Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Four-year-old Rowan Watchmaker looks on as her mother is injected with the H1N1 flu vaccine at a clinic in Ottawa.

FRED CHARTRAND/The Canadian Press

The swine flu may be dominating headlines because of its enormous public-health implications, but its vaccine also points to a profound change in the North American pharmaceutical industry: Big pharma has started to look at vaccines as a crucial new revenue stream.

In the last month alone, there have been several large deals centred on vaccines:

Johnson & Johnson paid $440-million (U.S.) for an 18-per-cent stake in Crucell NV, a Dutch biotech firm that is a major player in the vaccine market.

Story continues below advertisement

Abbott Laboratories bought the drugs unit of Solvay SA, a Belgium firm, for $6.6-billion. The deal includes Solvay's vaccine-making business.

Pfizer Inc.'s $68-billion takeover of Wyeth, considered a vaccines powerhouse, was completed in mid-October.

"There's certainly a renaissance for the vaccines business," says Arthur Wong, a credit analyst at Standard and Poor's who covers the industry.

"The big reason is that a lot of the big pharmaceutical companies are a little desperate to fill their pipeline. A lot of their biggest products are coming off patent in the 2010 to 2012 period."

But why all the deals in a sector that once considered vaccines "a poor stepchild," as Mr. Wong calls it?

Mark Pauly, a health economist at the Wharton School of the University of Pennsylvania, says a lot has changed in the past few years for vaccines. One crucial difference is that prices have risen - and so, too, have the margins.

Prof. Pauly says that because of the public-health interest in many vaccines, governments have been the major purchaser - and governments, especially in the United States, can be notoriously frugal. But over the past few years, they have come to see the value in paying a higher price - more and better products and improved, more reliable delivery systems.

Story continues below advertisement

"And higher prices, of course, have stimulated the incentive to develop vaccines and bring them quickly to market," Prof. Pauly says.

Also crucial, he says, is the scientific breakthroughs that have made it possible to develop vaccines. "That's partly associated with the biotech revolution and the general movement away... from trying to produce chemistry-set kind of products to products more biological in nature."

He says that swine flu vaccines are comparatively easy: Companies just adapted their knowledge of flu vaccines to find the H1N1 strain and produce a product. But other vaccines are different: For pediatric ones, he says, "there has been huge scientific progress in understanding what you're trying to find and developing the product."

Bruce Carlson of Kalorama Information, a market research firm for the U.S. health care industry, attributes much of the new interest by pharmaceuticals in the vaccine market to "the Gardasil effect." Merck & Co. introduced the vaccine against the human papillomavirus, which can cause cervical cancer, in 2007, and it has since become a blockbuster.

"An industry that had been stagnant and mostly focused on pediatric products [has been]revived with adult products," Mr. Carlson says. "This has only been amplified in the economic recession and a couple of bad years for pharma."

Merck , he says, handled Gardasil brilliantly. After developing the product, the company met with governments and health advocacy groups and "built a market" for the vaccine.

Story continues below advertisement

That product, says Mr. Wong of Standard & Poor's, now makes up about $1.2-billion or 8 per cent of the company's sales.

Herman Saftlas, who is S&P's equity analyst for the pharmaceutical industry, agrees "vaccines have definitely become one of the brighter areas in the whole pharmaceutical waterfront."

But, he says, with companies coming on board in a big way comes the problem of competition. Take Gardasil, for examples: Sales dropped in the latest quarter and now GlaxoSmithKline's Cervarix, another HPV vaccine, is due to come into the United States soon.

But Mr. Saftlas says that Johnson and Johnson's investment in Crucell, Abbott Laboratories' new stake in Solvay and Pfizer's takeover of Wyeth all are an indication of an eagerness to get into vaccines.

"Put it this way, those that didn't have a foothold now have a foothold in vaccines; those who already had a foothold are expanding it."

S&P has a buy rating on Johnson & Johnson, but Mr. Saftlas says vaccines have little influence in that.

Story continues below advertisement

The company is so large, the Crucell investment is "not going to move the needle that much." But he says that Johnson & Johnson is not only the largest, most diversified health care companies in the world, it "one of the savviest.

"In my opinion they have had more success with their acquisitions than most of the other health care players, the large ones."

Crucell, he adds, is just one of a long string.

S&P also has a buy rating on Abbott Laboratories. "It's similar to J&J - well-diversified, and doing a little better in their pharmaceutical lines than some others. They're preparing for the time when some of their big engines will slow - I guess that's part of the rationale for the Solvay deal."

Mr. Saftlas said that Abbott told analysts recently that the Solvay acquisition will add $3-billion in sales to the company's pharmaceutical business in 2010.

"Solvay bolsters Abbott's presence in emerging markets, which is good, too."

Story continues below advertisement

As for Merck & Co. , S&P has a hold rating. Part of the reason is that some of the company's big drugs are going off patent, Mr. Saftlas. And ironically, although the vaccine market is booming, Mr. Saftlas says Merck's vaccine business "has been slagging a little bit because of competition for Gardasil."

Pfizer is rated a buy, with Mr. Saftlas citing better-than-expected earnings and earnings projections.

"Hopefully [the acquisition of Wyeth]will help supplant the loss of Lipitor [Pfizer's wildly successful cholesterol drug]when it goes off-patent in 2011."

He adds that the acquisition of Wyeth, with its vaccines, "is considered a plus.

"It makes sense on paper - and we think the stock can go higher."

Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies