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So you want to make money from the swine flu? Call me a capitalist pig -- it's certainly appropriate -- but I have no problems with that. Many scientists, me included, became biologists because we want to help treat diseases, but I see nothing wrong with drug companies and investors making money in the process. Whether it's Kindle from Amazon.com (Nasdaq: AMZN ) or the swine flu, investors need to stay ahead of the curve and look for the next big thing. This could be it.
Swine flu, bird flu, human flu, oh my
The strain of flu that's going around is a weird mix of flu viruses from pigs, birds, and humans. It appears to be hitting Mexico extremely hard, but at least 20 people have been infected in the U.S. Many of the victims haven't had any contact with pigs recently, so it's believed to be spreading through human-to-human contact -- a requirement for a pandemic.
The strain is resistant to older flu drugs that are already off patent, amantadine and rimantadine, so generic-drug makers won't benefit. But newer antiviral medications -- GlaxoSmithKline's (NYSE: GSK ) Relenza or Roche's Tamiflu -- appear to work against this swine flu strain, so there's the potential for additional sales for those newer drugs. Biota and Gilead Sciences (Nasdaq: GILD ) would also benefit, since they get royalties from sales of Relanza and Tamiflu, respectively. The one caveat is that the flu virus mutates and recombines quite easily, so resistance could change.
BioCryst Pharmaceuticals is developing an antiviral drug, Peramivir, for treating the flu. While the potential for a pandemic seems to be increasing interest in the company, investors should be cautious here. The drug is still in clinical trials and it's unlikely that Peramivir will be used to treat this pandemic, should it even reach that level. A pandemic increases the market for Peramivir, but the current outbreak of swine flu probably doesn't increase the potential for another pandemic after the drug is approved. Whether Peramivir works in clinical trials is still the most important factor in determining the value of the company.
An ounce of prevention
If we do reach pandemic stage, the big winners would be companies developing ways to quickly produce vaccines. Both Baxter (NYSE: BAX ) and Novavax (Nasdaq: NVAX ) are developing vaccines that are produced in cell culture and therefore can produce a vaccine in 12 weeks.
Traditionally the flu vaccine is produced in chicken eggs, which results in a longer production time. That's not major a problem for the regular flu, as companies can start early enough to have the vaccine available at the beginning of the flu season. But, for pandemics, time is of the utmost importance. Neither Baxter's nor Novavax's product is approved, but if we reach a pandemic state the FDA may go ahead and give a quick OK.
Even if the swine flu doesn’t amount to a hill of (pork and) beans, the extra media coverage now might make people think about getting a flu vaccine next year. That should benefit Glaxo, Novartis (NYSE: NVS ) , sanofi-aventis, and AstraZeneca, which all make vaccines for the good, old-fashioned sick-in-bed-for-a-few-days kind.
Another big winner could be companies like Quidel, which makes diagnostic products that, among other things, can detect swine flu. Genzyme (Nasdaq: GENZ ) , Meridian Bioscience, and even 3M also have influenza quick-detection tests available.
Moving the revenue needle
The reality of the situation is that most pharmaceutical companies are large enough that a pandemic will have a fairly minor effect on revenue. The pandemic might even benefit Netflix's top line more than big pharma's if the pandemic causes people to stay home and watch movies instead of going out in public.
Of the companies available on the U.S. exchanges, the exceptions would be Gilead and Novavax. Royalties from Tamiflu were about 2% of revenue last quarter, so a doubling or tripling of sales could be a nice added boost. When countries decided to stockpile Tamiflu because of a fear of bird flu, Gilead benefited substantially.
Novavax is a big question mark. Not having any products on the market, a contract to develop a swine flu vaccine would be huge for the company, but we haven't reached pandemic levels yet, and it's not clear that Novavax would get the contract anyway.
As investors trying to invest ahead of a major bird flu outbreak learned, it's best not to put all your eggs in one basket. Tread lightly here, Fools.