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Government Prepares for Bird-Flu Pandemic, While Drug Makers Eye their Vaccine Investments

By MATTHEW PERRONE , Associated Press writer

WASHINGTON — Early signs suggest this year's record supply of flu vaccine could exceed demand, and the potential financial blow to the drug industry could diminish its interest in serving this market just as the U.S. government tries to prepare for a possible bird-flu pandemic.

Public health officials and academics who met yesterday at a conference to discuss seasonal- and bird-flu preparation urged the government to commit billions of dollars more toward its bird-flu outbreak response plan. Some worry that without adequate financial incentives from the government, the drug industry may not make the up-front investments needed to ensure its readiness in the event of an emergency.

Johns Hopkins University Epidemiology professor John Bartlett told the conference that the government should make pandemic preparations a priority on the scale of the Apollo space mission of the 1960s. The conference was co-sponsored by several government agencies and drug companies, including GlaxoSmithKline Plc and Gilead Sciences Inc.

Even if the government sets aside significant sums of money for bird-flu readiness, private companies such as Glaxo and Novartis AG could lose interest in vaccine development if they don't first see a robust market for their regular flu shots.

Manufacturers shipped an unprecedented 102 million doses of flu vaccine in recent months, largely in response to government policies aimed at encouraging more Americans to get the injections. The government's hope is that by making flu shots routine for more Americans, it will be easier to respond in the event of a bird-flu pandemic.

"We need to recognize that a strong public health response to seasonal influenza will enable a strong public response to pandemic influenza," said Chris Colwell, a director with the Biotechnology Industry Organization, which lobbies on behalf of biotech drug makers.

The Department of Health and Human Services wants to be able to provide enough vaccine for the entire U.S. population within six months of a bird flu outbreak — a goal that could take years to reach, according to the agency's secretary, Michael Leavitt.

In the meantime, the government has been encouraging manufacturers to ratchet up their production capabilities by increasing output of traditional flu shots.

For the current flu season, the Centers for Disease Control recommended 218 million Americans get vaccinated. That is up from 193 million the year before.

In anticipation of this growing market, Glaxo increased its flu shot production to 25 million for the 2006-2007 season, up from 8 million in the prior season. The British drug maker has invested more than $2 billion in its U.S. vaccine operations since 2004.

And Swiss drug maker Novartis spent roughly $5.4 billion last year to buy out vaccine maker Chiron Corp.

Figures on total vaccines sold in the current flu season won't be available until spring, but some early signs suggest the market is oversupplied.

In December, medical supplies distributor Henry Schein said there is potential for an oversupply in 2007 and decreased its estimated vaccine sales for 2006 from 13.5 million to 9 million.

Just last week, PSS World Medical Inc. said it would not distribute flu vaccines in 2008 because of an overcrowded market. The company forecast a $60 million drop in revenue as a result.

Still, the government recently has used financial incentives to try and reinvigorate vaccine development, and companies like Glaxo and Novartis AG have responded. The government last year awarded more than $1 billion to drug companies to research and develop bird flu vaccines.

"You have to take into account the fact that there's a big risk in developing vaccines," said Anthony Fauci, a division director at the National Institutes of Health.

"By getting the government involved in some of the fundamental research we've made it so companies don't bear the full brunt of the risk of developing new vaccines," he added.

Some industry analysts remain unconvinced of the potential for mass marketed vaccines. Washington Analysis Corp. analyst Ira Loss points out that while the government continues to fund research, it has yet to make a firm commitment to purchase bird flu vaccines in mass quantities.

"What manufacturers are interested in now is a commitment that the government will buy this vaccine," Loss said. "Coming up with a bird flu vaccine is one thing, but they're not going to start mass producing it until the commitment to buy is there."

Shares of Glaxo rose 58 cents to close at $54.71, while Novartis AG rose 80 cents to close at $58.49, both on the New York Stock Exchange. Sanofi-Aventis rose 4 cents to $44.12 on the NYSE while MedImmune Inc. dipped 33 cents to close at $34.33 on the Nasdaq Stock Market.