Flu vaccine may be shot in arm for drug industry

By Ben Hirschler, European Pharmaceuticals Correspondent

LONDON (Reuters) - For hard-pressed drugmakers, more used to attacks than applause, the H1N1 flu crisis is a chance to earn political capital by delivering billions of doses of vaccine across the planet.

Recent investment has put companies in far better shape to meet the challenge compared to five years ago, when a single factory closure in northwest England left the world worryingly short of seasonal flu shots.

This time around big flu vaccine makers like Sanofi-Aventis (SASY.PA), GlaxoSmithKline (GSK.L) and Novartis (NOVN.VX) look set to book extra sales, although constraints on both capacity and pricing will cap the financial upside.

Until now, the main investor focus has been on stockpiling of antiviral drugs to fight the new strain of H1N1 flu, with Roche (ROG.VX) and Glaxo -- makers of Tamiflu and Relenza respectively -- the two obvious winners.

But that could be about to change as World Health Organisation experts meet on May 14 to consider a switch from seasonal to pandemic vaccine production, with companies under intense pressure to show they are good citizens.

"It's not really about earnings accretion in 2009, it's about political goodwill with governments across the world for addressing one of the most acute public health concerns in recent history," said UBS pharmaceuticals analyst Gbola Amusa.

"That political goodwill is exceptionally valuable for these pharma companies."

In a highly regulated sector, where products are approved and bought in large part by governments, proving good citizenship is vital for securing decent prices for new medicines and winning concessions like tax breaks on R&D.

Company executives must tread a fine line by retaining business priorities while avoiding the kind of bad publicity that has surrounded costly AIDS drugs in developing countries.

PRODUCTION FLEXIBILITY

Making a vaccine for the new strain, widely known as swine flu, will mean stopping most production of seasonal shots. But because some companies are now well advanced in making next season's regular vaccine, there is some room to meet both needs.

Companies are not divulging their production schedules but officials at two manufacturers said they were hopeful they would be finished with much of the production needed for the next northern hemisphere flu season by the time of any switch.

"There is some spare capacity and because seasonal flu is not manufactured all year round, there is some flex within the system," one said.

Marie-Paule Kieny, WHO director for vaccine research, told reporters last week a key factor in determining a switch would be an assessment of how much seasonal vaccine has already been made. She hopes the answer will be "lots".

Although the H1N1 flu strain seems mild at present, health officials are worried it might return in a more virulent form in the northern hemisphere winter.