O.K., Roll Up Your Sleeve

New vaccines are arriving but the economics are still a challenge

Each year, some 500,000 to 600,000 children around the world die of severe diarrhea caused by rotavirus. It is one of the top five childhood killers in the developing world and a leading cause of childhood hospitalizations in the U.S. and Europe. Two new vaccines, from GlaxoSmithKline PLC (GSK ) and Merck & Co. (MRK ), may soon fight back against this menace. Merck filed for Food & Drug Administration approval for its RoTaTeQ vaccine in April, and Glaxo is in talks with the FDA on a filing for its Rotarix.

RoTaTeQ and Rotarix should be potent weapons against rotavirus -- but they are not the first ones. Wyeth Pharmaceuticals (WYE ) won FDA approval of a similar vaccine in 1998. A year later, the serum was banned in the U.S. after 15 cases of intussusception, a rare intestinal obstruction, were reported among the 1 million children inoculated. Although no definitive link was made between intussusception and the Wyeth vaccine, Merck and Glaxo have been extra-cautious, both testing their vaccines on some 75,000 children -- an enormous clinical sample. The high cost of these trials will likely be reflected in the price of the vaccines, making it that much harder for Third World nations to afford them for their children, who face the greatest threat from rotavirus.

The saga of the rotavirus vaccine reveals the conundrum facing vaccine development. On one side, societies reap terrific benefits: Polio, diphtheria, smallpox, and rubella have all been eliminated in the U.S. thanks to vaccines. But drug companies tend to focus on the sky-high development costs required to minimize risks that are inherent in giving any medication to millions of children. What's more, insurers and government agencies have held vaccine prices at artificially low levels. Consequently, while the need for vaccines is soaring, there are only five suppliers in the U.S., compared with 17 in 1980.

Despite these stark realities, some drug executives and health-care experts believe that vaccines may be poised for a renaissance. One reason is that infectious diseases continue to rack up huge death tolls. AIDS, tuberculosis, and malaria kill roughly 6 million people worldwide each year -- and Western governments and foundations are increasingly willing to fund development of vaccines to stop these epidemics. Vaccine makers are also targeting a new and potentially lucrative market: adults, who may be willing to pay a premium for protection.


A recent flurry of vaccine announcements, after decades of quiet, would seem to mark renewed interest in the field. In June, Merck reported successful results in a trial of the first vaccine against shingles, a painful nerve condition in adults. The FDA recently approved a booster vaccine for adolescents and adults against meningitis and two against whooping cough. At a seminar in June, Glaxo detailed an ambitious program to launch five major vaccines over the next five years, for rotavirus, cervical cancer, pneumococcal disease, influenza, and meningitis. Glaxo expects those products to add $10 billion to $18 billion in revenues by 2010.

The Bill & Melinda Gates Foundation has also brought new energy to the field, having pledged hundreds of millions of dollars to researchers trying to come up with vaccines for the developing world. The world's richest countries are following suit: The Finance Ministers of the Group of Eight industrialized countries just voted to create incentives for companies pursuing vaccines against malaria, TB, and AIDS.

All this activity, however, could add up to less than it seems. The G8 has yet to fund its vaccine incentives. And Wyeth research and development President Robert R. Ruffolo notes that virtually all the vaccines approaching the market today were put into development 10 to 15 years ago. "I'm not certain whether we're seeing a coincidence of approvals as opposed to a renewed interest in the field," he says.

Ruffolo and other pharmaceutical executives say the biggest problem is the difficulty vaccine makers have in recouping their development costs. The FDA is intent on eliminating risks when inoculating millions of healthy people, making vaccine development slow and expensive.

Once a vaccine is approved, manufacturers complain that they have little pricing flexibility, at least where children are concerned. Most U.S. states require that children be vaccinated for 12 diseases, but many insurance plans do not cover immunizations. Instead, some 55% to 60% of vaccines in the U.S. are purchased by the federal Vaccines for Children program, launched in 1994 to provide vaccines to all uninsured and underinsured children. The lack of alternative buyers allows the program to keep a cap on prices.

Vaccines are also administered only once or a few times over a person's life, further narrowing the drug company's opportunities to earn back its investment. Wyeth's Prevnar, introduced in 2000 to protect children under two against meningitis, pneumococcal bacteremia, and other pneumococcal diseases, is the best-selling vaccine, with annual sales of $1 billion. Lipitor, Pfizer Inc.'s (PFE ) cholesterol-lowering drug, had sales of $10 billion last year.

The difference in sales is in no way a reflection of value. "No other medical intervention can deliver as much bang for the buck," says Hidde Ploegh, professor of pathology at Harvard Medical School. A 2001 study by the Centers for Disease Control and Prevention found that for every dollar invested in childhood vaccinations, $5.80 was saved in direct medical costs. When indirect benefits, such as reducing the time parents take off work to care for sick children, was added in, the amount saved was $17.70.

Newer vaccines in the works could be even more cost-effective. Merck and GlaxoSmithKline both have vaccines against human papillomavirus (HPV) in late-stage clinical trials. HPV is implicated in almost all cases of cervical cancer, the second leading cause of cancer deaths in women worldwide. If the vaccines are approved, they will be the first to prevent cancer. Analysts estimate that a single inoculation could cost as much as $300 -- but insurers or governments may be willing to pay: The U.S. alone spends some $5 billion a year treating and screening for cervical cancer.

Stamping out cervical cancer would be an obvious public good. Yet for each vaccine win, there is an ironic psychological toll. "One of the worst problems facing the industry is the very success of vaccines," says Una S. Ryan, CEO of Avant Immunotherapeutics Inc. (AVAN ). "We [in the U.S.] no longer know what diphtheria looks like. Now we only notice the side effects of a vaccine, not the disease." Not the worst problem for a modern society to have.

By Catherine Arnst in New York

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