The year was 2009. The company that was up for grabs was Shantha Biotech. And advances came from three big pharmaceutical companies. Eventually, France’s Sanofi-Aventis acquired the Hyderabad-based vaccine maker for $784 million. Now, once again the industry is buzzing with the news of Biological Evans (BE), another vaccine maker, being tipped as a takeover candidate. The most likely suitor this time is GlaxoSmithKline (GSK).
Both companies, however, remain non-committal: BE neither confirms nor denies the reports; GSK says it continues to evaluate potential acquisitions in emerging markets but is unable to comment “on any potential future business development opportunities”. GSK’s global vaccine business grew 24 percent compared to the 11.4 percent growth in its core pharmaceutical business in the last quarter. The only vaccine facility it has in India is a filling and packaging site in Nashik.
GSK is always looking for a strategic fit, says its India Managing Director Hasit Joshipura. “Any Indian company [that we may acquire] will only add back-end infrastructure facility to GSK. Since we [multinational companies] are the innovator companies, there’s no front-end [value addition] if such a deal ever happens.”
Sanofi had a similar logic when it acquired Shantha. Since all private sector Indian vaccine manufacturers supply products to UN agencies and charitable foundations for global immunisation programmes, they possess world class manufacturing facilities that are complex to build and maintain. This makes Indian companies attractive acquisition targets for two reasons: Assured income from exports and certified facilities that can cater to large global market needs.
It’s a winning combination for an industry that is struggling to supplement revenue that is headed southward because of loss of patent exclusivity on blockbuster drugs. In contrast, vaccines — which were neglected by big drug companies because they gave low margins — are now seen as a steady source of income. More specifically, the party really began with Wyeth’s Prevnar, a vaccine for childhood infections, and Merck & Co’s Gardasil for cervical cancer. Around 2005, they turned out to be billion-dollar products and others decided to gatecrash by snapping up vaccine assets around the world.
The party is expected to get merrier as advancements in technology and growing population needs are pushing the biomedical community to develop therapeutic (e.g. cancer, meningitis) and adult vaccines along with the traditional preventive and paediatric jabs.
With the global vaccine market estimated to reach $40 billion by 2015 (influenza vaccines alone will account for $7 billion), Indian vaccine makers find themselves at a crucial crossroads. For the first time they will compete with Chinese companies in the export market, even as they continue to navigate the muddy waters of Indian public health policies and poor delivery systems. Still peddling me-too products (generic vaccines), they now have competition from big pharma eager to enhance its foothold in India.
Most Indian companies get the bulk of their revenue from exports to UN agencies, charitable organisations including the Bill & Melinda Gates Foundation and the Global Alliance for Vaccine and Immunisation, and several country-specific immunisation programmes. But the virtual monopoly that Indian companies have enjoyed there, will now be challenged by China.
For the first time, in March, the Chinese national regulatory authority received World Health Organization’s (WHO) ‘pre-qualification’, a certification that allows it to approve locally manufactured vaccines to compete for UN tenders. This is a “huge concern”, rather a warning for Indian companies, says Cyrus Poonawalla, chairman of Poonawalla Group that owns India’s largest vaccine company, Serum Institute, Pune. “I have serious reservations about the quality of Chinese products, but they will give us tough competition as by the time any poor quality product gets detected, companies normally end up garnering swift business.”
But past performance isn’t always a good metric for future business. Last July, Shantha’s pentavalent (five-in-one) vaccine was removed from the WHO’s pre-qualification list for poor quality, knocking off $340 million from Sanofi’s estimated earnings between 2010 and 2012 from this vaccine.
This might prove detrimental to Indian companies. There is a likelihood of an increase in regulatory scrutiny of vaccines from India after this disqualification, says Anantharaman Kavassery Viswanathan, market research company Datamonitor’s lead healthcare analyst in India. This, along with the increasing manpower cost in India, might work to the advantage of Chinese vaccine manufacturers for getting their vaccines pre-qualified, he cautions. Chinese products are exerting pricing pressure in the domestic market as well. “While Indian companies can’t sell a single vial in China, Chinese vaccines are sold here without any quality control,” says Krishna M. Ella, chairman and managing director of Bharat Biotech, another Hyderabad-based company that is speculated to be a buyout candidate every now and then. But Ella, a scientist-turned-entrepreneur, says he’s aggressively pursuing new technologies and “cashing out” at this stage is out of the question.
Balasubramaniam says he can be content even with that if the health delivery system is streamlined so that manufacturers don’t get a rap for “programme errors” in vaccine administration. In early April, the state drug regulatory body in Andhra Pradesh stopped Indian Immunologicals from making measles vaccines after adverse events and deaths were reported from Gujarat. The Drug Controller General of India inspected its facilities and took eight samples from different locations. “Everything was fine. The adverse event in Gandhidham was due to an adjuvant [a pharmacological ingredient that is added to vaccines to increase its effect] mix with the vaccine [the two need to be stored separately], which is the programme administrator’s fault,” says Balasubramaniam. He says even the cervical cancer HPV vaccine’s clinical trial that was halted last year had similar issues of “programme error”.