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.

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

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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