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Jack Bauer and the Flu

Posted by | Fuld & Company

On February 5, 2015, Public Health England announced that the flu vaccine had demonstrated low effectiveness against the main strain of flu that had circulated this past winter. Dr. Michael Skinner of Imperial College London, said in response, “Trying to predict which seasonal flu vaccine to produce each year must be a bit like a Jack Bauer car chase in Los Angeles…bound to prove somewhat hit & miss.”

A similar miss occurred in 2004, when the United States suspended The Chiron Corporation’s shipment of 48 million doses of vaccine, citing problems at the company’s Liverpool, England, manufacturing plant. Despite the Center for Disease Control’s (CDC) 2005 policy change to stockpile vaccines, another shortage hit the U.S. in 2013, highlighting the challenge influenza presents to supply and demand. Companies engaged in the manufacture, distribution, and delivery of vaccines this season would be well-advised to think ahead and create contingency plans for the vacillations in demand, the curtailment of supply, and the mishaps that can – and do – occur in such a widely unpredictable market.

A case in point arose this August when two groups of researchers working independently reported that they may have solved a key problem necessary for the development of a universal flu vaccine. Conventional flu vaccines are tailored each year to the strains predicted to prevail and scientists have for decades longed for a vaccine that will protect against any strain. While this is an early step and doesn’t impact the 2015-2016 influenza season, it does, or should, cause scientists and product managers of the major manufacturers pause as they consider vaccine development. During such a pause, the analysis of the myriad of factors and the creation of various scenarios should be undertaken to generate robust competitive strategies.

Market Segment is Small but Growing

The influenza vaccine market is small relative to the fortunes of the large pharmaceutical companies that dominate the segment, accounting for low single digits in terms of market size. However, it has tremendous growth, upwards of 10-15% per year versus 5-7% for pharmaceuticals, and has exploded in value from $5 billion in 2000 to $24 billion in 2013. According to the World Health Organization (WHO), it is anticipated to be a $3.8 billion market by 2018 and, with 120 new products in the pipeline, to grow to be a $100 billion by 2025.

Currently 75% of the manufacture of influenza vaccines is handled by five large global firms: GlaxoSmithKline, Novartis AG, Sanofi Pasteur, Pfizer, and Merck. Yet, given the merger and acquisition activity during the past decade and growth of biosimilars in the biologics market, these five are smart to not rest on their laurels but instead to continue to scan the marketplace for partners and acquisition targets that complement their current capabilities and pipelines. Despite barriers to entry, new players are appearing on the scene.

New Entrants Threaten Market Share Stability

For example, a press release out of King of Prussia, Pennsylvania, in June of this year announced that CSL Biotherapies was beginning enrollment for an influenza vaccine clinical trial sponsored by the National Institutes of Health (NIH). CSL Biotherapies emphasized that its vaccine was already approved and widely supplied in sixteen countries throughout the world.

Another competitor, Protein Sciences of Connecticut, backed by industry powerhouses Johnson & Johnson, Mertiva AB (Sweden), and Pfizer, has produced an unprecedented pure form of the influenza vaccine, trademarked Flublok. Produced without eggs, preservatives (e.g., thimerosal, a mercury derivative), live flu virus, or antibiotics, this version of vaccine could be seen as transformative in today’s market, especially for those suffering allergies or other impairments, or for those at an older or younger age.

Analyzing today’s market, Protein Sciences may have an edge as we consider growth factors such as the development of new research techniques and manufacturing technologies. The company touts its processes as low cost, scalable, and unique in that it uses genetic material to “make only the small piece of the virus that is needed for immunity.”

Numerous Trends Are Changing this Segment

This type of approach may be critical as the WHO and other organizations consider how best to address the increasing demand from emerging markets. Other trends cited as driving this market include the outsourcing of production in developing countries, the deployment of new commercial and marketing strategies (e.g., high volume/lower price, donation, active marketing, etc.), product/market segmentation, and differential pricing. With international organizations pushing for more coverage and companies utilizing innovative approaches, it is no longer the same market it was a decade ago.

The existing major corporations that dominate the manufacture of influenza vaccines need to consider these factors and analyze the competitive scenarios that may arise: development of a universal vaccine, emergence of new entrants touting international approval and/or 21st century processes, and increased demand, especially from emerging markets. Even though the vaccine segment is a small slice of their overall market span, how they respond will be telling for competitors and consumers alike.

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