By SCOTT HENSLEY and BERNARD WYSOCKI JR. Staff Reporters of THE WALL STREET JOURNAL November 8, 2005; Page A1
A shortage of flu shots forces millions to go without them. Hospitals report they're running out of antibiotics for tough bugs. The U.S. is called vulnerable to avian flu and terrorists spreading anthrax.
How is it that the U.S., known for its prowess in producing lifesaving drugs and boasting an industry with a stock-market value in the hundreds of billions of dollars, doesn't have the medicine necessary to protect itself from these public-health threats?
The same market forces that reward the production of Lipitor, Viagra and other drugs for chronic conditions have proved a poor way to provide some of the antibiotics and vaccines that the public needs most. By itself, Lipitor, an anticholesterol drug, brings in more revenue -- about $12 billion this year -- than the entire vaccine market.
Publicly traded drug companies are encouraged by their shareholders to make drugs that either are priced in the thousands of dollars per prescription or can be prescribed for years. What turns off drug companies is a product with low profit margins, infrequent use and a high likelihood of liability lawsuits.
Many vaccines and anti-infectives have all these characteristics. Once, these products were bread and butter for drug makers. Today, the number of U.S. vaccine manufacturers is down to a handful from 25 three decades ago. Last year the U.S. was dependent on a single French-owned plant in Pennsylvania for its flu-vaccine supply. Antibiotics comprised just five of 506 new drugs in the pharmaceutical pipeline, according to a 2004 report by the Infectious Diseases Society of America, a nonprofit group pushing for more antibiotics.
In vaccines and antibiotics, the value of a drug is often spread across the entire public. Each person vaccinated against a disease helps everyone by keeping bad bugs out of circulation. Everyone benefits if doctors have plenty of antibiotics in reserve for drug-resistant bacteria, even if only a few people need those drugs now. Economists generally agree that in markets like these government should step in -- just as governments deliver services such as police, roads and national defense because they benefit the public collectively.
The government has recognized the problem, but several past efforts have proved ham-handed. Today, both the Bush administration and Congress are pushing new initiatives. President Bush has laid out a $7 billion strategy to combat pandemic flu. Republicans in the Senate are working on a broad bill to promote vaccines, antibiotics and bioterror drugs.
The prospect of ramped-up federal spending on public-health programs is attracting renewed interest in infectious diseases. Novartis AG announced on Oct. 31 that it will pay $5.1 billion to buy the 58% of vaccine maker Chiron Corp. that it doesn't already own.
Until recently, however, companies mostly turned tail on unappealing, but crucial, medicines to treat infectious diseases. "The margins were so low that four of the last five years we were on the market, we lost money," says Peter Paradiso, a Wyeth research executive, referring to his company's decision in 2002 to stop making flu vaccine. Wyeth closed a Pennsylvania plant completed just a few years earlier.
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Not all vaccines and antibiotics are bad business for drug makers. Wyeth's Prevnar vaccine against meningitis last year became the first vaccine to reach $1 billion in sales -- mainly because it sells at more than $220 per four-shot regimen. The federal government recommends Prevnar and pays a good price for it -- as do private purchasers -- because it's the first vaccine of its type and targets a life-threatening illness.
Merck & Co. and GlaxoSmithKline PLC are also expecting billion-dollar-plus annual sales for their vaccines against the virus that causes cervical cancer. Those vaccines may come on the market by 2006 or 2007, and are also expected to fetch a high price per dose.
These vaccines show that drug companies are willing to look hard for new vaccines and antibiotics if they can obtain a high price and have guaranteed buyers. That's where the U.S. government comes in -- but even when it has money to spend, it doesn't always get the incentives right.
Prodded by 9/11, President Bush signed Project BioShield into law in 2004. It provides for $5.6 billion of taxpayer funds to stockpile biodefense drugs. Although some of the money was used to buy five million doses of an older-generation anthrax vaccine, more than 95% of the BioShield money has yet to be spent.
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Sen. Judd Gregg, a Republican of New Hampshire and chairman of the budget committee, admits the BioShield legislation that he promoted hasn't made the nation safer yet. "There's a tremendous problem and it hasn't been abated by anything we have done so far," says Sen. Gregg.
Legislation now under debate in Congress would also give companies new incentives to develop drugs deemed to be in critical need such as vaccines, avian-flu treatments and antibiotics for drug-resistant bugs. The incentives are likely to include extended market exclusivity and a new $1 billion agency within the Department of Health and Human Services to fund midstage research.
With more money floating around, some companies are starting to find infectious diseases alluring again. The vaccine market "offers us an attractive new growth platform," said Novartis Chief Executive Daniel Vasella as he announced the deal to buy vaccine maker Chiron. GlaxoSmithKline said in September that it will pay $1.4 billion to buy Canadian flu-vaccine maker ID Biomedical Corp.
But executives are still concerned about being at the government's mercy on pricing. After the anthrax attacks of 2001, Tommy Thompson, then the health and human services secretary, strong-armed Bayer AG into selling its antibiotic Cipro to the U.S. government at one-fourth the market price. Mr. Thompson, citing the urgent need for the powerful drug, threatened to strip Bayer of its patent protection on Cipro if it didn't comply.