Nice Shot

In 200 years of research, since Edward Jenner’s first smallpox vaccine, we have learned to manipulate the immune system to our advantage. Vaccines—dead or inactivated microbes or parts of microbes used to induce an immune response against that pathogen—experienced a rapid period of development between 1950 and 1980, and an industry sprang up around vaccines for polio, measles, and rubella. Once common diseases, they have since been forgotten by America’s well-immunized population. Yet after years of success, the industry began to falter.

Fraught with small profit margins (“Measured in pennies rather than pounds,” a vaccine developer told the Sunday Times in 1986) and piles of litigation following reported adverse reactions, many vaccine manufacturers dropped their programs in the 1980s. “At one point, only a handful of major manufacturers were left,” says Jim Connolly, previous business head of Wyeth vaccines, who left the company following Pfizer’s acquisition of Wyeth. Vaccines were considered low-value products for saturated childhood markets. “There was a fundamental inertia and lack of incentivisation on the part of the pharmaceutical companies,” says Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases.

Today, however, change is in the air. In the wake of increasing safety regulations from the U.S. Food and Drug Administration, generic competition, and emptying pipelines, the pharmaceutical industry is looking to the vaccine sector with hope. Over the last 15 years, advancing technologies, propitious legislation, and a new moneymaking reputation have transformed the vaccine sector from orphan to golden child. Top it off with increasing government and nonprofit investment in vaccines for the developing world, and these prophylactic products are back in the spotlight and back into pharmaceutical pipelines.

Things began to turn around in 2000, when the Food and Drug Administration approved Wyeth’s Prevnar, the first pneumococcal vaccine for children. Prevnar protects against the seven most common strains of Streptococcus pneumoniae, bacteria that cause invasive diseases such as meningitis and blood infections in infants. In the last 8 years, more than 220 million doses of the vaccine have been distributed, according to Wyeth’s most recent annual report, with sales growing every year. In 2008, Prevnar was Wyeth’s number two selling product, raking in $2.7 billion. Prevnar was the first of its kind—a blockbuster vaccine.

“It showed for the first time that a vaccine could make money,” says Rino Rappuoli, global head of vaccine research at Novartis. “Companies could now justify investing in research and development, which had not been done before.”

In 2006, a second blockbuster made headlines—Merck’s Gardasil. The first cervical cancer vaccine on the market, Gardasil was added to the CDC’s routine immunization schedule within 7 months of FDA approval. The vaccine, which immunizes against human papillomavirus (HPV), made $1.5 billion in its first full year on the market. Merck’s stock soared. Since its launch, Gardasil has racked up a total of $3.1 billion and was the company’s fourth most profitable product in 2008, behind drugs for asthma, high blood pressure, and osteoporosis.

“We’ve seen probably a quadrupling of activity [in the vaccine sector] from what it was 10 years ago,” says Wyeth’s Connolly. According to a recent analysis, the vaccines market is poised to be the fastest-growing therapeutic area in the pharmaceutical industry, with an annual growth rate of 14 percent over the next 5 years.¹ That surpasses even oncology, the largest therapeutic area in pharmaceuticals, at 11 percent. Worldwide sales of vaccines were $18.5 billion in 2007 and are expected to climb to $35 billion by 2012. Governments around the world recently ordered an estimated $7 billion worth of H1N1 “swine flu” vaccines, a windfall spread among only five manufacturers: GlaxoSmithKline (GSK), Novartis, Sanofi-Aventis, AstraZeneca’s MedImmune, and CSL Limited, an Australian biopharmaceutical company.

Vaccine blockbusters are not simply a welcome surprise to the pharmaceutical industry—they are a badly needed asset. In an industry-wide move, drug companies are veering away from broad market products following several high-profile safety debacles: Merck’s blockbuster arthritis drug Vioxx, which upped the risk of heart attack and stroke in some patients, and GSK’s diabetes pill, Avandia, which also increased risk of heart problems. In response, drug companies are hedging their bets, targeting products to a smaller slice of patients, rather than one-size-fits-all. Which likely means, however, a smaller return for each individual product. As the industry makes this shift toward personalized medicine, “the products that are going to be approved in the population for broad future use are vaccines,” says Cole Werble, senior executive editor of The RPM Report, a biopharmaceutical analyst publication.

