By Jennifer Van Brunt

Well, well, well…. Will wonders never cease? It wasn't so long ago that nearly all big pharma outfits and even many biotech firms put vaccine development on the very bottom of their wish list. But today, the tables have turned and companies are scrambling to get in the game by one means or another.

Not so long ago, there just wasn't enough financial incentive to satisfy most firms: The costs can be high –in some cases, at least as much as developing a pharmaceutical – but the rewards are low, since vaccines sell for far less than prescription drugs.

And for influenza vaccines, the development process involves a laborious process of growing the viruses in chicken eggs, a process that normally begins about nine months before each flu season and must be repeated anew each year in response to the flu virus' known tendency to mutate. Deciding in advance how much vaccine to make, and which three flu strains to target for the final vaccine preparation, is risky business, making it even less attractive to drug companies.

Thus, as the 2004-2005 flu season approached, there were only two major suppliers of flu vaccines to the U.S.: Chiron Corp. and Sanofi Pasteur (the vaccines business of the Sanofi-Aventis Group). But the field was not devoid of other players: British pharma giant GlaxoSmithKline plc's (GSK) flu vaccine was being distributed in about 80 countries (although it had not applied for regulatory approval in the U.S.) and MedImmune Inc. had had some minor success with U.S. sales of its intranasal vaccine FluMist, which is approved for use in a population least at risk (individuals ages 5 to 49). As well, Canadian firm ID Biomedical Corp. was marketing its own vaccine, Fluviral S/F, in Canada.

Pandemic provides incentives

As we know all too well, however, Chiron's vaccine manufacturing problems at its Liverpool, U.K. facility prevented the firm from delivering any of the 52 million shots it had promised. The ensuing vaccine shortage in the U.S. created a huge debate about this nation's lack of preparedness in general to meet a flu epidemic. (See the Signals article, "Wake-Up Call For Vaccines," for details.)

But there was an even more urgent note underlying the public discussions on flu vaccines: Governments around the world have suddenly become quite concerned that we humans will sooner or later be struck with a massive influenza pandemic (probably avian flu) for which we are not the least bit prepared. And the predicted loss in lives will be "Biblical in proportion," according to one analyst.

As a result, governments and health organizations have begun to change their policies. The U.S., for instance, has come up with a coordinated national strategy to prepare for and respond to a flu pandemic. It also includes activities to boost vaccine development and stockpile antiviral drugs (including Gilead Sciences Inc.'s Tamiflu, sold by Roche, and Biota Holdings Ltd.'s Relenza, sold by GSK) – all incentives that have lured companies back into the game.

As well, some analysts say that the vaccine market in general is perhaps the only area left for traditional, R&D-based pharmaceutical houses to make a profit, because they are being squeezed heavily by the increasingly powerful generic drug companies.

Plus, nations other than the U.S. that can afford to stockpile experimental and anti-viral drugs against a bird flu pandemic are doing so – including Australia, France, England, Singapore and South Korea.

The bird flu pandemic may be providing some powerful incentives for pharmas to enter the vaccines arena, certainly, but we've still got to deal with an annual bout of plain old flu, the infection that comes around year after year – though the particular viral strains that predominate vary. It comes as no surprise that the pharmaceutical giants are suddenly keen to beef up their own flu vaccine supplies by buying up the smaller players.

Is Chiron a prize?

The big surprise, to many, hit the newswires on September 1, when Swiss pharma Novartis AG bid $4.5 billion to acquire the 57.8 percent of Chiron that it didn't already own. According to Novartis' announcement, the pharma made this offer to Chiron's independent directors after they had opened the biotech's books for inspection. In its public response, however, Chiron denied that its independent directors had essentially asked for the buyout. Whatever: The fact remains that, in a matter of just a few days, Chiron rejected Novartis' bid as being inadequate.

Indeed: Although the buyout bid price of $40 per share was a 10 percent premium over Chiron's closing price the previous day, the firm's stock price post-bid soared past the $40 mark and remains there today, at slightly under $44. Analysts predict that no other major pharma will try to outbid Novartis – which already holds a 42.2 percent stake in Chiron through a 1994 deal, worth $2.1 billion at the time, between Chiron and Ciba-Geigy Ltd. (now Novartis).

