GSK expects to meet flu vaccine demand but even short interruptions can be costly

GlaxoSmithKline ($GSK), responding to an FDA warning letter sent to the plant that produces its FluLaval and other influenza vaccines for the U.S. and Canada, said it expects to be on track to produce more than 30 million doses for the upcoming flu season. But the experience of other drugmakers suggests that even a small hiccup in producing a vaccine for a crucial cycle can be significant to a drugmaker's top and bottom lines.

"Pending FDA approvals, GSK anticipates providing between 28 million and 33 million doses of influenza vaccine to the U.S. for the 2014-15 flu season," the company said in a statement. "GSK is also working with Canadian health authorities to meet GSK supply commitments for 2014-15."

The FDA warning letter, posted publicly Tuesday, said the plant has had trouble fighting bacteria contamination. GSK is working with the FDA to resolve problems but the agency said that "given the potential contributions of FluLaval to the public health," it wanted to hear about additional steps in a meeting with senior management.

GlaxoSmithKline has to look no further than Sanofi's ($SNY) second quarter earnings report last year to see what can happen when there is a production backup at a vax plant that serves North America. An "anomaly" found during testing led to shortages of Sanofi's Pertussis-containing vaccines used to protect against whooping cough. CEO Chris Viehbacher said the problems were unrelated to the two dozen observations outlined in an FDA warning letter in 2012 for the Toronto vax plant. But he had to explain to analysts that the 7.2% fall in vaccine sales in North America affected both the top line and the bottom line for the quarter. He also told them that ongoing shortages would keep it from reaching the high end of its revenue forecast for its next quarter.

Swiss drugmaker Roche ($RHHBY) this year had only a two-week interruption in production of liquid Tamiflu when demand outpaced its packaging capabilities. But the pause created local shortages in the U.S. and contributed to a 9% shortfall in Tamiflu sales in the U.S. The year before, Tamiflu sales had provided a nice boost to Roche's first quarter earnings.

GSK is the largest vaccine maker in the the world, with vaccine sales last year of £3.4 billion ($5.8 billion) up 2%. That bump was helped in part by stronger sales of its Fluarix and FluLaval vaccine, after the launch last year of its quadrivalent formulation which protects against four strains of influenza. Sales of those vaccines were up 65% to £146 million ($248 million).

With the flu season not far ahead, GSK said Tuesday that it is giving the U.S. Centers for Disease Control and Prevention (CDC) and Canadian regulators updates so they can manage influenza vaccines for the 2014-15 flu season. But if production is interrupted, it could mean issues for availability in the season since pre-orders of vaccines would have occurred early this year and production schedules for all makers set to meet anticipated demand.

- here's the GSK announcement
- here's the FDA warning letter