Prevnar Problems at Wyeth?

Right now, Prevnar is the world's best-selling vaccine. Manufactured and marketed by Wyeth (NYSE: WYE), it's used to prevent pneumonia in infants and young children. Prevnar is Wyeth's No. 2-selling drug, behind Effexor, and it's grown from 8.3% of the company's total revenue just seven quarters ago to 11.2% now.

On Monday, however, it was reported that the vaccine is promoting drug-resistant "superbugs" that cause hard-to-treat ear infections in children. Prevnar fends off seven strains of bacteria that cause most cases of pneumonia, meningitis, and bloodstream infections. Unfortunately, dozens more strains exist. By encouraging the child's immune system to primarily attack the specified seven bugs, Prevnar may be allowing other bacteria to thrive and develop resistance to antibiotics.

Dr. Dennis Maki, infectious diseases chief at the University of Wisconsin-Madison Hospitals and Clinics, noted that if the new strains continue to spread, "It tells us that the vaccine is becoming less effective" and needs to be revised.

Shareholders must now wonder whether this development will injure Wyeth's stock price. While it could hinder sales of Prevnar's existing form, Wyeth expects to finish testing an updated form of the vaccine in 2008, and seek FDA approval in 2009. The company will likely face competition from GlaxoSmithKline (NYSE: GSK) in this endeavor abroad; Glaxo has a similar vaccine in phase 3 clinical trials that targets 10 strains common in Europe and other regions.

In the long term, I think that Wyeth will emerge from this saga relatively unscathed. It's done an excellent job diversifying its drug portfolio to guard against troubles like this one. In its second-quarter earnings, it reported year-over-year sales growth for nine of its 10 top-selling drugs. While Prevnar might come under siege from superbugs, I doubt that Wyeth's stock price will become similarly cure-resistant.