Flu vaccines are a profitable business


Pandemic threat reignites influenza vaccine market, DATAMONITOR report
By HS - Webbolt Newsroom
April 20, 2006, 12:46

The last few years have witnessed a renewed interest in the vaccines
market, overcoming the prevailing view that vaccines are a low-margin
business associated with high barriers to entry. The flu vaccines
market has been at the forefront of this trend, partially fuelled by
fears over an impending influenza pandemic. Recent drug-like, often
double-digit growth rates have expanded the global influenza vaccine
market to an estimated $1.6 billion in 2005. This trend is set to
continue, with a recent report* from independent market analyst
Datamonitor (DTM.L) forecasting that the influenza vaccine market in
the seven major markets** alone could exceed $3 billion by 2010.
However this depends upon ambitious coverage targets set by various
health authorities being realized and on a significant expansion of
production capacity. In the future, new manufacturing technologies,
notably cell culture based approaches, will potentially account for 15%
of overall capacity, says Datamonitor infectious diseases analyst Dr
Brigitte de Lima.

Flu vaccines are a profitable business

2005 marked the beginning of a new era for the sector. The past year
witnessed frantic commercial activity including significant
consolidation- notably through the GSK/ID Biomedical, Novartis/Chiron
and Crucell/Berna acquisitions. These have been primarily aimed at
enhancing manufacturing capacities and securing of novel technologies.

Vaccines in general and influenza vaccines in particular possess
several attractive features: compared to regular pharmaceutical
products, vaccines have a higher probability of R&D success, with 70%
of programs obtaining marketing approval post proof-of-concept. In
addition, vaccines enjoy long product lifecycles- generic substitution
is almost non-existent. Since an estimated 90% of vaccines (by volume)
are sold via public tenders to a few large customers, mostly
governments and public health authorities, they incur much smaller
marketing and promotion costs, Dr de Lima says. "This explains
operating margins comparable to pharmaceuticals."

"On the flipside, current influenza vaccine manufacturing is very
time-intensive, and yet in-time delivery is vital to ensure consistent
market share. As such, delays or reductions in production can result in
a loss of market share or tender offers and considerably damage company
credibility," she says.

There are also high entry barriers to the influenza vaccine market,
such as biological manufacturing know-how and complex public and
private business interrelationships, so the established players face
little competition. According to the World Health Organization (WHO),
there are approximately 1518 influenza vaccine manufacturers operating
in nine countries worldwide, the 14 biggest accounting for 90% of the
total global supply. The leading player in the market is
Sanofi-Aventis, with revenues of $835m in 2005 and a 45% global market
share by value in 2004.

New vaccination coverage targets set by international health
authorities are driving renewed investments in the influenza market. In
the US, influenza vaccine coverage of high-risk groups has doubled from
33% in 1989 to 66% in 1999, the ultimate goal being to boost this rate
to 90% by 2010. With current annual production of trivalent influenza
vaccines estimated at around 280300 million doses, global coverage is
less than 5%, although it needs to be noted that there are large
geographical variations. However, even in the US, where supply of flu
vaccine may have amounted to up to 100 million doses in the 200506
season, demand still often outstrips supply. In fact, two recent
vaccine shortages prompted the US government to encourage additional
players to enter and supply the US market, Dr de Lima says.

"Ultimately, an improved vaccination coverage for the common seasonal
influenza is a fundamental part of a strategy to enhance global
preparedness for the anticipated avian influenza pandemic."

Pandemic preparedness plans drive market expansion

Seasonal, or epidemic influenza, has a global incidence of 1020% with
an associated mortality of up to 500,000. Total direct and indirect
costs of a severe epidemic are estimated at upwards of $12 billion in
the US alone. However, a global pandemic could rocket costs to $800
billion. Experience from past pandemics has shown that 2535% of the
global population may become infected; and even quite conservative WHO
estimates have placed the likely death toll at 27.4 million people.
Importantly, this estimate was modeled on the relatively benign 1957
pandemic, while the highly virulent Spanish Flu claimed an estimated
4050 million lives in 1918.

