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After first year flop, FluMist maker retools strategy

GAITHERSBURG, Md. -- Last fall, MedImmune Inc. (Nasdaq: MEDI) launched an aggressive $25 million television and print ad campaign to convince consumers that its influenza vaccine, delivered through a squirt in the nose, was better than the traditional needle in the arm.

The result? The drug once thought to be a potential blockbuster flopped. Only a fraction of the 4 million doses made were sold and thousands ended up being distributed for free despite a harsh flu year.

As MedImmune prepares for FluMist's second season on the market, it has dramatically scaled down and refocused its marketing plan for the nasal vaccine.

The company slashed the price in half, hoping to eliminate a major barrier to sales from last year, and plans to produce about 1 million doses this year. The big ad campaign is gone -- instead, MedImmune will pitch the drug to doctors and pharmacies, not the general public.

By keeping FluMist on the market, even at a substantial loss, MedImmune is laying the groundwork for a reformulated version of the drug, expected to be ready by 2007.

And the company hopes to move beyond the simple appeal that FluMist developed among many physicians -- it's a pain-free alternative to the traditional flu shot.

MedImmune says the vaccine, made of a weakened live flu virus, provides better protection than flu shots made with a dead virus. But by marketing to consumers, according to Armando Anido, senior vice president of sales and marketing, it missed a chance to convince doctors that FluMist was a better drug.

"We had patients asking about FluMist and the physician would say, 'its just a nasal spray,"' Anido said. "It basically lost all of its advantages by just saying it was a nasal spray. That gave us the biggest evidence that we had not done a very good job at educating."

FluMist was different from flu shots in two major ways. It was inhaled, not injected, making it more palatable for young children who need flu vaccines but are afraid of needles.

It also used a live influenza virus to stimulate immunity, a technique developed in the 1960s. The virus was weakened so that it wouldn't cause an infection. Flu shots, by comparison, use a dead virus.

MedImmune thought the painless FluMist would encourage more people to get vaccinated, and it made big forecasts for the drug. During the first five years after its launch, MedImmune expected sales of the vaccine to reach $1 billion.

But FluMist stumbled even before it reached the market. The Food and Drug Administration approved it for people between the ages of 5 and 49, excluding two groups at greatest risk for the flu -- young children and the elderly.

When it finally did launch last fall, FluMist's high price -- $46 wholesale compared to about $10 for a flu shot -- made it hard to win over consumers. Then a deal to sell through Wal-Mart (NYSE: WMT) fell through, drastically reducing the number of pharmacies carrying the vaccine.

Additionally, the drug, which must be kept frozen before use, was hard for physicians to store. And some hospitals asked people who had taken FluMist to stay away, afraid the live virus they received would infect patients with weak immune systems.

"Going to the consumer last year didn't work. There was the high price and the marketing message was confusing. They didn't have it in enough outlets to convince consumers," said Philip Nadeau, an analyst with SG Cowen.

By the end of the flu season, MedImmune and Wyeth had sold only about a quarter of the 4 million doses produced. It ended up giving some away to public health agencies. The company predicts FluMist will drag down earnings between 10 cents and 20 cents per share every year until 2007.

In fact, MedImmune reported that a split with partner Wyeth over FluMist contributed to a $100 million second-quarter loss.

The FluMist version expected in 2007, known as CAIV-T, will be easier for doctors to store because it won't need to be frozen. And MedImmune hopes to get FDA approval for use in children younger than 5 and the elderly.

Until then, MedImmune will continue to sell the current version, but the wholesale price will be cut to $23.50 per dose. Consumers probably will pay a bit more once doctors and pharmacies add administration fees.

"The difference is coming out of our pocketbooks," CEO David Mott said, explaining how the company will pay for the price cut. "The product is not profitable."

MedImmune's 200 sales people will spend the next few months meeting with pediatricians and pharmacists to persuade them to stock the drug this fall. New distributor Henry Schein Inc. of New York will focus on selling to primary care physicians.

A key to persuading pediatricians is to prove it is right for young children.

"There is no question it is an effective vaccine," said Joseph Bocchini, chief of pediatric infectious disease at Louisiana State University Health Sciences Center. "But the data that is not there yet is the data for children who are at risk for influenza."

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