Because vaccine making is so expensive - a new plant can cost up to $1-billion (U.S.) - companies like Glaxo, Novartis and Sanofi-Aventis didn't have to worry about a rash of new entrants cutting into the flu vaccine business as governments ordered millions of doses.
"The barriers to enter the market are extremely high," said Mr. Monteyne in Belgium. "You don't become a vaccine maker over night. That's why we have a few big players, and very few only." That meant the giants could push hard to increase prices. And they did.
Sanofi-Aventis expects to earn close to $6-billion (U.S.) in vaccine revenue next year and double its sales by 2013. This quarter, sales of H1N1 vaccine alone will top $500-million. It is suddenly a good time to be a flu shot maker.
"Vaccines, vaccines, wonderful business," Chris Viehbacher, the Canadian-born CEO of Sanofi-Aventis, told investment analysts on a conference call a few months ago.
It didn't take long for such calculations to be made in other boardrooms around the globe. The companies began acting quickly to expand: Novartis spent $5-billion to buy U.S.-based flu vaccine maker Chrion. Britain's Astra Zeneca paid $15-billion for Medimmune, and Glaxo purchased the old BioChem vaccine operation in Quebec for $1.4-billion.
With 22 per cent of the market, Glaxo was now the global leader in vaccines. And with that clout came the power to influence governments, who were already fearful about not having enough vaccine supply in the event of a pandemic.
How vaccines are sold and prices are set
In the summer of 2008, Canadian Finance Minister Jim Flaherty's staff prepared a briefing note for an upcoming meeting with the head of Glaxo's Canadian operations, Paul Lucas.
Glaxo had been lobbying several governments around the world to get higher vaccine prices and access to massive cash reserves countries were setting aside to cope with a pandemic threat.
"We understand that Mr. Lucas would like to discuss how GSK could further contribute to Canada's pandemic preparedness, including [Ottawa]setting aside $400-million as a contingency fund," the note said, according to documents obtained by Ottawa researcher Ken Rubin.
Mr. Flaherty held the purse strings on any national pandemic plan and subsequent vaccine purchase from Glaxo. The company had a message for the minister: "GSK has been critical … contending that the proposed vaccine price is too low," Mr. Flaherty's staff told him.
Indeed, the company had already been lobbying governments well before then. Since the late 1990s, prices for flu vaccine in North America have soared from $2 per dose to as high as $12 in 2007. The price has recently fallen back to about $8 as buying volumes increased in the face of H1N1. But that's still a healthy margin, as some analysts estimate it costs about $1 to make each dose.
The company does not discuss its costs, but Mr. Monteyne said the cost of a flu shot is flexible depending on whether the buyer can pay more. "We have a tiered pricing strategy," Mr. Monteyne said. "It is mainly based on the level of income of the country."
Beyond just selling crates of vaccine, Glaxo also wants to sell full-service protection - pandemic readiness packages. And the industry's desire to build a stable business out of vaccines, along with the emergence of adjuvants, has led to perhaps the most significant shift the industry has seen in decades: the creation of vaccine stockpiles.
Switzerland was the first country to jump in. In October, 2006, with fear over H5N1 at fever pitch, the Swiss signed a contract with Glaxo on a stockpiling deal that called for 8 million doses of avian flu vaccine, slightly more than one shot for every citizen.
Then, in a new kind of move for the industry, the Swiss reserved future space on the production line for another 8 million doses if needed. That meant Swiss health authorities had priority in line at Glaxo's factories if a second dose were needed.
This emerging business - pre-pandemic treatment - was rounding into shape. Glaxo began trade-marking the names of vaccines along those lines, registering its vaccines as Prepandrix.
Other nations soon followed the Swiss with deals of their own, locking up huge sales for Glaxo.
There was just one problem: the H5N1 pandemic never happened. The virus stayed mostly with animals. The Swiss were left with one of the world's largest stockpiles of unused H5N1 flu vaccine. Glaxo's sales of avian flu vaccine fell 54 per cent in 2008, as countries realized their stockpiles weren't needed.
This was a problem for the vaccine makers, who were looking to build an enduring revenue stream rather than simply capitalizing on flu fears to gain a temporary spike in sales. Glaxo's new CEO, who had been elevated from the ranks of the company's vaccine division, understood this.