Drugmakers, Doctors Rake in Billions Battling H1N1 Flu Profits from the H1N1 flu virus are nothing to sneeze at.

Oct. 14, 2009 -- Americans are still debating whether to roll up their sleeves for a swine flu shot, but companies have already figured it out: vaccines are good for business.

Drug companies have sold $1.5 billion worth of swine flu shots, in addition to the $1 billion for seasonal flu they booked earlier this year. These inoculations are part of a much wider and rapidly growing $20 billion global vaccine market.

"The vaccine market is booming," says Bruce Carlson, spokesperson at market research firm Kalorama, which publishes an annual survey of the vaccine industry. "It's an enormous growth area for pharmaceuticals at a time when other areas are not doing so well," he says, noting that the pipeline for more traditional blockbuster drugs such as Lipitor and Nexium has thinned.

As always with pandemic flus, taxpayers are footing the $1.5 billion check for the 250 million swine flu vaccines that the government has ordered so far and will be distributing free to doctors, pharmacies and schools. In addition, Congress has set aside more than $10 billion this year to research flu viruses, monitor H1N1's progress and educate the public about prevention.

Drugmakers pocket most of the revenues from flu sales, with Sanofi-Pasteur, Glaxo Smith Kline and Novartis cornering most of the market.

But some say it's not just drugmakers who stand to benefit. Doctors collect copayments for special office visits to inject shots, and there have been assertions that these doctors actually profit handsomely from these vaccinations.

It is a notion that Dr. Lori Heim, president of the American Academy of Family Practitioners, says is simply not true.

"According to most of the physicians I have talked to, the administration of these vaccines is done for the community's benefit as opposed to anything that helps profit," she says. Heim adds that even though doctors will not have to shell out for the H1N1 vaccine, they will bear the usual costs associated with storage and administering the shots.

"There is an administration fee, for the costs that you can't get reimbursed through Medicare or Medicaid," she says. "This is usually less than, or right at the break-even point."

Still, pharmacies also charge co-payments or full price of about $25 to those without insurance and often make more money if patients end up shopping for other goods.

"Flu shots present a good opportunity to bring new customers into our stores," says Cassie Richardson, spokesperson for SUPERVALU, one of the country's largest supermarket chains. Drawing customers to the back of a store, where pharmacies are often located, offers retailers a chance to pitch products that might otherwise go unnoticed.

Even companies outside of the medical industry are benefiting: the UPS division that delivers vaccines in specially designed containers, for example, has seen a bump in business.

New Entrants in Flu Shot Business

The intensifying competition has irked some doctors.

"Retailers and other non-medical professionals have siphoned off the passive income that once helped to cover medical overhead," says Dr. Caroline Abruzese, an internist in Atlanta. "The larger retail chains can invest up front in large volumes of vaccine at low prices, and market to customers already in their stores."

The promise of profits has attracted new players into the business. Some of the world's largest drugmakers, who in the past avoided the vaccine market because of its limited scope -- its not easy to convince healthy adults to get a shot for measles -- are now jumping into the fray.

Last month alone saw three large vaccine deals. Abbott Labs bought a Belgian drug business, along with its flu vaccine facilities, for $6.6 billion. Johnson & Johnson invested $444 million in a Dutch biotech firm that makes and develops flu vaccines. Merck, which already makes vaccines for shingles and other diseases, struck a deal to distribute flu shots made by Australian CSL.

Smaller biotechs are also angling for a slice of the action, making vaccines one of the fastest-growing areas of research in the biotech industry.

Large and small drugmakers are drawn to the business largely because of scientific advances that promise to radically expand the range of health problems that vaccines can address. In addition to preventing childhood diseases such as measles and polio, vaccines can now also ward off cervical cancer, and researchers are working on vaccines for HIV and tuberculosis.

Scientists believe they can create therapeutic vaccines than treat diseases such as Alzheimers and diabetes after they have set in. (At least one company is betting on a vaccine that helps cigarette smokers quit.)

"These innovations broaden the market potential for vaccine makers and partly explained the renewed interest by drugmakers," says Anthony Cox, a professor at Indiana University's Kelley School of Business who specializes in the marketing of medical products.

But Mark Grayson, a spokesperson for the Pharmaceutical Research and Manufacturers of America, which represents the country's leading pharmaceutical research and biotechnology companies, says that drugmakers are also compelled by the government to join efforts to ensure that there is enough vaccine to go around.

"Because of national security implications, the government felt that they needed to encourage and ask [vaccine manufacturers] to move much quicker," he says. Grayson adds that vaccine manufacturers also face significant costs; aside from the expense of fitting a new vaccine into a tight production schedule, drugmakers GlaxoSmithKline and Sanofi Pasteur were forced to acquire new vaccine production facilities in recent years to keep up with demand.

Alternatives to Vaccines Are Few

While this promise of new treatments for painful diseases brings hope to many, vaccines continue to attract critics. The National Vaccine Information Center, a non-profit advocacy group, is at the forefront of a movement demanding that vaccines be tested more thoroughly before hitting the market. Although there has been little evidence to support their claim, detractors -- including the comedian Jim Carrey -- believe that vaccines are at least partly to blame for the sharp rise in autism in recent decades.

The swine flu vaccine has also attracted its share of critics. Frank Lipman, a New York-based doctor who specializes in a mix of Western and alternative medicine, points out that the swine flu is rarely fatal and that it's too early to tell if it's safe because it hasn't been widely tested.

Others argue that Americans have little choice. The cost of a widespread pandemic, similar to Spanish Flu outbreak in 1918, which killed 675,000 Americans (and 50 million worldwide), would be devastating. The Trust for America's Health, a Washington-based non-profit organization, estimates that a severe pandemic could push down GDP by more than 5 percent and cost Americans $683 billion.

"We're not seeing a pandemic that's this severe," says Jeff Levi, director of Trust for Americas Health. "We've dodged a lot of bullets."