EARL NASH, WTFG Big Pharma Greed Correspondent
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“It’s news to you…”
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This is the story of how
Flu Inc. grew out of nowhere, transforming a once struggling business
characterized by lab closures and lawsuits into a high-profit industry in less
than a decade, and of the steps the pharmaceutical industry has taken to ensure
the dollars keep flowing.
The change is driven by a new way of thinking in government
about how to approach future threats of a flu pandemic. Health officials have begun
to see merit in pursuing a strategy of stockpiling vaccines, even at a much
higher cost per dose than they paid in the past.
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“Vaccines, vaccines, wonderful business,”
Chris Viehbacher,
the Canadian-born CEO of Sanofi-Aventis, told investment analysts on a
conference call a few months ago. It didn't take long for such calculations to be made in
other boardrooms around the globe.
The companies began acting quickly to
expand: Novartis spent $5-billion to buy U.S.-based flu vaccine maker Chrion. Britain's Astra Zeneca paid $15-billion for
Medimmune, and Glaxo purchased the old BioChem vaccine operation in Quebec for $1.4-billion.
With 22 per cent of the market, Glaxo was now the global
leader in vaccines. And with that clout came the power to influence
governments, who were already fearful about not having enough vaccine supply in
the event of a pandemic.
How vaccines are sold and prices are set
In the summer of 2008, Jim Flaherty's staff prepared a
briefing note for an upcoming meeting with the head of Glaxo's Canadian
operations, Paul Lucas.
Glaxo had been lobbying several governments around the world
to get higher vaccine prices and access to massive cash reserves countries were
setting aside to cope with a pandemic threat.
“We understand that Mr. Lucas would like to discuss how GSK
could further contribute to Canada's
pandemic preparedness, including [Ottawa]
setting aside $400-million as a contingency fund,” the note said, according to
documents obtained by Ottawa
researcher Ken Rubin.
Mr. Flaherty held the purse strings on any national pandemic
plan and subsequent vaccine purchase from Glaxo. The company had a message for
the minister: “GSK has been critical … contending that the proposed vaccine
price is too low,” Mr. Flaherty's staff told him.
Indeed, the company had already been lobbying governments
well before then. Since the late 1990s, prices for flu vaccine in North America have soared from $2 per dose to as high as
$12 in 2007. The price has recently fallen back to about $8 as buying volumes
increased in the face of H1N1. But that's still a healthy margin, as some
analysts estimate it costs about $1 to make each dose.
The company does not discuss its costs, but Mr. Monteyne
said the cost of a flu shot is flexible depending on whether the buyer can pay
more. “We have a tiered pricing strategy,” Mr. Monteyne said. “It is mainly
based on the level of income of the country.”
Beyond just selling crates of vaccine, Glaxo also wants to
sell full-service protection – pandemic readiness packages. And the industry's
desire to build a stable business out of vaccines, along with the emergence of
adjuvants, has led to perhaps the most significant shift the industry has seen
in decades: the creation of vaccine stockpiles.
It was not the talk Dr. Michael Ossi planned to give when he
was summoned to Washington
in the fall of 2003 to brief health officials on Capitol Hill.
Dr. Ossi, an infectious disease expert with British
pharmaceutical giant GlaxoSmithKline PLC, had been asked to meet with
government officials on how to respond to a deadly problem unfolding halfway
around the world.
In Asia, entire flocks of
birds were dying from a virus called H5N1, better known as avian flu. A particularly
virulent strain of influenza, H5N1 had for years been confined mostly to birds
because their higher body temperatures provided an ideal environment for the
bug to proliferate.
But pockets of people were becoming infected in Asia, setting off alarm bells for health officials around
the globe. When it spread among humans, the consequences were unusually fatal.
Roughly 60 per cent of those infected with H5N1 died, making it three times
deadlier than the 1919 Spanish Flu, according to the World Health Organization.
Dr. Ossi came to the hastily arranged gathering of health
officials and academics expecting to talk to them about his company's research
into anti-viral drugs and flu vaccine. But the health experts clustered around
a handful of tables were not interested in hearing about the science behind
such products. They had much more pressing concerns.
