CNBC Business | Piggy banking

Piggy banking

Huge profits may be unlikely, but Big Pharma may benefit from swine flu in other ways, says Trevor Huggins

In the view of many cynics, pharmaceutical firms are discreetly rubbing their hands at the prospect of a swine flu crisis developing later this year. After all, the spread of H1N1 is being taken deadly seriously by the authorities who can only look to their industry for answers. Yet the cynics risk being disappointed. For while there is clearly money to be made, experts believe that the major drug manufacturers are unlikely to make huge profits even if the current outbreak becomes a catastrophe.

Over the past few months, the rising death toll and the spread of the disease has triggered international concern. Understandably so. The last flu outbreak to become a pandemic, in 1968, left one million people dead, while the spectre of the 1918 outbreak, which killed up to 50 million, still looms large in the thinking of experts. Clearly, such figures dwarf the death tolls produced so far by swine flu. However, the unease being shown by the World Health Organization is down to the knowledge that the new strain has mutated from a virus which is already a prolific killer.  

Ordinary seasonal flu, described by the father of medicine Hippocrates some 2,400 years ago, claims between 250,000 and 500,000 lives every year, despite the best efforts of national governments and the WHO. Health authorities and drug companies are now facing a battle on a potentially much greater scale, particularly if the current fears of a second, more deadly wave of infection later in the year are realised. As UN Secretary General Ban Ki-moon put it in May: “We may be in a grace period with H1N1 but we are still in the danger zone.” Indeed, such uncertainty is a theme that runs through both the problem and the possible solutions to swine flu.  

For the moment, there is no reliable prediction as to how deadly the virus will become in the months ahead or how much of a shield can be provided by vaccination. For a single flu virus, a typical jab contains 15 micrograms of antigen, the active ingredient which stimulates the body’s immune system. But Dr Albert Garcia, an epidemiologist with the world’s largest flu vaccine manufacturer Sanofi Pasteur warns that such a dosage may not be suitable for swine flu: “Only clinical trials will show if 15mg is the minimum needed to protect a human being or... as little as 7.5mg, 3.8mg – or as much as 30mg. There’s that much uncertainty over the final dose. Also, will it take a single dose, or two?” 

Another variable is the potential impact of adjuvants. An adjuvant is not an antigen itself but it can dramatically improve the effectiveness of one that it is mixed with. The result, called ‘antigen sparing’ in pharma-speak, is that more individual doses can be made from the same volume of bulk produce. It will be many weeks yet before a definitive answer is given to these questions, though the WHO believes some five billion shots could be produced in a year by the pharmaceutical industry, with the first deliveries expected anytime between September and November. The one certainty is that the drug companies will pull out all the stops to meet demand for a proven vaccine. “Vaccines are one of the jewels in the crown, one of the best weapons we can use,” says Dr Garcia. “If it’s a really bad pandemic, we will just keep producing, producing, producing. We’ll do everything we can.” 

The likes of Sanofi Pasteur, GlaxoSmithKline and Novartis obviously stand to reap a commercial benefit from saving lives. However, they may not be in for a massive windfall. Aparna Krishnan, a senior research analyst at IHS Global Insight says: “Companies would be investing in a completely different line of vaccine production and it’s debatable whether this would have a significant upside in profits. They would also have to give out subsidies and discounts (to developing countries).” They will also not have the market to themselves if the outbreak reaches dramatic proportions, as the WHO would look further afield for help in producing vaccines. “Recruiting seasonal flu manufacturers in emerging markets such as India and China would be crucial in scaling up production for swine flu,” adds Krishnan.  

Hedwig Kresse, senior research analyst at Datamonitor, agrees, but she sees potential benefits to drug firms later on. “If you look at the short-term, manufacturers won’t necessarily earn that much money from this pandemic itself,” says Kresse. “But it could have significant upsides for them in the long-term because if it gets severe we’re likely to see new technologies, adjuvants and manufacturing approaches, and the outbreak may accelerate their route to the market.” 

If a burgeoning supply market is created for vaccines, the same will also be true for anti-virals such as Roche’s Tamiflu and GSK’s Relenza. Launched in 1999/2000, the drugs proved highly profitable after the bird ‘flu outbreak of 2005 triggered widespread stockpiling. Both companies would stand to benefit if the current swine flu outbreak worsened and countries began drawing heavily on those reserves.  

However, there will be limits to what profits even these companies might be derive from a truly severe outbreak. The phrase they fear is compulsory licensing, which, under World Trade Organization rules, allows generic drug manufacturers to produce cut-price, unlicensed copies if a government declares a national emergency. 

“The issue of compulsory licensing is a real thorn for branded manufacturers, especially in countries such as India, China, Thailand, Indonesia, South Korea and Brazil,” says Krishnan. “In the case of a public health emergency, branded manufacturers will have to take into account that there will be a stage where they can’t mass produce the amount of drugs necessary for the affected population. There is bound to be some amount of bargaining in that local manufacturers might be given licences but curtailed in the amount they can export or limited in time until the swine flu epidemic goes away.”  

Kresse also sees the world economy slamming on the brakes before the pharmaceutical giants can make windfall profits. “In the case of a severe pandemic, we’d need everyone who can, to be making antivirals. I don’t think it’s a clearcut story of GSK and Roche getting all the money that’s out there for antivirals.” 

One certainty is that drug companies will do their public image no end of good by a prompt response to the outbreak. GSK’s decision to commit to large-scale production of a swine flu vaccine, pre-empting any such decision by the WHO, shows the determined mood of an industry springing into action. Kresse says: “It’s a big opportunity for them to show the world that pharmaceutical companies are not just about making money out of people being ill, but that they really have an important role in situations like these.”  

However, satisfying conflicting demands for seasonal and H1N1 flu vaccines leaves little room for error and drug companies will have to make the right call with the resources they have available. As Kresse notes: “They can make up a lot of ground in public opinion...but they also run the risk of falling out of favour again if something goes wrong.”