Gauging Glaxo's Vaccine Value

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Despite all the commotion at the FDA, some compounds in select therapeutic categories still have a fair chance of reaching the market. On Tuesday, GlaxoSmithKline (NYSE: GSK) received marketing approval for a combination children's vaccine.

This has been a good week for Glaxo's vaccine division. The approval of this combination diphtheria, tetanus, pertussis, and polio vaccine, called Kinrix, also comes at the same time that the U.S. Centers for Disease Control (CDC) recommended that children get treated with another of Glaxo's recently approved vaccines, Rotarix. The CDC also declared Rotarix equivalent to Merck's (NYSE: MRK) competing RotaTeq vaccine.

Vaccines and other compounds going through the FDA's Center for Biologics Evaluation and Research (CBER) haven't faced the same degree of regulatory-decision-delay insanity that is occurring at the agency's much more oft-used Center for Drug Evaluation and Research (CDER). CBER-approved vaccines and other therapeutic compounds were actually up in the first quarter this year, and they could rise again year over year for all of 2008, depending on whether some other compounds can squeeze past CBER review.

While they're not often discussed unless innovative game-changing vaccines like Merck and Glaxo's HPV vaccines arrive, vaccines have been a secret sauce behind the success of several of the pharmaceutical sector's largest drugmakers. Helping to prevent conditions like childhood diarrhea and polio may not be a drugmaker's sexiest roles, but vaccine sales have been brisk and growing rapidly in recent years.

Company	2007 vaccine sales	Year-over-year growth
GlaxoSmithKline	$4.0 billion	18%
Merck	$4.3 billion*	126%
Sanofi-Aventis (NYSE: SNY)	$3.8 billion**	15%
Novartis (NYSE: NVS)	$1.5 billion***	57%

*Excludes some partnership sales.
**At a 1 euro-to-$1.35 exchange rate.
***Includes some diagnostics sales as well.

Other drugmakers, like Novartis and AstraZeneca (NYSE: AZN), have also seen the value in vaccine development. Both recently made multibillion-dollar acquisitions of new vaccine developers (Chiron for Novartis, and MedImmune for AstraZeneca).

Vaccines also have some innate competitive advantages compared to their traditional small-molecule drug counterparts, making them more resistant to competition over the long run and thus more valuable than traditional drugs. At the end of last year, Glaxo had 24 vaccines in clinical testing, and seven in phase 3 testing. Don't underestimate the power of vaccines to boost a drugmaker's bottom line, and drive significant growth over the long haul.