They only had one question, Dr. Ossi recalls: “How much can
you make and how fast can you make it?”
It was a watershed moment for him. For most of his career,
working in vaccine research – indeed, most research related to the prevention
and treatment of infectious diseases – was a ticket to obscurity at a big drug
company. The high stakes and big profits for companies like Glaxo were not in
vaccines, but in multibillion-dollar blockbuster drugs: the Wellbutrins, the
Zantacs and the Valtrexes.
But the world was changing. Shoehorned into that meeting
room in Washington were mathematicians from top universities, charged with
calculating how many people could be protected in a pandemic; ethicists who
would debate who should get medicine first in the event of a shortage; and
public health officials struggling to find a way to cope with potentially tens
of millions of infected people. Their urgency made it clear to Dr. Ossi that
the quiet, unprofitable world of vaccines was about to be given more prominence
in government than it had in decades.
H5N1 would alter government approaches to pandemic planning.
But it would also create a new and unprecedented opportunity for the global
pharmaceutical industry. It was, as Dr. Ossi recalls, “an obvious commercial
opportunity” for the drug companies – one that is reshaping their businesses.
In a matter of a few years, flu shots have gone from being a
marginal, money-losing business to a massive profit generator for a small number
of global companies, as governments and the public hasten to protect themselves
from getting sick.
Between 2004 and 2007, vaccine sales across the industry
soared an average of 32 per cent each year, with flu vaccine leading the way.
That is roughly four times faster than any other pharmaceutical product.
In a year that will be remembered for widespread public
worry about the H1N1 virus, or swine flu,
vaccines have become a $24-billion
business. Analysts predict the global vaccine industry will top $40-billion by
2012. For companies like Glaxo, Sanofi-Aventis, Merck & Co., Novartis AG
and Pfizer Inc., the fear of a pandemic has translated into a financial
windfall that has been years in the making.
Worldwide, nearly 1 billion doses
of H1N1 vaccine have been ordered in 2009.
This is the story of how that happened – how Flu Inc. grew
out of nowhere, transforming a once struggling business characterized by lab
closures and lawsuits into a high-profit industry in less than a decade, and of
the steps the pharmaceutical industry has taken to ensure the dollars keep
flowing.
The change is driven by a new way of thinking in government
about how to approach future threats of a flu pandemic. Health officials have
begun to see merit in pursuing a strategy of stockpiling vaccines, even at a
much higher cost per dose than they paid in the past.
Behind all this, of course, is a public that demands to be
protected from the worst strains of influenza. This year, about 40 per cent of
Canadians got the vaccine for H1N1 – the highest adoption of a flu shot the
country has ever seen. Those shots are responsible for limiting the spread of
the disease and, most likely, for saving lives. But even as the H1N1 threat
subsides after killing more than 400 people in Canada, the business of fighting
flu is arguably still in the early years of its growth.
“It was a new market, created by this pandemic scare,” Dr.
Ossi said.
How the flu vaccine industry was built
Vaccines have always been a business. They've just never
been a very good business.
“We were losing money,” said Claude Vezeau, former chief
executive officer at Montreal-based IAF BioChem International, Canada's
largest maker of vaccines in the 1990s. “All vaccines were losing money.”
The problem has been rooted in the cumbersome process of
vaccine production and in the public's complacency. Alan Davies, the head of Canada's famed Connaught Antitoxin Laboratory at
the University of
Toronto, once lamented:
“People are willing to pay more for a bottle of headache tablets than they are
for a vaccine that will protect them for many years.” Connaught,
too, was a money-loser.
The idea of inoculating people against disease dates back to
1796 when British doctor Edward Jenner noticed that milkmaids appeared to be
immune to smallpox because of their exposure to a mild form of pox carried by
cows.
Dr. Jenner took puss from a lesion on the hand of a milkmaid
and inoculated a young boy. When the child didn’t become ill with smallpox, Dr.
Jenner deduced that a small dose of a disease could protect a person from a
more serious illness (the word vaccine is derived partly from “vaca,” the Latin
word for cow).
