Malaria, is a mosquito-borne infectious disease, mainly affecting young children and infants. This disease is commonly found in children living in the malaria-endemic region of Asia and Africa. To cure or prevent this disease, drug manufacturers are spending hundreds of millions of dollars on their research and development, or R&D. Recently, GlaxoSmithKline (GSK) successfully developed the first malaria vaccine, RTS,S, which will be able to prevent children from contracting malaria and other malaria-related diseases. GlaxoSmithKline, in collaboration with Agenus (AGEN), will develop this vaccine.
R&D funding and base for market selection
For its R&D and to run its trial studies, GlaxoSmithKline received around $200 million from the Bill & Melinda Gates Foundation, which contributed its financial, scientific, and managerial expertise to develop RTS,S more efficient. It has invested around $350 million to date and is planning to invest another $260 million to develop RTS,S as a complete vaccine to prevent malaria in young children and infants.
To evaluate the efficiency of its RTS,S malaria vaccine, GlaxoSmithKline is working with 11 African research centers in seven African countries. The company selected the African countries for its trial studies because malaria claims around 660,000 lives every year, mostly in sub-Sahara Africa. GlaxoSmithKline, with its research centers, took all initiatives for overall development of this vaccine, and it is focusing on making it more effective in preventing this dangerous disease in children. With all these efforts, the company was able to attain superior efficacy and safety endpoint in its trial phases.
Phase III results and its efficacy
On October 8, 2013, GlaxoSmithKline announced the Phase III trial results of its RTS,S vaccine, an experimental vaccine for malaria infection. In its trial phase, the company was able to reduce the disease in more than 15,000 infants and young children in Africa.
It has demonstrated that with over 18 months of follow-up, in the children aged between five months to seventeen months:
- It was able to halve the malaria cases in young children at first vaccination.
- 941 children out of 1,000 children are prevented from malaria in trial.
- Reduces the probability of severe malaria cases by 36% and 21 malaria cases are prevented.
- Reduction in malaria-related hospitalization by 42%.
Results in infants in the age group of six weeks to twelve weeks:
- 27% fewer cases of malaria.
- 444 cases out of 1,000 are prevented from malaria.
- Severe malaria cases reduced by 15% and hospitalization related to malaria reduced by 17%.
Expected approval backed on its results
After three decades of research and development on RTS,S, GlaxoSmithKline is the first company that has developed most advanced and efficient malaria vaccine in the world. It showed superior efficacy in its clinical trial phases in preventing malaria in most of the young children and infants living in malaria-endemic regions and infection caused by Plasmodium falciparum, a protozoan parasite that causes malaria in humans.
The company is expected to file a regulatory application with the European Medicines Agency, or EMA, in 2014. Based on the positive indications and opinions by the EMA, it is expected that the World Health Organization, or WHO will grant the policy recommendation for the use of RTS,S vaccine before 2015.
We expect GlaxoSmithKline has a strong chance to grab the majority of the malaria vaccine market. As according to WHO, most companies are still in the early trial stages in developing malaria vaccines, and the most advanced are still 5-10 years behind RTS,S. This depicts that there isn't not much competition for at least the next five years for GlaxoSmithKline's RTS,S, which enables the company to build its leadership position in the malaria vaccine market.
Growth for its partner
Agenus is a biotechnology company that specializes in developing the drugs used for cancer and other diseases. The company's flagship adjuvant QS-21 Stimulon, improves or strengthens the body's immunity to respond to the vaccine's antigen in controlling the virus cells. QS-21 is the major component used by GlaxoSmithKline to develop RTS,S vaccine. Agenus will receive milestone payments as well as royalty for 10 years after the commercial launch of the vaccine using its QS-21 Stimulon.
QS-21 Stimulon is currently studied in 21 vaccine indications including GlaxoSmithKline's RTS,S malaria vaccine and "MAGE-A3," immunotherapeutic for non-small cell lung cancer and melanoma. In additional to this, Johnson & Johnson's (JNJ) subsidiary Janssen's Alzheimer disease vaccine, "ACC-001," contains this adjuvant and is in phase II trial.
On September 26, 2013, Agenus signed a non-exclusive license agreement with VaxLogic for the use of QS-21 Stimulon Adjuvant to develop an allergy and respiratory disease vaccine. In this agreement, Agenus will receive equity stake in VaxLogic. In addition to this, it will receive an upfront payment with milestone and royalty payments on the advancement in its clinical developments. This will motivate the company to develop its QS-21 more efficient, enabling it to grow in the future and support its future earnings.
Competition in Malaria vaccine
There is no such competition to the malaria vaccine developed by GlaxoSmithKline. However, in the second quarter of 2012, Ranbaxy (OTC:RBXLY), India's top drug manufacturer by sales, launched the anti-malaria new-age drug, "Synriam," in India, and the patent will expire in 2022. Its holding company, Daiichi Sankyo (OTCPK:DSKYF), received approval from the Drug Controller General of India to manufacture and market this drug in India. Ranbaxy is focusing on introducing it in other Asian, African, and South American countries. Synriam has relief providing capabilities from most of the malaria-related symptoms with a high curable rate of 95%.
In July 2013, Ranbaxy received the "Innovation Excellence Platinum Award" for Synriam, India's first malaria drug. To date it was able to treat more than 700,000 patients in India. With this achievement, the company plans to submit a New Drug Applications, or NDA, for Synriam for marketing authorization in various countries in Africa in 2013. It is also focusing on extending the benefits of this drug to children in the malaria-endemic regions of Asia and Africa.
In September 2013, the FDA imposed an import ban on Ranbaxy's third plant in India, related to some non-compliance issues. All three plants produce and supply drugs to the U.S. market and contribute nearly to 40% of Ranbaxy's total sales. These units are barred from shipping their drugs to the U.S. Due to this, its stock price in the Indian stock market crashed by around 30.5%, wiping off nearly $1 billion of its market value in just three trading days. The company is now focusing on fulfilling the norms laid by the FDA, which will help it regain the FDA approval to resume its supplies to the U.S.
Recently, Ranbaxy received the positive response from the FDA for its U.S. manufacturing facility, Ohm Laboratories. This will help the company file applications for developing the generic equivalents of off-patent drugs. This U.S. facility may offset the revenue loss from its plants in India, and we expect it will be able to maintain investors' confidence and create significant upside in its stock price too.
By introducing the world's first malaria vaccine, GlaxoSmithKline is expected to lead the malaria vaccine market. In WHO's recent statement, it mentioned the development status of other vaccines are 5-10 years behind RTS,S. Additionally, on the fundamental side, GlaxoSmithKline is trailing at PE multiple of 18.91 with a forward PE of 12.71, representing the higher growth potentials in its earnings. In the last five years, the company also generated the dividend yield of around 5% and is currently trailing at a yield of 4.80%, which depicts the company is focusing on maintaining investor wealth. GlaxoSmithKline, by maintaining the investors' confidence, a significant upsurge is expected in its stock price in foreseeable future.
Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Satya Prakash, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.