Billions spent to boost flu shots

Drug manufacturers and the federal government are spending billions of dollars to produce a record number of vaccines for this flu season, making shortages of the shots a thing of the past.

The drug companies are manufacturing the large number of flu shots to protect against this season’s version of the flu. The number of vaccines will continue to rise as emerging technologies allow the companies to expand production levels.

A record 110 million to 115 million flu vaccines will be produced this year, just two years after a shortage cut the U.S. supply nearly in half. The previous high reached 83 million doses in 2003.

Vaccine makers are being wooed by the government to develop new technologies that will modernize flu vaccines for the possibility of a pandemic influenza, such as bird flu, and prevent a vaccine shortfall.

The Centers for Disease Control and Prevention estimates that 213 million Americans, or 73 percent of the nation’s population, should receive a flu shot. That number will increase as the baby boomers age and child-advocacy organizations press the government to expand the recommended age for a flu shot from 5 to 18 years old.

The government funding of the vaccine market has eliminated the risk of tepid demand, which slowed production in past years.

“The federal government has created a demand for vaccines by putting money on the table,” said Jose Rasco, an investment strategist at Merrill Lynch. “Before, companies never knew what the demand was going to be. The profitability is back and the low margins are gone.”

The Department of Health and Human Services last year split up $1 billion among the major vaccine makers to spur development of a vaccine that can be produced faster and in larger amounts. The new vaccine will be made from human or animal cells rather than the current method that uses chicken eggs and takes months to produce. It should be available by 2010.

“The money being provided to drug companies is meant to stimulate cell-based approaches to flu vaccines that will not only help in a pandemic but also help the regular flu season by allowing manufacturers to respond quickly to flu strains,” said Health and Human Services spokesman Bill Hall.

The result has been the transformation of a market that was once crippled by low prices and low profit margins into a major revenue producer for drug companies.

GlaxoSmithKline, MedImmune and Novartis expect vaccines to contribute double-digit growth rates to corporate sales over the next six years, according to Mr. Rasco.

In the past, Chiron Corp., MedImmune and Sanofi-Aventis produced the majority of flu vaccines in the U.S. But this year, five drug manufactures will produce the vaccines. While Sanofi-Aventis continues to manufacture the most, GlaxoSmithKline and Novartis are committing billions of dollars to the burgeoning market.

After recognizing the market’s potential, Novartis bought Chiron last year for $5.4 billion. Novartis will produce 35 million vaccines this year, more than tripling the number of shots it produced in 2005, and is investing $600 million in a North Carolina facility designed to boost the company’s seasonal flu vaccine production and increase research in cell-based vaccines.

“There are new vaccines entering the market and new technologies being developed that are creating significant growth in the market of around 15 to 20 percent over the next five years,” said Novartis Chief Executive Daniel Vasella.

GlaxoSmithKline received $274 million from the government to speed the development of cell-based vaccines and has spent $2 billion of its own money over the last two years building its manufacturing capacity. The company will produce 25 million doses this year.

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