More than two centuries later, making vaccines on a large
scale remains challenging. Vaccines are still made primarily from tiny bits of
pathogens, the disease-causing agents of a virus. It can take months to get the
formula right, and flu viruses are always changing. The manufacturing process
is also clunky and relies on techniques developed 50 years ago in which a virus
is injected into chicken eggs to multiply.
Here’s how the process works: Like any virus, flu will only
grow in living cells. One of the best places to grow it is in fertilized
chicken eggs. (Pigs and humans are also good, but less practical.) Eleven days
after the egg is fertilized, a hole is drilled into the eggshell and the virus
is injected into the fluid surrounding the embryo. After the virus infects the
embryo, it multiplies. Machines then crack open the eggs and the virus-filled
fluid is removed.
The virus is chemically inactivated, usually with
formaldehyde, and used as the “antigen” of a flu shot. Antigen is short for
antibody generator. When injected into the body, it’s the antigen that provokes
an immune response that remembers the code of the virus that is attacking the
body.
The antigen-making process can take months because the eggs
have to be at the right maturity. The virus also grows slowly and it can take
as many as three eggs to make one shot of flu vaccine. Then there are the
chickens that produce the eggs – they have to be kept in steady supply, and
healthy, since producing enough vaccine for an entire country can take millions
of eggs.
“It’s very cumbersome to make flu vaccine,” Dr. Ossi said.
Heavy regulation and a lack of a broad customer base –
governments are the primary buyers – left many drug companies with little
incentive to make vaccines. Why spend time on such a low-margin business as
vaccines when a company could make a fortune developing a new blockbuster drug?
In Canada,
where vaccine making was once largely left to public institutions, the picture
was no brighter. The country's largest facility, the Connaught
lab, earned fame as the site of Frederick Banting and Charles Best's insulin
discovery. But it struggled financially for years before being bought by French
drug giant Sanofi-Aventis.
Canada's
other large vaccine facility, the Institute Armand-Frappier in Quebec City, didn't fare
much better. By the mid 1980s, its owner, the University of Quebec,
could no longer shoulder the financial burden, and the facility was sold to Mr.
Vezeau's IAF BioChem – which also struggled.
Kevin Van Paassen/The Globe and Mail
Crowds wait at the North York Civic Centre for the H1N1
vaccination in Toronto,
Oct. 29.
How the world changed for vaccines
But all of that began to change with the first hint of a
pandemic on the other side of the world.
The outbreak of H5N1 in Hong Kong
in 1997 was relatively small – just 18 people who handled birds – but six of
them died. Such a high death rate drew immediate attention from medical experts
around the world. Fears of a much bigger death toll began to percolate at
government levels.
Like many countries, Canada began working on a pandemic
preparedness plan. Led by John Spika, a senior infectious disease official at
Health Canada,
federal and provincial bureaucrats began drawing up models of a potential
outbreak that could kill up to 58,000 Canadians and do $30-billion worth of
damage to the economy. The key to fighting such an outbreak, they believed, was
securing an abundant supply of vaccine.
Dr. Spika and others in the vaccine community warned that if
a serious pandemic broke out, countries would close their borders and hoard
vaccine. Governments began setting aside money in federal budgets for pandemic
preparations. Ottawa also began negotiating a
long-term vaccine supply agreement with BioChem, which had the only flu vaccine
facility in Canada.
For Mr. Vezeau at BioChem, pandemic planning was a godsend.
Suddenly, he had the attention of government officials. “We were losing money,
so we went to the government and said, ‘Listen, for this to be a viable
manufacturer, we need to increase the price of our vaccine,” Mr. Vezeau said.
They got a higher price.
The government pursued contract negotiations with BioChem on
a deal that was potentially so lucrative it began to push the value of the
company higher. Before it was even signed, Shire Biologics stepped in and
purchased BioChem in 2001. Soon after, the company signed a 10-year pact with Ottawa that would see the Quebec facility responsible for producing
flu shots for every Canadian in a pandemic.
Dr. Spika called the deal “a cheap insurance policy” for the
country. At a price tag of $300-million, it was more money than the vaccine
maker had ever seen before.
