A recent study on vaccine pipelines found that the number of new products has increased only modestly over the past decade. But industry experts say that bioterrorism--and larger profit margins--could change the scenario.

The study, from the Tufts Center for the Study of Drug Development, covered the years 2000 to 2004. During that period clinical studies were initiated for an average 14 products a year, compared with 12 from 1990 to 1999. Moreover, the number of companies sponsoring trials--and the number of pathogens being targeted--was virtually static.

The Tufts study tracked only "new and innovative products," which would exclude follow-on vaccines like Merck's Zostavax (live zoster), vaccines for many childhood diseases and seasonal influenza, and government and academic research.

"Vaccines have been the underdog for so long," said Janice Reichert, a senior research fellow at Tufts, who called the approval rate of a few vaccines a year "pathetic."

She noted that vaccines currently represent about two percent of the therapeutics market.

Although R&D is likely to remain at its current level in the second half of the decade, the long-term prognosis might be more promising.

 The Tufts study found that influenza and childhood diseases accounted for five of the last eight vaccines approved between 2000 and 2005.

But those targets too could change. About 60 percent of vaccines now in development target hepatitis B and C, herpes simplex, smallpox, and the West Nile virus, according to Tufts.

"To a large extent, the low-hanging fruit has been achieved," said Dr. John Lebbos, director of infectious diseases at market research firm Decision Resources. "The focus has gotten a lot more intense. That's where there's a lot more excitement."

Companies are also testing new vaccine combinations to improve existing products, he noted.

Big pharma is showing new interest in vaccines.

 Clement Lewin, vice president of US government affairs and strategy for Acambis, and a veteran of the vaccine divisions of Merck, Bayer, and Chiron, noted that the market is less dismal than Tufts suggests. He said that it is a $10 billion business growing at about 10 percent a year--and should continue growing.

Companies are expanding their investment in vaccines. GlaxoSmithKline in 2005 purchased ID Biomedical, a big player in the Canadian flu vaccine market, and Novartis similarly cited Chiron's flu vaccine capabilities as an impetus for that merger.

 Prevnar, Wyeth's pneumoccocal vaccine, reached blockbuster status in 2004, about four years after its launch--the first vaccine to cross the billion-dollar sales mark. And Merck's HPV vaccine, Gardasil, might one day follow suit.

"You're seeing vaccines that are blockbusters in the true sense of the word," said Lewin. "That's what actually changed the perception of vaccines. Vaccines are in vogue because people see they can be profitable."

Concerns about bioterrorism are encouraging development.

 Government funding for bioterrorism research has opened up opportunities for smaller companies to compete with major players. Acambis is one of those smaller firms developing vaccines for infectious diseases such as smallpox.

"The US government has encouraged companies to develop vaccines they wouldn't ordinarily develop," Lewin said.

But Reichert of Tufts noted that Project Bioshield has encouraged companies to go after exotic targets at the expense of more common ones.

The Critical Path Initiative, FDA's attempt to modernize the drug development process, does not have special provisions for vaccines.

"It's really a matter of putting additional money into vaccine research," Reichert said. "Companies would be well-suited to lobby together for political action."

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Bioterrorism and larger profit margins could drive future growth.

Vaccine Development Stagnates

The unraveling of the reverse payment deal for blood thinner Plavix (clopidogrel) shows that relying on these settlements to stave off patent challengers is a potential minefield for innovator companies.

The deals, between the Canadian generics giant Apotex on the one hand and Plavix co-marketers Sanofi-Aventis and Bristol-Myers Squibb on the other, were designed to prevent Apotex from launching generic clopidogrel, which as approved by FDA in January. Under the agreement, Apotex would receive a set payment from the innovator companies in return for not challenging Plavix's patent.

But the deal contained detailed concessions to Apotex--including a provision that waived the right of BMS and Sanofi to seek treble damages for patent infringement. These concessions remained in force even after state attorneys general failed to approve the deal, and Apotex went ahead and launched the product "at risk."

The future of BMS, which depends heavily on Plavix revenue, is now at stake, prompting questions about why it and Sanofi would sign such a lenient deal in the first place.

None of the three companies returned calls seeking comment. But Apotex CEO Barry Sherman has said publicly that he entered into the deal precisely because he didn't believe regulators would approve it. BMS and Sanofi, however, likely had a different take on the odds of approval.

The Federal Trade Commission (FTC) maintains that reverse settlement agreements are anti-competitive, but in a closely watched case last year involving Schering-Plough drug K-Dur, a federal appeals court disagreed.

