The Lesser Known Vaccine Battle

Health care news in the United States seems to center around two topics these days: President Obama’s health care reform policies and the Swine Flu virus. The average American would have little concern with news that the Food and Drug Administration has proclaimed the “new” cervical cancer vaccine Cervarix “safe and effective” (source). To an informed individual with a vested interest in GSK, however, this news has many financial implications. (image source)

Cervarix targets the two most common types of human papillomavirus (HPV), strains 16 and 18, which cause more than 70% of cervical cancer cases.  The vaccine was developed to provide long-term, sustained levels of antibodies that protect against HPV, and studies thus far have proven protection to an ongoing 6.4 years . Its only competitor currently on the market is a joint venture of Merck and Co Inc. and Sanofi-Pasteur called Gardasil (source).

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One of the biggest challenges a pharmaceutical company faces when developing new drugs are the strict regulations set by governmental organizations equivalent to the American Food and Drug Administration (FDA).  Customer bases in multiple countries only makes this process more difficult because the regulations are not uniform. While working at a pharmaceutical company this summer, Boehringer Ingelheim, I saw this first hand. The drug I worked on was manufactured in both the United States and Germany, but the product produced in one country was shipped for sale to the other. Although the testing facilities were in the US, the FDA had not approved the manufacturing plant but the European Union (EU) equivalent had. GSK has faced similar challenges when bringing Cervarix into a global market, and has fallen behind its main competitor as a result. Although both Cervarix and Gardasil were both being distributed in 2007, Gardasil had a larger market base and an additional year of market exposure which led to its much higher revenues.

Despite a late start GSK scored a huge victory over Merck Co Inc. in June of 2008 when it won a contract with the UK Department of Health to provide the HPV vaccine for a immunisation programme that began in September 2008. The initial contract is worth an estimated £100m (€143.5m) a year to vaccinate 11 and 12 year old females ,with a catch-up program targeting those under 18 that could cost up to £200m in 2009/2010 and 2010/2011 (source). Given the structure of the UK’s health care system, this contract will essentially remove Gardasil from that market.

Since Gardasil provides additional protection that Cervarix does not,  it can be assumed that GSK was able to provide the vaccines for a lower cost per unit to acquire the contract. GSK’s ability to produce a very similar product at a lower cost makes them a tough competitor to beat. Profit margins in the vaccine industry are narrow and price reduction very difficult. Although both France and Denmark have chosen Gardasil for their respective vaccination programs, countries with similar health care structures and a heavier emphasis on decreasing health care costs are likely to choose Cervarix. source

Metric	2006	2007	2008	First Half of 2009
U.S. sales of Gardasil (in millions)	$235	$1,194	$1,041	$363
Year-over-year increase (decrease)	N/A	408%	(13%)	(34%)

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The situation in the United States is much different. Cervarix has not yet been approved for use, leaving Gardasil unchallenged in the HPV vaccine market and although there is no overreaching immunization program Gardasil has been heavily promoted in doctor’s offices across the country. Its sales peaked in 2007 and were strong in 2008 but have fallen drastically this year. The most logical explanation is that the target population (teenage females) have either already received the vaccination or do not intend on getting it. This brings into question how big an impact releasing Cervarix  in the US will have  on sales. If the market is already close to saturated, Cervarix cannot have higher sales than Gardasil did as the sole provider of the vaccine.  This combined with large governmental contracts in Europe could make the US market seem obsolete.

With so many uncertainties and variables it is difficult to predict the financial success of Cervarix in the United States. A lower unit cost certainly gives GSK an advantage, but an inconsistant demand makes steady sales growth incredibly difficult. It will be interesting to see how well Cervarix does in the US market, especially with an impending change in the structure of the health care system.