Other vaccine companies began to negotiate similar
large-scale contracts in dozens of countries, from Switzerland
to France and even such
smaller nations as Iceland.
However, one problem remained for the vaccine manufacturers
as governments around the world began doling out money for contracts. Like any
virus, flu will only grow in living cells. One of the best places to grow it
for the purposes of vaccine making is in fertilized chicken eggs. But the
process is slow and hard to use on a mass scale; it can take as many as three
eggs to make one shot of flu vaccine. “They have to use chicken embryos and
there isn't enough supply of those readily available to be able to make tons of
vaccine,” Dr. Ossi said.
Fighting pandemic flu with vaccine made from eggs alone
would be a losing battle, many believed. Companies needed to find a way to
increase the amount of vaccine that could be produced in order to capitalize on
the growth. And that particular discovery was already in the works.
The problem with making vaccines
For years, scientists had tried to find a faster way to make
vaccines. They chased a variety of theories, including isolating the DNA of a
virus, which many researchers believed would unlock new ways to fight
infections. But at its main vaccine facility in Rixensart, Belgium,
Glaxo had found a way to make vaccines more potent using another kind of
technology: adjuvants.
Adjuvants are like superchargers for vaccines. They are mild
contaminants, such as salt or oil, that cause the body to respond with a more
intense immune response. When paired with antigens, the adjuvant liquid can
make the vaccine's impact stronger. This allows for more doses to be produced
from less antigen.
The word itself comes from the Latin “adjuvare” which means
to help or aid. But adjuvants, like so many scientific discoveries, were
stumbled upon almost by accident.
Testing on different batches of vaccines often found that
some worked better than others. In cases where there was a slight contaminant
present in the mix – something as simple as using dirty lab materials –
researchers found there was an enhanced immune response from the body to that dose
of vaccine.
Thus the adjuvant industry was born, with contaminants such
as oils, salts and virosomes (which are bits of influenza virus that do not
replicate) added to vaccines.
“It allows us to decrease the antigen content, which allows
us to multiply the capacity,” said Philippe Monteyne, senior vice-president of
global vaccines development at Glaxo. “And of course, multiplying the capacity
has some impacts on the business side,” boosting profits.
Adjuvants allowed companies to pump out more, but it is also
a higher-margin business than antigens.
Significantly more than half the price of a dose of flu
vaccine is attributable to the adjuvant, though Glaxo doesn't disclose the
exact figures. “That's why vaccines became so attractive,” Mr. Monteyne said.
“Most of the value in our case is put on the adjuvant technology.”
For the drug companies, the new interest in vaccines by
governments looking to get as many flu shots as they could buy, and the
scientific advances of adjuvants, came at an opportune time.
Many drug makers were starting to worry about the long-term
viability of megadrugs like Lipitor, a cholesterol fighter, and Zantac, an
ulcer treatment, that have a finite period of patent protection. When the
patents expire, the market is flooded with cheaper generic versions. The big
drug companies needed a new source of revenue, and the advent of large-scale
vaccine manufacturing looked promising.
With the value of vaccines on the rise with the fears of
avian flu, the drug companies also liked something else about the resurgent
business: they had it to themselves.
Because vaccine making is so expensive – a new plant can
cost up to $1-billion (U.S.)
– companies like Glaxo, Novartis and Sanofi-Aventis didn't have to worry about
a rash of new entrants cutting into the flu vaccine business as governments
ordered millions of doses.
“The barriers to enter the market are extremely high,” said
Mr. Monteyne in Belgium.
“You don't become a vaccine maker over night. That's why we have a few big
players, and very few only.” That meant the giants could push hard to increase
prices. And they did.
Sanofi-Aventis expects to earn close to $6-billion (U.S.)
in vaccine revenue next year and double its sales by 2013. This quarter, sales
of H1N1 vaccine alone will top $500-million. It is suddenly a good time to be a
flu shot maker.
Paul Waldie and Grant Robertson
Globe and Mail Update Published on Tuesday, Dec. 29, 2009
8:15PM EST Last updated on Tuesday, Dec. 29, 2009 10:29PM EST
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