Novartis wasn't taking any chances about a potential change in attitude toward corporate subsidies by the Obama administration: The Swiss firm grabbed the most recent installment of the $865 million in support from the U.S. government for its move into the vaccine business in the final days of the Bush presidency.

Novartis collected the most recent, and biggest, chunk of that support -$486 million - on January 15, five days before the Obama inauguration.

Significantly, the new piece includes construction and the costs of getting FDA approval of the facility. The regulatory approval piece can be very expensive. The Congressional Budget Office estimates that it can add 25 percent to the cost of constructing a vaccine plant.

The bricks and mortar funding is just the kind of direct support to one company - especially a non-U.S. one - that is most threatened by the change of administration in Washington. Many observers expect the Obama administration to channel more funds in health to paying for beneficiaries to receive health products and services rather than to support for the companies that provide those products and services.

[Editor's note: The publishers of InVivoBlog, "The Pink Sheet" and The RPM Report will host a webinar Jan. 29 on the outlook for vaccine developers under the Obama administration. Dack Dalrymple, Chris Colwell (McKenna Long & Aldridge) and Isabelle Claxton (GlaxoSmithKline) will analyze the prospects for the vaccine business in the next four years. For ¹ more information , visit: http://www.windhover.com/ezine/html/ac0109-2lp.htm.]

The Jan.15 Novartis grant is an eight-year commitment to help Novartis finish building and qualifying its Holly Springs, N.C., facility for the production of cell-culture flu vaccine (seasonal and pandemic/prepandemic). The new money is for "design, construction, validation and licensing."

The company got $220 million from HHS in 2006 (before selecting Holly Springs as the manufacturing site) to begin developing a cell-based vaccine. Novartis says that the first round of funding "was not for the facility, land or building." The $865 million also includes funding for development work on adjuvants and an award to Chiron to help get its flu vaccine production back up to where it was before Novartis' bought the company to get into vaccines in a big way.

By collecting commitments for $865 million from the U.S. government over the last three-plus years, Novartis has successfully defrayed much of the cost of expanding into the vaccine business. The company paid $5.7 billion to buy the part of Chiron that it did not already own in early 2006 (See: "Novartis Buys into New Pharma World Order," ² Also see "Novartis Buys into New Pharma World Order" - In Vivo, 1 December, 2005.).

The grants do not obviously relate directly to the cost of the initial purchase but as a marker of the size of support for the Swiss company's engagement in the vaccine business, the U.S. funding represents more than 15 percent of that initial investment.

FDA clearance of North Carolina plant still years away

Novartis indicates that commercial production from Holly Springs is more than three years away.

"Construction activities will continue until late 2010," the firm says. After that, "engineering and process validation will start," continuing through 2011-2012. FDA clearance procedures will follow the process validation.

Holly Springs will eventually produce bulk prepandemic vaccine (vaccines designed against projected pandemic strains), the MF59 adjuvant to permit lower doses of antigen in the flu vaccines and other cell-based vaccine products. Under the Jan. 15 contract, Novartis is committed to provide two commercial-scale lots of prepandemic vaccine annually to HHS for at least three years (³ Also see "Novartis Vaccines Unit Looks To Make Its Presence With New Technologies" - Pink Sheet, 26 November, 2007. p. 25).

The Congressional Budget Office analyzed projected government and private spending to develop cell-based vaccine manufacturing in mid-September of last year. At that point, CBO reported that HHS intended to spend up to $600 million to support the creation of new facilities for cell-based manufacturing - as opposed to the traditional egg-based production system. The Novartis contract does not leave much on the table (about $115 million ) from those estimated funds.

CBO noted that Novartis predicts that the total cost for Holly Springs will exceed $600 million. As reported soon after the Chiron purchase, Novartis has said from the start that Holly Springs would cost between $600 million and $700 million. CBO says other vaccine industry sources have estimated that it should cost Novartis less (about $400 million). Novartis is indicating that the final cost could be well over $1 billion.

The other big participants in the flu vaccine expansion - primarily Sanofi-Pasteur, GlaxoSmithKline and MedImmune (now an AstraZeneca unit) -have also benefited from HHS largesse. Sanofi and MedImmune have received $77 million and $55 million, respectively, to retrofit existing flu vaccine plants.

Novartis, however, claims that it will eventually contribute a larger share. 60 percent, to the total cost of Holly Springs than other manufacturers have put into government-supported retrofit projects. Sanofi and MedImmune each put about 25 percent into the projects funded by the government. CBO recommended that companies be expected to put more in for the development of new cell-based manufacturing facilities.

GSK is developing a site in Marietta, Pa., purchased from Wyeth, for increased flu and pandemic production in the U.S. GSK is nearing the stage to seek FDA approval for filling and packaging of vaccines for use in the U.S. from antigens made overseas. GSK has been reluctant to accept much direct funding for construction for the vaccine production projects: People close to the GSK effort say that the restrictions inherent in government contracts reduce the value of the subsidy funds.

The Bush administration has in essence created a new vaccine industry in short order by pumping in money and making use of the public concern for a potential pandemic. Now, the new producers are likely to lobby the new administration to make sure that the products from the new production capacity find an adequate market.

-Cole Werble (c.werble@elsevier.com)

Novartis Gets Bricks And Mortar Money: Last Vaccine Support From Bush Administration

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