In other words, vaccines could represent the booster shot that ensures the pharmaceutical industry will thrive. “We know today that we can create blockbusters in the vaccine business,” says Gerd Zettlmeissl, CEO of Intercell, an Austrian vaccine biotech. “The industry is more and more moving in this direction.”

For several years, drug pipelines have been drying up as traditional drug discovery programs produce fewer and fewer new products, including blockbusters². “In the past, pharmaceutical companies were able to bring out products that had incremental innovation and make them commercial successes. That’s becoming much more difficult,” says Connolly.

In addition, the industry will soon face the biggest losses in its history to impending generic competition: According to the Wall Street Journal, by 2012, loss of patent protection for current blockbusters could cut big pharma’s U.S. annual sales by $67 billion.

Vaccines skirt the issue of generics for the simple reason that they are complex biological products that require multimillion-dollar manufacturing facilities and significant manufacturing know-how, thus are harder to copy. “It’s a whole different business with different technologies,” says Elie Betito, a spokesperson for Apotex, a Canadian generics company. “We’re not interested.” Prevnar, for example, a solution of cell membrane saccharides from seven strains of S. pneumoniae, received the 2005 National Medal of Technology from U.S. President George W. Bush for its complex innovation.

With no generic competition, a vaccine boasts a long market life. Last year, the global market for GSK’s hepatitis B vaccine, Engerix-B, was still growing, although the drug was launched in 1989, says Philippe Monteyne, senior VP of global vaccine development at GSK. “You cannot dream of that sort of situation in the rest of the pharma industry,” he says. But despite the complexity, the cost to develop a vaccine does not exceed that of a new small-molecule drug: It is estimated that a vaccine costs between $300 to $800 million to develop, while a new prescription drug averages $802 million, according to a 2003 analysis by the Tufts Center for the Study of Drug Development^3,4.

Although a single vaccine is typically administered only once in a lifetime, profits are still comparable to other pharmaceutical top-sellers. Over 4 million children are born per year in the United States alone, and each is likely to receive an $84 dose of Prevnar. “You have a regenerating patient population for your vaccine every year,” says Connolly. And the premium prices don’t hurt: approved for females and males 9 to 26 years old, Gardasil currently sells for $130 per shot, $390 for the three-shot series. In the 1990s, routine childhood vaccines were roughly $5–$15 per dose.

In addition to long market lives and choice prices, the vaccine industry is buoyed by a unique piece of legislation deflecting a major expense. In the 1980s, the high costs of liability insurance and lawsuits led to the demise of many companies’ vaccine programs. Because vaccines inject otherwise healthy children with a medication, risk tolerance is traditionally very low, and manufacturers often found themselves in court. The trend became so pronounced that Congress stepped in, fearing for the vaccine supply, and established the Vaccine Injury Compensation Program in 1988. Since its inception, consumers are charged a $0.75 tax for each dose of a vaccine purchased in the United States; the money is collected into a trust fund that provides no-fault compensation to approved vaccine injury claims. Today, the program covers adverse reactions to every vaccine recommended by the CDC from infancy to adulthood (besides the zoster vaccine for shingles), including seasonal influenza. The fund, which collects no money from companies, has paid out approximately $1.8 billion in awards to petitioners since 1989.

“It is a solution that has worked quite well,” says Connolly. “It has created a mechanism whereby people who have valid claims can be addressed, but at the same time created an environment where manufacturers can operate.” In 2001, pneumococcal conjugate vaccines, including Wyeth’s Prevnar, were added to the compensation list. An HPV vaccine was added in 2007.

Today, the vaccine industry is dominated by a small number of big companies, including Merck, GSK, Wyeth (bought by Pfizer), Novartis, and Sanofi-Aventis. “It’s a true oligopoly,” says Claude Allary of Bionest Partners, a pharmaceutical consulting agency.

