totaling $7 billion, according to an estimate by Leerink Swan, a Boston investment bank specializing in health care and life sciences.

“Investors are looking at this as a one-time event,’’ said Jason M. Gerberry, associate analyst at Leerink Swann. “These companies will report a revenue benefit in the fourth quarter of this year and the first half of next year, when the product is delivered. But each company’s also learning how to respond and how to shift capacity in real time.’’

That could prove important as new pandemics arise in the future. And many of the giant drug makers, as well as smaller ones, have begun placing bets on new vaccines and vaccine technology.

GlaxoSmithKline, a British drug maker, has plowed more than $3.2 billion into research and acquisitions to ready the company for flu pandemics. Last month three major American drug firms - Johnson & Johnson, Merck & Co., and Abbott Laboratories - struck partnerships with smaller companies specializing in vaccine technology. And the $68 billion acquisition of Wyeth Pharmaceuticals, completed last week, gave rival drug company Pfizer Inc. a foothold in the vaccine business.

MedImmune, based in Gaithersburg, Md., was acquired two years ago by Anglo-Swedish drug giant AstraZeneca. It has marketed a nasal spray for seasonal flu, under the brand FluMist, since 2003, putting it in a good position to transition to a H1N1 product.

“This is really the first pandemic in 40 years,’’ said Chris Ambrose, senior director of medical affairs for MedImmune. “But as flu vaccine manufacturers, we’ve all been taking steps to prepare for this. Being ready to respond really is part of our business.’’

Even before the swine flu outbreak, several factors were driving anticipated growth in the vaccine market, including the aging of populations in the United States and other Western countries, making them more susceptible to viruses and bacterial infections, and a rising interest by developing countries in vaccinating people.

“When China comes out and says it’s going to have a national vaccine program, that’s music to the ears of these companies,’’ said Henry Glorikian, managing partner of Scientia Advisors. China, however, has its own fledgling sector of drug companies that are preparing vaccines for influenza and other viruses.

In responding to swine flu, drug makers uncovered some deficiencies and inefficiencies in their supply chains.

One of the biggest for Novartis was a shortage of chickens that could produce the eggs in which vaccines are grown. Another was the discovery that virus yields were lower for the H1N1 vaccine than for seasonal flu vaccines - one dose of swine flu vaccine for every two eggs, compared with two doses of seasonal flu vaccine per egg - delaying shipments until later than initially hoped for.

“The challenge we’ve faced is how quickly we can produce a certain volume,’’ Novartis’s Oswald said. “That has depended on how fast the virus can replicate in our egg-based production system. Every flu virus has its own characteristics. That’s just nature.’’

Robert Weisman can be reached at

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