SCENARIOS: Companies reaping the swine flu windfall

http://www.reuters.com/article/GCA-SwineFlu/idUSTRE56M44W20090723

SCENARIOS: Companies reaping the swine flu windfall
Thu Jul 23, 2009 10:51am EDT

By Julie Steenhuysen

CHICAGO (Reuters) - The effects of swine flu are already showing up in higher profits for makers of vaccines and antiviral drugs as the first pandemic of the 21st century makes its way onto corporate bottom lines.

Vaccine and flu drug orders lifted drugmaker GlaxoSmithKline to a better-than expected quarterly profit, the company said on Wednesday. Sales of the antiviral drug Relenza jumped nearly 2,000 percent compared to a year ago as governments stocked up to fight the pandemic. Glaxo predicts flu vaccine sales will spur second-half strength.

Gilead Sciences Inc said on Tuesday second quarter royalty and contract revenue rose 29 percent to nearly $79 million, a figure that largely reflects royalty revenue from Roche Holding AG's sales of the Tamiflu flu drug.

Roche said on Thursday Tamiflu sales rose 200 percent in the first half of the year and that it will expand capacity for the drug by the start of 2010.

Analysts say this may only be the beginning of the swine flu windfall, which could bring drugmakers billions. Here's how the pandemic will affect companies in the coming months.

BIGGER PROFITS FOR MAKERS OF VACCINES, ANTIVIRALS

The most obvious implications of the swine flu pandemic are growing orders for new H1N1 vaccines and antiviral drugs.

"They will have an increasing number of governments asking them to provide antivirals to manage this pandemic," Hedwig Kresse, an infectious diseases analyst at Datamonitor in London, said in a telephone interview.

At least 50 governments have placed orders or are negotiating with drug companies for doses of the vaccine to fight the fast-spreading new strain of H1N1 influenza. The United States has set aside more than $1 billion for vaccine.

Baxter International Inc said last week it has taken orders from five countries for 80 million doses, and can take no more. "I think at some point capacity will become an issue," Kresse said.

ACCELERATED INNOVATION

The rush to make a vaccine for an entirely new, pandemic strain of influenza may accelerate new vaccine technologies.

Kresse said adjuvants -- additives that can stretch vaccine supply -- are well established in Europe, and used in vaccines made by Glaxo and Swiss-based Novartis.

The U.S. Food and Drug Administration has been more conservative, but she said the pandemic could speed adoption of adjuvants and new cell-based vaccine technologies, like one used by Baxter, which has not yet won FDA approval.

Protein Sciences Corp and Novavax Inc make vaccines using insect cells, a faster method than the conventional chicken egg technology. Rodman & Renshaw biotechnology analysts Elemer Piros and Boris Peaker project that Novavax's technology could help fill the gap for some countries looking for vaccine.

BROADER IMPACT

Analysts at William Blair & Co said high rates of H1N1 in upcoming Northern Hemisphere's flu season could have a "profound impact" on many parts of the health system.

Hospital supply distributors such as Henry Schein and PSS World Medical could be affected, as well as retail pharmacy chains including Walgreen and CVS stores, which would have higher volume for prescriptions and over-the-counter medicines.

And if hospitals fill up with flu patients, some people might steer clear, putting off elective surgery for hip replacements or heart defibrillators.

William Blair analyst Ben Andrew said a 2007 Canadian study looking at the 2003 outbreak or severe acute respiratory syndrome or SARS found elective procedures fell by 22 percent, and elective heart procedures by 66 percent.

"If you need a stent because you are having a heart attack, that is not elective," he said in a telephone interview.

But he said someone needing a hip implant may just decide to stay on painkillers for a bit longer.

(Editing by Maggie Fox and Mohammad Zargham)