The HPV Vaccine Wars of 2010

That pesky human papillomavirus (HPV) got a double dose of bad news on Friday, as vaccines against the virus from Merck (NYSE: MRK  ) and GlaxoSmithKline (NYSE: GSK  ) were approved by the Food and Drug Administration for different indications.

Within minutes of each other, Glaxo announced that its long-delayed vaccine Cervarix was finally approved for use in the U.S., while Merck announced that its HPV vaccine, Gardasil, was approved to treat males.

Let the vaccine war begin!

Except ... there are just a couple of problems.

The low-hanging fruit is gone
With a three-year head start and a clean slate of young females to vaccinate, Merck had a party. But now, as quickly as it started, that party seems to be coming to an end.

 Metric

2006

2007

2008

First Half 2009

U.S. sales of Gardasil (in millions)

$235

$1,194

$1,041

$363

Year-over-year increase (decrease)

N/A

408%

(13%)

(34%)

Source: Company releases.

Yes, there'll be a new batch of females to vaccinate each year, but it's clear that the U.S. HPV market isn't all that big, now that we're approaching just one age group to vaccinate.

How much of the U.S. market Glaxo will be able to snatch up remains to be seen. So far, it looks like Merck is winning the battle outside the U.S., although that could simply reflect its wider approval worldwide.

Vaccine

2008 Sales (millions)

First Half 2009 Sales (millions)

Gardasil*

$865

$309

Cervarix

$231

$182

Source: Company releases.
*As recorded by its joint venture with sanofi-aventis (NYSE: SNY  ) .

Let's hear it for the boys
Merck's solution to get U.S. sales growing again is to market the drug to males, in whom HPV causes genital warts. With the FDA's green light last week, we'll get to see how well that plan works, but I'm guessing Merck has an uphill battle in front of it.

The cost-benefit analysis for preventing cervical cancer in women just barely makes the vaccine worth the money. (As a society, clearly it's beneficial for women at potential risk of cervical cancer to receive the vaccine.) But preventing relatively less serious genital warts may not make the vaccine worth the cost, and Merck may be hard pressed to get insurance companies to pay for it.

Help from an unlikely source
While marketing the vaccines to treat genital warts in males may be a hard sell, the companies could get help from a disease that occurs far from the nether regions.

A new form of tonsil cancer is spreading, and it's not caused by the "traditional" method -- older drinkers who also chain-smoke were the ones who usually got tonsil cancer. Instead, the culprit is -- you guessed it -- HPV. It's not clear whether the vaccines will block the virus, but if they do, it's potentially another reason to get boys vaccinated.

How much does it really matter?
Even if it materialized later than expected, and with a much smaller U.S. market, the HPV vaccine war of 2010 will probably get lots of mention in the financial press. The same thing happens in the drug-eluting stent wars between Johnson & Johnson (NYSE: JNJ  ) , Boston Scientific (NYSE: BSX  ) , Abbott Labs (NYSE: ABT  ) , and Medtronic (NYSE: MDT  ) . Let's face it -- everyone likes a fight.

There's just one problem: Individual sales of one drug or stent aren't that important for companies as large as Merck, Glaxo or J&J. In fact, for Merck, the amount of Gardasil sales that trickles down to the bottom line isn't as much as you'd see for other drugs, because the company has to pay royalties of 24% to 26% on sales. That's a substantial cut into the margin of the drug, before you even start taking out manufacturing and marketing costs.

Fools will be better investors if they focus on the bigger picture, instead of narrowing in on one specific detail that doesn't affect the bottom line that much.

Johnson & Johnson is an Income Investor recommendation. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter with a 30-day free trial.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool owns shares of Medtronic and has a disclosure policy.


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