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Novartis invests in Chinese vaccines
Published on: 2009-11-05
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Novartis AG's planned purchase of an 85% stake in a Chinese vaccine maker underscores big pharma's growing interest in a corner of healthcare—emerging-market inoculations— that previously offered little prospect of profit.

The Swiss drug maker said it has reached an agreement to pay $125 million in cash for the stake in Zhejiang Tianyuan Bio-Pharmaceutical Co., a privately held company that makes vaccines against a variety of viral and bacterial diseases. The firm holds about 3% of China's $1 billion vaccines market, which is now the third-largest in the world, Novartis said. The deal is still subject to the approval of Chinese authorities, Novartis said.

Other drug companies are also piling into the region. This summer, France's Sanofi-Aventis SA acquired a majority stake in India's Shantha Biotechnics, which sells vaccines inside India and throughout the developing world. Sanofi declined to disclose the exact size or price of its stake, but said the deal gives Shantha a total value of €550 million ($809 million).

In the past, vaccine use in these countries has been limited to basic shots against polio, measles and tuberculosis. But as the economies grow, both government and private spending on healthcare is rising quickly. Vaccines are one of the first tools developing countries spend money on, because they prevent disease and therefore save money in the long run.

Novartis, Sanofi and others aim to expand production and sales of existing inoculations in these markets, and to accelerate development of new shots. Shantha currently sells vaccines for hepatitis B, diphtheria, tetanus and other diseases, but is also developing new inoculations against typhoid, cholera and rotavirus, which causes severe diarrhea in infants and children, killing more than 600,000 a year world-wide, according to the U.S. Centers for Disease Control and Prevention.

Jacques Cholat, vice president of international commercial operations at Sanofi's vaccine unit, said the company expects a "minimum" of double-digit sales growth from Shantha in the coming years, from a current level of about $90 million annually. Sanofi is already laying plans to expand Shantha's production capacity, he said, though he declined to say by how much.

Tido von Schoen-Angerer, executive director of an access-to-medicines campaign at Médecins Sans Frontières, or Doctors Without Borders, in Geneva, said he was concerned that multinational ownership of vaccine makers in emerging markets will lead to higher prices. "It is actually really worrying...how much will they be allowed to produce very cheap vaccines?" he asked in a phone interview.

Mr. Cholat said it isn't in Sanofi's interest to raise prices. "We are obsessed at being able to maintain Shantha's vaccines at high quality yet affordable prices. If we lose this attribute we will lose our market share," he said.

About 90% of Shantha's sales come from governments in the region and from United Nations agencies, which buy vaccines to distribute in poor countries world-wide, Mr. Cholat said. Sanofi wants Shantha to expand sales to those buyers, he said. One U.N. agency recently awarded Shantha contracts worth $340 million to produce 125 million doses of a vaccine that protects infants against five diseases. That works out to about $2.70 per dose. A similar vaccine can cost up to €25 in Western markets, Mr. Cholat said.

A Novartis spokeswoman said executives weren't available to comment on the company's acquisition. In a statement, Novartis said that sales at Tianyuan more than doubled to $25 million in 2008 from 2006. According to the company's Web site, it has 247 employees and is one of China's largest private manufacturers of flu vaccine.

Novartis said it aims to "expand Tianyuan's product portfolio and R&D pipeline," and also to use the acquisition to help introduce Novartis vaccines in China. The spokeswoman said the acquisition expands Novartis' "sales and relationship network within the country," as well as relations with regulators.

Novartis said it expects "sustained double-digit growth in the future given the government's commitment to improve access to quality healthcare."

China has spawned a number of vaccine makers in recent years. One of the most prominent—Sinovac Biotech Ltd.—is producing swine-flu vaccine for the Chinese government.

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