Improved versions of drugs are typically great for business. Sure drugs like Johnson & Johnson's (NYSE: JNJ ) Risperdal Consta or Amylin Pharmaceuticals' (Nasdaq: AMLN ) and Eli Lilly's (NYSE: LLY ) once-weekly Byetta can cannibalize sales of the original formula, but improved efficacy or convenience can help new drugs grab sales that would have gone to competitors.
But what do you do when nearly every potential patient already gets the product, which is the case for Pfizer's (NYSE: PFE ) childhood vaccine Prevnar? Charge more. A lot more. As in a substantial 30% bump in price.
The improved version, Prevnar 13, which was approved yesterday, adds protection for six additional strains of pneumococcal disease-causing bacteria -- which causes such things as pneumonia, ear infections, and meningitis. Without any U.S. competition --GlaxoSmithKline's (NYSE: GSK ) Synflorix is approved in Europe and some other markets -- health plans won't have much choice but to pay for it because the Centers for Disease Control and Prevention recommended using the new vaccine instead of the old one for all new immunizations yesterday. I guess Pfizer won't need the marketing material touting an 86% increase in the number of strains covered for just 30% more.
The increased price will help Pfizer build on top of the $3 billion or so in revenue that Prevnar brought in for Wyeth and then Pfizer last year. The company will also get a one-time boost because the CDC recommended a booster shot for children under the age of five who received the old vaccine. Poor kids.
There's also potential for additional sales if the drug is approved for use in adults. For that indication, Pfizer would actually have U.S. competition as Merck's (NYSE: MRK ) Pneumovax 23 vaccine is approved for adult use in the U.S.
Prevnar has certainly helped improve Pfizer's outlook. Now let's just hope that the rest of Wyeth pays off as well.