France’s Sanofi-Aventis recently announced the construction of a $480 million dengue vaccine production facility southeast of Paris. There is no dengue vaccine currently on the market, so the maker of one would likely record blockbuster sales, defined as more than $1 billion per year. Sanofi-Aventis has invested more than $1 billion in vaccine production capacity in the last 5 years, and for good reason. In 2008, the company’s vaccine sales increased faster than their pharmaceutical sales by more than 3 to 1, according to their annual review.

At GSK, vaccines have become the number one contributor to growth, says Monteyne. Vaccines contribute 10.4 percent of GSK’s total sales, generating $3.2 billion in 2007 and $4 billion in 2008. (Comparatively, GSK’s leading drug product, Advair for asthma and COPD, made $6.9 billion in 2008.) And the investments will continue—spending on vaccine R&D at GSK increased nearly 300 percent from 2000 to 2008, hitting $896 million in 2008. (Vaccine clinical trials are some of the largest in the industry: a typical Phase II trial includes as many as 40,000 patients, can take years, and cost tens to hundreds of millions of dollars⁵.)

Other companies recently entered the field through the acquisition of smaller businesses with strong vaccine programs. In October, Pfizer completed its purchase of Wyeth for $67 billion. Novartis made a move in 2006, acquiring Chiron, a California-based vaccine maker, for $5.1 billion.

Not to be forgotten is a new generation of vaccine biotechs, start-ups with the bravura to attempt risky, and often truly innovative, projects. Vaccine biotechs are blooming thanks to the increased visibility of the field, says Greg Poland, a vaccine researcher at the Mayo Clinic in Minnesota. “It’s a nice environment for them,” he says, especially thanks to the availability of small grant funding. An example of such funding is the Small Business and Innovation Research (SBIR) grant from the NIH, recently awarded to several vaccine biotechs, which lets them test out adventurous ideas that are now making it big.

Founded in 1998, Austria’s Intercell has about 400 employees. Besides its current Japanese encephalitis vaccine, the company has another eleven vaccines in development, including two in Phase III trials: a Staphylococcus aureus vaccine licensed to Merck and a traveler’s diarrhea vaccine patch. In 2008, Intercell acquired Iomai Corp., a small Maryland-based company with a novel method to deliver vaccines—a medicated skin appliqué covered with microneedles to deliver vaccines or immunostimulants to Langerhans cells in the skin, capable of eliciting an immune response. In addition to the traveler’s diarrhea patch, Intercell is now developing an immunostimulant patch for pandemic bird flu (H5N1), a $128 million project fully funded by the Department of Health and Human Services (HHS), according to Intercell CEO Zettlmeissl. “Intercell has sprung from nothing in 10 years to successfully develop products,” says Allary.

Novavax, a U.S. biotech with several vaccines in clinical trials and a recent recipient of an SBIR grant, has attracted recent attention by applying virus-like particle (VLP) technology to pandemic flu. Traditional vaccines are made of either whole viruses (killed or attenuated) or pieces of pathogens, like surface proteins. The latter, however, don’t evoke a strong enough immune response on their own, so manufacturers add immune enhancers called adjuvants. VLP vaccines are composed of proteins from the viral shell and surface of a pathogen that self-assemble in vitro to resemble an intact virus, but without the potentially infectious viral DNA or RNA of the original virus, then injected as a vaccine. So far, these mimics seem to be as immunogenic as whole viruses, says Rahul Singhvi, CEO of Novavax, therefore sidestepping the need for an adjuvant.

This year, Novavax demonstrated that VLP technology might be ideal for vaccine manufacturing during flu pandemics. For the last 60 years, companies have used chicken eggs to grow flu viruses for vaccines—a process that takes about 4 months. Viral proteins needed for VLPs can be made by insect or mammalian cells in culture, therefore virus particles can be obtained much faster and more cheaply than using eggs. Novavax recently completed construction of a pilot VLP flu vaccine plant in Rockville, Md., built in half the time and for one-fourth of the cost of a traditional egg-based facility by using disposable and portable manufacturing equipment, a process that could be replicated in a developing country during a viral outbreak. “It’s very promising for epidemics,” says Allary. Last April, Novavax, only 80 employees large, produced a vaccine candidate for the H1N1 “swine flu” strain only 11 weeks after the CDC released the viral gene sequence.

