Will J&J turbocharge Crucell's vaccine portfolio?
Cormac Sheridan
The emergence of contamination at Crucell's production facility in Shingal, Yongin City, Korea, came at an awkward time. The vaccine maker, based in Leiden, The Netherlands, disclosed the news in late October as Johnson & Johnson (J&J) prepared to issue an update on progress of its $2.3 billion bid for outright ownership of the company. Nevertheless, J&J, of New Brunswick, New Jersey, intends to proceed according to plan. The large pharma's tender offer for Crucell's shares is due to be considered at a meeting of Crucell shareholders in Amsterdam on 10 December. The implications—if any—that the manufacturing disruption may have for the transaction are not clear at this point. “I don't expect this to be a deal breaker, but there's no guarantee it won't be a deal adjuster,” says Jan Van den Bossche, analyst at Petercam in Brussels. “It will all depend on what's going on out there.”
Although shipments of the two products affected by the quality failures—the pediatric liquid pentavalent combination vaccine Quinvaxem (diphtheria (Corynebacterium diphtheriae), toxoid/tetanus (Clostridium tetani), toxoid/whole cell Bordetella pertussis (DTwP); Haemophilus influenzae type B (Hib) conjugate vaccine; and recombinant hepatitis B virus surface antigen (HBsAg) vaccine; trade name, Hepavax-Gene)—were, as Nature Biotechnology went to press, expected to resume by late November, full production will not be restored until February. Quinvaxem, which protects against five pediatric infections, is the company's most important product, having secured tenders worth $910 million since the end of 2006, including a $110 million order from the New York–based United Nations Children's Fund in May. Crucell has made provision for a 22.8 million ($31.8 million) charge on the inventory lost through the disruption. Even before the problems emerged, the company had been in the process of transferring production of the two vaccines to a new 50 million ($69.8 million) facility in Incheon, South Korea, which is scheduled to become fully operational next year.
Crucell's problems echo those of Shantha Biotechnics, of Hyderabad, India. Not long after Lyon-based Sanofi Pasteur gained an 80% stake in Shantha, the latter firm's Shan5 (DTwP-HBsAg-Hib) vaccine, a direct competitor to Quinvaxem, lost its accreditation on the World Health Organization's (Geneva) list of recommended vaccines because of the appearance of white sediment on vaccine vials. “They've had massive manufacturing setbacks,” says Peter Welford, analyst at Jefferies International, in London. “Crucell [has] had the least problems.” Others competing in this product segment include Panacea Biotech, of New Delhi, India, and the GSK Biologicals arm of London-based GlaxoSmithKline.
J&J's interest in the Dutch company came to the fore in September last year, when it paid around 302 ($407) million, or 20.6 ($27.8) per share, to amass an 18% stake in Crucell. The healthcare giant's current $2.3 billion bid for the rest of the company it does not already own is well in excess of a reported $1.35 billion bid that Wyeth of Madison, New Jersey, was preparing early last year. That deal was derailed by New York–based Pfizer's $68 billion acquisition of Wyeth. Recent contamination problems are unlikely to affect J&J's offer, although Welford says, this will eliminate the possibility that dissenting shareholders may hold out for a higher price than the 24.75 ($35.18) per share that J&J has tabled.
Crucell's history can be traced back to Leiden-based IntroGene, which was formed in 1993 to commercialize the PER.C6 human cell culture technology, which can produce as much as 27 g/l of IgGs in bioreactor culture. The Crucell name came into being in 2000, after a merger with Utrecht Biotechnology Systems in The Netherlands, an antibody discovery firm that had developed a 'subtractive' phage display technology called MAbstract. In that platform, a phage antibody library is admixed with a heterogeneous cell mixture, where the particular cell of interest is labeled with a fluorescent tag and sorted by flow cytometry to identify binding phage antibodies, dispensing with the need for repeatedly constructing new libraries. These technologies, as well as an AdVac adenoviral vector platform, underpin the company's development pipeline. However, its commercial product portfolio is based on recent acquisitions of Stockholm-based SBL Vaccin, and, especially, of Bern, Switzerland–based Berna Biotech. Berna had previously acquired Rhein Biotech, of Maastricht, The Netherlands, but never managed to achieve its stated growth ambitions (Table 1). Crucell, in contrast, has proven adept at winning sales, particularly in emerging markets. “They've done a marvelous job of turning around Berna Biotech,” Van den Bossche says. J&J plans to run Crucell as an autonomous unit, just as it has with several earlier acquisitions, such as antiviral drug developer Tibotec of Antwerp, Belgium, and antibody developer Centocor located in Horsham, Pennsylvania.
J&J's imminent acquisition of Crucell is further evidence that the vaccines area, although small in the context of overall pharma sales, is firmly back on the industry's agenda, after a couple of decades during which it had fallen out of favor. Other acquisitions where vaccines have featured prominently (though not exclusively) are Pfizer's takeover of Wyeth and London-based AstraZeneca's $15.2 billion acquisition of Gaithersburg, Maryland–based MedImmune.
The vaccines market's steady growth equilibrium is punctuated by irregular spurts caused by significant new product introductions. For instance, Wyeth's Prevnar (pneumococcal 7-valent conjugate) or Gardasil (human papillomavirus quadrivalent (types 6, 11, 16 and 18) recombinant vaccine) from Merck of Whitehouse Station, New Jersey, quickly added substantial chunks of revenue to the industry total.
The complexities of manufacturing, combined with the economies of large-scale production, have conspired to make the sector strongly oligopolistic, with the market dominated by a small number of firms. The top five players, Sanofi Pasteur, GSK Biologicals, Merck, Pfizer and Novartis, control around 85% of the market, with around $18 billion of sales in 2009, according to market analysts VacZine Analytics, of Bishop's Stortford, UK. “The industry last year grew by about 9, 10% over the previous year,” says VacZine Analytics director John Savopoulos. By his reckoning Crucell's 2009 vaccine sales of 304 million ($424.3 million) would rank the company in ninth place, behind CSL, of Parkville, Australia, and London-based AstraZeneca's MedImmune unit. The H1N1 influenza pandemic had the biggest impact on sales in 2009, bringing in around $3.5 billion in additional revenue. In the first three-quarters of 2010, the top five companies posted combined sales of $16.9 billion, excluding the contribution of Sanofi Pasteur MSD, a European joint venture between Sanofi Pasteur and Merck.