The Taming of the Swine Flu

Throughout history the unpredictability of the Flu Virus has offered challenges and new opportunities to providers of therapeutic and prophylactic antiviral treatment options. While opportunities during the Spanish Flu of 1918 pandemic were not quantifiable, the impact from the more recent Bird Flu and SARS occurrences can be extrapolated to assess the investment opportunity surrounding the Swine (H1N1) flu pandemic. Tamiflu sales in 2005-2007 amounted to ~$1.7b and we expect 2009-2010 sales to match or exceed this.

One notable difference between Bird Flu and Swine Flu is that Swine Flu, unlike Bird Flu which did not spread rapidly to developed countries, has spread becoming a worldwide concern unlikely to be limited by geographies. All governments are preparing to curtail the spread and mortality to the best of their abilities and available resources. Thus, the positive impact on companies involved could be much larger than witnessed in earlier pandemics. Tamiflu, developed by Roche and Chugai, can treat the majority of the infected patients – a blessing both for the patients and the manufacturers of the drug.

Therapeutic Options:

The supply of small molecule-based drugs for treating Flu may not be constrained (as in the case of vaccines); hence in time revenues generated against orders may be realized by the companies. Roche and Chugai are the obvious beneficiaries with GlaxoSmithKline (Relenza) gaining both from providing medicines for treatment and prevention. There is no significant impact on Gilead’s bottom-line from Tamiflu sales.

Therapeutic vaccines/Monoclonal antibody approach (Crucell, Cel-Sci) could be meaningful only if they show efficacy comparable to the small molecules (Tamiflu, Relenza and BioCryst’s Peramivir) and match in affordability and convenient route of administration.

Emerging markets are being supplied by local providers of the antivirals hence do not offer opportunities for the Global Pharma companies.

Prophylactic Options:

While a prophylactic/preventive approach is an ideal option, mutations in the surface antigens of the flu virus prevents advanced preparedness for the disease. Governments as a result have to be prepared both with prophylactic and therapeutic options for combating the disease. Manufacturers of Seasonal Flu vaccines have to optimize their production protocol regularly to improve on yields and ensure no contamination problems arise as the window for providing the vaccine once the strain is identified to the market before the flu season is very narrow. In the case of Swine Flu, most vaccine manufacturers are facing problems with 30% yields vs. the 50% yield for seasonal vaccines. The profit margins in this vaccine are not lucrative for many as the cost of production and investment in capacities are unlikely to be covered by the subsidized price at which the vaccine is purchased by the government. Based on the consensus estimates, the vaccines could be purchased at an average price of $7 (WHO range is $2.5-$20).

Doses for Swine Flu Vaccine:

WHO has reported that orders for 850-900m doses of H1N1 vaccine have been secured which could yield at least revenues of <$6b if all doses are supplied in time by the respective manufacturers. While this is a one-time opportunity, it cannot be ignored. Realistically the revenues may not reach the $6b mark, as supply is likely to be limited by:

1. Yield –While the traditional egg method of manufacturing the vaccine is cost effective, the risk of contamination is higher than in the cell culture method where the virus may grow more slowly. Despite various manufacturing processes in place, most companies are still facing problems with the yield of the antigen which finally decides the number of doses manufactured.

2. Capacity constraints are likely as seasonal flu vaccine manufacturing cannot be compromised.

3. One Dose vs. Two – Antigen/dose to be adjusted based on the immune response. Decision to use single vs. two doses will be made after release of clinical trial data as well as the assessment of the spread of the disease where the government may be forced to use only single injection should the seriousness of the disease be more than anticipated. With the currently approved adjuvants, the two-dose regimen is likely to be used which over time may be replaced with single dose vaccines formulated in novel adjuvants (ASO3, MF59 approved in EU and not US).

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