The Vanishing Vaccine War

It had potential to be such a good fight: Two powerhouse drug companies from either side of the pond fighting over an untapped market.

Instead, it looks as though GlaxoSmithKline (NYSE: GSK  ) will be fighting with Merck (NYSE: MRK  ) over a dwindling U.S. human papillomavirus (HPV) vaccine market as Merck tries to expand into a new set of untouched patients.

Yesterday, a Food and Drug Administration advisory panel voted overwhelmingly that Glaxo's Cervarix is safe and effective. When the FDA makes its final decision, it looks as though Glaxo will get a different result than it did in 2007, when the FDA turned down Glaxo's first marketing application.

Unfortunately the delay allowed Merck to grab much of the market of unvaccinated females. Sure, kids get older and there'll be a new batch to vaccinate, but the gold mine seems to be all tapped out.

Metric	2006	2007	2008	First Half of 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.

Meanwhile, Merck's solution to get sales of Gardasil growing again is to expand into vaccinating males aged 9 to 26. HPV causes genital warts in males and the same committee said Gardasil was safe and effective in that population. Since genital warts aren't nearly as serious as cervical cancer, it remains to be seen exactly how much the expanded indication will really increase sales.

While the HPV vaccine war in the U.S. never materialized to the level it could have, investors shouldn't discount vaccines in general. Gardasil will still be a blockbuster this year, thanks in part to joint sales with sanofi-aventis (NYSE: SNY  ) in Europe. And sales of Wyeth's (NYSE: WYE  ) -- soon to be Pfizer's (NYSE: PFE  ) -- Prevnar topped $1.5 billion in the first half of the year. For those interested in income, that's a lot of dough to help support their monster dividends.