But many analysts and industry observers also forecast that Novartis itself won't sweeten its bid – leaving us to wonder just how this situation will resolve itself. After all, although Chiron's biopharmaceuticals business arm (especially its intellectual property surrounding the hepatitis C virus, an active area for Novartis) and even its blood-testing business might fit nicely in Novartis' portfolio, the Swiss giant has no presence in vaccines at all.

Several scenarios rise to mind – including the possibility that Novartis will sell its current stake in Chiron, an option specifically stated by Novartis CEO Daniel Vasella during a research presentation in London early this week, as reported by the Wall Street Journal.

What, after all, does Novartis want with Chiron's faltering flu vaccines business – which has yet to recover from last year's catastrophe and is to this day on an unsure footing? Already this year Chiron has stated that it won't be able to sell its Begrivac flu vaccine outside the U.S. due to possible contamination in its German facility. On the other hand, Chiron's Liverpool facility has finally gotten the green light from U.K. and U.S. regulators – meaning that it's at least possible the biotech firm will be able to crank out about 18-26 million Fluvirin doses for the 2005-2006 flu season in the U.S.

A number of analysts have speculated that Novartis actually made its bid for Chiron for financial, not strategic, reasons anyhow – making it all the more likely that the Swiss giant will sell its stake one way or the other. That, in turn, would leave Chiron vulnerable to an internal break-up, with each of its main business units going to a different acquirer.

Certainly, for a company that already has a flourishing vaccine business (like GSK or Sanofi Pasteur), buying up Chiron's flu vaccine production capacity – reported to be second only to Sanofi Pasteur's – would be a coup.

Canadians on board

While the Novartis/Chiron situation has yet to be resolved, it looks like GSK's bid for Canadian vaccine maker ID Biomedical is right on track. On September 7, GSK bid C$35 per share (US$29.50) for the biotech firm, a 13 percent premium to its closing price the previous day. That values the deal at about US$1.4 billion.

Although the Canadian firm has yet to receive FDA approval for its flu vaccine Fluviral, the product is on fast track status and is also eligible for accelerated approval and priority review. Moreover, ID Biomedical already sells the vaccine in Canada, supplying 75 percent of its country's needs. Plus, it's got two manufacturing facilities, both of which have been recently upgraded. The company predicts that these improvements will allow it to make 75 million doses by 2007.

For GSK, the acquisition seems a natural – and one which ID Biomedical's board supports. As of mid-September, the biotech firm had not received a rival bid, either, adding extra assurance that this deal will go through. And, not only does GSK get a late-stage flu vaccine to add to its arsenal, but also ID Biomedical is developing vaccines for streptococcal, meningococcal and pneumococcal infections as well as for bioterror diseases plague and anthrax. These fit well with the big pharma's growth plans – which include the launch of five new vaccines in the next five years.

The upcoming season

Importantly, the FDA approved GSK's flu vaccine Fluarix in late August 2005, for use in adults 18 years and older. And MedImmune, which already sells the nasal flu vaccine FluMist, very recently applied for approval to market its second-generation vaccine CAIV-T, a refrigerated rather than frozen version which should allow greatly expanded distribution to doctors' offices, clinics and pharmacies. If approved, the new, refrigerator-stable vaccine will be available in 2007 to immunize healthy individuals 5 to 49 years old.

So, as it now stands, U.S. government officials now expect about 71-97 million doses to be available for the 2005-2006 flu season. Individual company estimates, past and present, provide the following breakdown: Chiron (18-26 million); GSK (about 8-10 million); Sanofi-Pasteur (50-60 million); and MedImmune (probably 2-3 million, according to last year's projections). If it receives FDA approval in the coming months, ID Biomedical says it ought to be able to make about 20-25 million doses for the U.S. market in 2006.

We may need them all: This year's flu shots contain vaccines against two A-strain viruses (A/New Caledonia and A/California) and one B-strain (B/Shanghai). The A strains have usually proven to be the more virulent – so it looks like we could be in for a rough season.

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