Companies reap the swine flu windfall

CHICAGO Fri Oct 23, 2009 12:43pm EDT

A nurse simulates the preparation of a vaccine doze against pandemic Influenza A (H1N1) virus during an exercise organised by local authorities to test the functioning of a temporary vaccination centre in Haguenau, October 6, 2009. REUTERS/Vincent Kessler

A nurse simulates the preparation of a vaccine doze against pandemic Influenza A (H1N1) virus during an exercise organised by local authorities to test the functioning of a temporary vaccination centre in Haguenau, October 6, 2009.

Credit: Reuters/Vincent Kessler

CHICAGO (Reuters) - Healthcare companies are reaping the benefits of a global swine flu pandemic, brightening what might otherwise have been a dismal third quarter and bringing new focus on the market for vaccines.

Large European pharmaceutical companies are reporting windfall sales from flu drugs and H1N1 vaccines.

Small biotechs are winning fresh attention from investors and governments looking for quick, less expensive ways of making flu vaccines to protect their populations. And diagnostic companies have been growing revenues as doctors order more flu tests.

"Pretty much everyone who does something in influenza in has gained from it," said Hedwig Kresse, an infectious diseases analyst at Datamonitor in London.

"From a sales perspective, the big players certainly will see a very significant windfall of this pandemic this year," Kresse said in a telephone interview.

Swiss drugmaker Novartis AG said this week it expects the H1N1 flu vaccine to contribute about $400 million to $700 million of sales in the fourth quarter.

Vaccine makers GlaxoSmithKline Plc, Sanofi-Aventis SA and AstraZeneca Plc are all expected to get a lift from swine flu-related sales when they report fourth-quarter results next week.

Roche Holding AG last week raised its full-year estimates on higher sales of its flu drug Tamiflu, which also lifted forecasts at U.S. biotech Gilead Sciences Inc, which collects royalties on the pills.

Baxter International Inc, which makes a cell culture-based flu vaccine, expects as much as $40 million in H1N1 vaccine sales in the fourth quarter.

David Kagi, a healthcare analyst at Swiss-based Bank Sarasin & Co estimates pandemic vaccine sales will be worth a total of $7.6 billion, even with a mild pandemic. A severe pandemic would result in total vaccine sales of $18 billion.

But both Kagi and Kresse said the pandemic effect would more likely be a blip than a lasting boost to sales. "It will last this year, and if they are very lucky, it will last next year also," Kresse said.

U.S. PHARMA ON SIDELINES?

With the exception of Baxter and Gilead, most other U.S.-based pharmaceutical makers have not benefited much directly from the swine flu bonanza, but a round of acquisition activity last month suggests U.S. big pharma may not be happy sitting on the sidelines.

Johnson & Johnson spent $444 million to buy a stake in Dutch biotech Crucell NV as part of a new push into influenza vaccine and drug development.

Abbott Laboratories Inc spent $6.6 billion on the drugs unit of Belgium's Solvay SA, including Solvay's Dutch cell-based flu vaccine production facility.

And Merck & Co Inc, already a vaccine powerhouse with its shingles and cervical cancer vaccines, got back into the U.S. flu market with a deal to distribute seasonal flu vaccine made by Australia's CSL Ltd.

"I think it's certainly a big driver at the moment for pharma strategy," Kresse said.

Although smaller vaccine companies with new technologies are not likely to produce H1N1 vaccines in time for the current pandemic, the global influenza threat has awakened governments from Egypt to India to the need for flu vaccines.

Novavax Inc this week launched a 4,000-patient clinical trial in Mexico of its H1N1 vaccine, which is grown in caterpillar cells rather than the conventional chicken eggs.

While Kresse thinks biotechs had hoped to benefit more, the pandemic has brought new attention to their technologies.

Demand for an intravenous flu drug may mean earlier approval of Biocryst Pharmaceuticals Inc's and Shionogi & Co Ltd's peramivir. U.S. Health and Human Services Secretary Kathleen Sebelius said this week government scientists would soon decide whether to approve emergency use for people too sick to take existing antiviral medications by either pill or inhaler.

In the United States, the biggest early impact from the H1N1 flu will be on companies that make flu tests, said John Sullivan, director of research and Healthcare Strategist at Leerink Swann.

Sullivan said flu-related sales boosted earnings at Thermo Fisher Scientific Inc, a scientific instruments maker.

And he expects to see more flu impact on testing companies like Quest Diagnostics Inc and Laboratory Corp of America. Quidel Corp last week posted a quarterly profit that blew past analyst estimates last week, helped by higher demand for its flu tests.

William Blair analysts Mark Miller and Brian Weinstein expect retail drug chains Walgreens and CVS Caremark could reap significantly higher earnings in 2009-2010 on sales of prescription and over-the-counter products, such as cold remedies, hand sanitizers, masks and latex gloves.

As for hospitals, Sullivan said it is too early to tell what impact the pandemic might have. "We are going to watch the hospital industry to see if hospitalizations rise. We have not seen it so far," he said.

(Editing by Maggie Fox and Gerald E. McCormick)

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