The number of these deals has since been growing, and a recent FTC report found that a majority of the patent settlements reached since October included pay-for-delay provisions.

The Plavix situation, however, "may indeed have a chilling effect" on future reverse payment agreements, said Gregory Glass, principal of consulting firm Gregory Glass Associates.

"The general feeling is that the reverse payment deals look less attractive," said Jerry Cohen, a partner at law firm Burns & Levinson, which is not involved in the case. "You might say the bubble burst."

The deal has also put the Plavix patent itself under the microscope.

"The strength of the deal [for Apotex could be] an indication of what the parties thought about the strength of the patent," said Veronica Mullally, a partner at law firm Orrick, Herrington & Sutcliffe, which is not involved in the case.

But Glass disagreed, arguing that entering into a settlement is often less costly and less risky than litigation.

"Each party in a Paragraph IV [patent challenge] case--both on the part of brand and on the part of the generic--takes on a great deal of risk," he said. "It's advantageous for them to settle on some types of terms."

Sanofi and BMS on Monday filed an injunction to stop the distribution of generic clopidogrel. Their reverse settlement agreement had given Apotex a five-day start on distribution before the companies could take legal action.

The two agreements--signed on March 17 and May 26--also cap the damages that Apotex would pay even if Plavix's patent were ultimately upheld.

Damages are limited to "50 percent of Apotex's net sales of clopidogrel products if Sanofi has not launched an authorized generic and 40 percent of Apotex's net sales if Sanofi has launched an authorized generic," according to the settlement.

Mullally called that part of the deal "strange" and "unusual." The agreement not only capped damages, but also did so based on Apotex's sales, rather than profits lost to Sanofi and BMS.

"I think Apotex got a fantastic deal," she said. "There was very little disincentive for Apotex to launch [its generic product]."

Legal experts question how reverse payment deal went so awry.

BMS, Sanofi Sign Away Key Plavix Rights

Innovative drug companies are paying nearly triple what they were in 2004 to acquire biotech companies, as the pressure to fill ailing pipelines drives an increasing number of mega-deals.

Biotech executives are now finding that selling out to pharma is more lucrative than going public.

The median deal value last year was $170 million, up from $57 million in 2004 and $80 million in 2003, according to a report from management consulting firm Bain & Company.

Last year's high-profile M&A activity included the merger of Invitrogen and Dynal (a $386 million deal), Valeant and Xcel, and Pfizer and Idun (both $280 million).

Moreover, drug candidates from licensing and acquisition deals are driving more than 50 percent of pipelines, according to the report. Take the oncology market: More than half of Phase I and II products, and two-thirds of Phase III products, are being developed as part of a collaborative agreement between companies.

"Big Pharma needs to care a lot, because licensing and acquisition has clearly become the deciding factor in value creation," said Nils Behnke, author of the biotech deal-making study and a partner in Bain's global healthcare practice. "If you want quality, you need to buy early."

The best investments often come from buying early-stage compounds, but these products also pose the most risk. Therefore, deals between pharma and biotech companies often include multiple early-stage compounds, or access to the technology that will enable a raft of new product development.

Yet it's hard for investors to know whether prices for these early-stage portfolios are artificially inflated, noted Jason Napodano, senior pharmaceutical analyst at Zacks Investment Research.

The vast majority of these biotech firms are private, with less stringent financial reporting requirements. Moreover, there's a sense among pharma companies that if they don't jump at a deal, a competitor will--and they're willing to move forward at any price.

"They're loaded with cash and they're desperate for products" Napodano said. "They can pay whatever they want, and the street won't really know if they overpaid or underpaid."

Biotech companies, on the other hand, are riding high on the trend. 

During the past two years, acquisitions were valued at a median of 3.5 times the pre-sale capital investment; IPOs, in comparison, only brought in a median of two times the pre-IPO investment.

And biotechs are also at the center of more bidding wars. "Multiple bids are a dream come true" for a biotech, Napodano said.

Behnke cautioned that many of these deals look bigger than they are, because only a minimum amount of cash is being put down up-front. 

Moreover, while they are big deals for biotech, they remain a drop in the bucket for high-earning pharma companies.

But Behnke noted that the current trend is not likely to ebb any time soon. "Most people would want to bet their money on the trend continuing," he said.

Biotechs find sales more profitable than IPOs.

Pharmaceutical Executive-08-16-2006

Vaccine Development Stagnates

BMS, Sanofi Sign Away Key Plavix Rights

Pharma-Biotech M&A Prices Nearly Triple