As part of its pandemic preparedness plan designed to contain the
threat posed by the avian H5N1 strain, the WHO clearly states that
adequate manufacturing capacities for pandemic vaccines can best be
achieved by increasing vaccination coverage during seasonal epidemics.
Subsequently, the influenza market has seen a lot of activity:
established players, notably GSK, have been expanding their
manufacturing capabilities. Not only has the company acquired new
plants in Canada through its acquisition of ID Biomedical, but it has
also taken over a former Wyeth manufacturing facility in Marietta
(Pennsylvania, USA) and further intends to expand its factory in
Dresden (Germany).

However, depending on the timing of an eventual influenza pandemic, the
sum of these efforts may well be insufficient, since current vaccine
manufacturing technologies have significant limitations.

Moving away from egg-based systems

The most common epidemic influenza vaccines are trivalent inactivated
influenza vaccines (TIV), such as Sanofi-Pasteur's Fluzone and GSK's
Fluarix. Live attenuated influenza vaccines (LAIV), currently
represented by MedImmune's FluMist, only play a minor role. Currently,
all these influenza vaccines are using egg-based manufacturing systems,
which suffer from under-capacity, low yields, lengthy manufacturing
processes (on average six months) and an inflexibility to rapid
scale-up. Maintaining tight quality specification on the finished
egg-based vaccine product poses another enormous technical challenge,
Dr de Lima says. "The avian H5N1 strain adds additional complications:
not only would it be too virulent to be grown in eggs, but the supply
of eggs themselves would be severely limited, as a great proportion of
poultry would have been killed by the pandemic."

These significant disadvantages of current manufacturing processes and
the increasing global demand in anticipation of an avian influenza
pandemic constitute a vast commercial opportunity. R&D activities in
the field are greatly encouraged by healthcare stakeholders worldwide.
Thus, several companies are developing new, alternative technologies
that address current shortcomings.

The most advanced lines of research focus on cultivating influenza
viruses in mammalian cells. Companies active in this field include
Solvay, Chiron and Sanofi-Aventis/Crucell. Mammalian cell cultures
could eventually replace chicken eggs and, just as importantly,
accelerate the vaccine production process. Unfortunately, cell
culture-based vaccines suffer from safety concerns: some of the
currently used cell lines may be carcinogenic. Datamonitor estimates
that the first cell-culture based influenza vaccines will reach the US
market in 2008. Other alternative production technologies in
development include FluBlXk by Protein Sciences, a Connecticut based
biotech firm, Dr de Lima says. "FluBIXk is a trivalent influenza
vaccine using recombinant hemagglutinin antigens grown in insect cell
cultures. Oxford-based PowderMed is developing a plasmid DNA influenza
vaccine produced using a bacterial fermentation process."

Although all these efforts aimed at increasing global influenza vaccine
supplies are advancing at a rapid pace, their significance for
containing an avian flu pandemic remains highly uncertain. "The timing
of such an event and the virulence of the causative viral strain are
unpredictable", Dr de Lima says. "The gene mutation enabling H5N1 to
spread between humans, necessary for a pandemic strain, can happen
anytime or never."

About: Datamonitor plc, (DTM.L) is the world's leading provider of
online data, analytic and forecasting platforms for key vertical
sectors. We help our clients, 5,000 of the world's leading companies
profit from better, more timely decisions. Through our proprietary
databases and wealth of expertise, we provide clients with unbiased
expert analysis and in-depth forecasts for seven industry sectors:
Automotive & Logistics, Consumer Markets, Energy, Financial Services,
Healthcare, Retail and Technology. Datamonitor maintains its
headquarters in London and has regional offices in Frankfurt, New York,
San Francisco and Sydney.


Some people at the WHO and at the CDC are gonna get a good bonuses.