Advancing technologies are encouraging pharmaceutical companies to tackle new vaccine targets, says Singhvi. Previous techniques were not successful at making a vaccine for HPV, but VLP technologies spawned Gardasil and its recently approved competitor Cervarix. “Science is expanding the whole vaccine business,” says Singhvi. With new targets comes new earning potential: Blockbuster markets await the first companies to produce vaccines for dengue, HIV, respiratory syncytial virus (RSV) and improved vaccines for malaria and tuberculosis. A recent HIV candidate vaccine tested in Thailand demonstrated modest protection against HIV—not enough to declare the vaccine a success, but enough to give the research community hope that an effective vaccine is indeed possible.

“We’re starting to see this resurgence of interest in trying to overcome barriers that we didn’t even bother going after before,” says Fauci. It’s only in the last decade that truly novel vaccines have been produced, adds Allary. “All the market is growing and all the players are growing in the market.”

In late 2008, a swarm of more than 10,000 health workers and volunteers spread out across the flat grasslands of Burkina Faso, a poor, land-locked nation in western Africa. It was a sudden campaign to immunize 7.9 million people against a deadly outbreak of yellow fever, a viral disease that causes hepatitis and hemorrhagic fever. The $11 million project was funded by the GAVI Alliance, a global organization on a mission to deliver vaccines to developing nations.

The GAVI Alliance was launched in 2000 by governments, philanthropists, nonprofits, and industry players with the intention to boost immunization in the world’s 72 poorest countries. There has always been a need for vaccines in developing countries, but now, as vaccine makers beef up their pipelines and build up their factories, those countries have a voice. The Bill and Melinda Gates Foundation invested the first start-up funds to the program, $750 million, in 1999 and have since donated a total of $1.5 billion to GAVI. “[The Gates Foundation] has had a major impact attracting companies to develop new vaccines and making vaccines available at lower cost in developing countries,” says Neal Halsey, director of the Institute for Vaccine Safety at the Johns Hopkins Bloomberg School of Public Health. Recently, a group of GAVI funding partners, including the Gates Foundation, made an advance commitment of $1.5 billion for a pneumococcal vaccine designed for developing countries. They hope to encourage vaccine makers to invest in the expensive development and manufacturing costs of the new vaccine with the knowledge that a market is waiting. Four vaccine manufacturers have already placed bids to be the supplier.

But there are limitations to the number of infectious disease targets, notes Intercell CEO Zettlmeissl. Companies continue to pursue vaccines for some elusive infectious disease targets, such as HIV and hepatitis C, but “the future will be to find areas which leave the infectious disease arena,” says Zettlmeissl. Many companies share that thought. “The whole business is not only expanding within infectious diseases, but moving into cancer and other disease areas,” says Novavax’s Singhvi.

Pipelines already full of prophylactic vaccines are now including therapeutic vaccines, used to treat disease rather than prevent it. Prophylactic vaccines introduce disease antigens into the bloodstream that provoke the immune system to create antibodies, a memory record of the pathogen to fight off future infection. Therapeutic vaccines, on the other hand, are designed to carry antigens specific to an already-present disease, such as proteins on the surface of cancer cells, hoping to stimulate the immune system against a present condition, an attempt at “like cures like.”

Industry targets include autoimmune diseases, contraception, Alzheimer’s, even drug addiction, though few trials have had success. “It is more a long-term than a short-term activity,” says Zettlmeissl. The most talked-about target for therapeutic vaccines is cancer. None have yet been approved in the United States, but GSK is running a Phase III trial for a vaccine targeting melanoma and lung cancer, which combines the company’s adjuvant system with cancer antigens to trigger an immune response against the cancer. Unlike prophylactic vaccines, the treatment involves 13 injections over a 27-month period. “It’s a completely new field,” says GSK’s Monteyne. “We can do more than just preventing disease [with vaccines]. We can also treat and cure.”

And although vaccines remain a small industry compared to drugs, they are the new blockbusters. No large pharmaceutical company can afford to stay away in today’s market, says Allary. “For big pharma, having a powerful vaccination arm is something you can’t miss these days.”

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