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A Capitalist Pig's View of Swine Flu

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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 (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. 

Related Foolishness: and Netflix are Stock Advisor selections. Novartis is a Global Gains pick. 3M is an Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy that hasn't sneezed, or even sniffled, in years.

Read/Post Comments (10) | Recommend This Article (30)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 27, 2009, at 2:45 PM, haveabeer wrote:

    The 3M test kit for Flu A and B is made by Response Biomedical and marketed by 3M. Response also has a congestive heart failure test marketed by Roche. Trades on the Toronto Stock Exchange.

  • Report this Comment On April 27, 2009, at 4:39 PM, Suiname wrote:

    What about shorting the markets that are going to get hit hard by this? Remember what happened during the SARS "epidemic?" Hong Kong's market dropped 17% while the Nikkei also fell. I think shorting latin american ETFs might be a good idea. iShares S&P Latin America 40 Index (ILF) and iShares MSCI Mexico (EWW) are two that jumped up to me immediately.

  • Report this Comment On April 27, 2009, at 5:02 PM, Nolte808 wrote:

    Also watch for Mexican airport stocks like PAC or ASR to get undervalued

  • Report this Comment On April 27, 2009, at 6:37 PM, hiddenflem wrote:

    Nice article, Brian. So is there any compelling reason to think that countries would have to replace (or add to) their stockpiles of Tamiflu as a result of what is happening now? Some of my doctor friends wrote their families prescriptions during the bird flu scare a couple years back...I imagine we will see some of this even if we don't see this turn into an epidemic in the U.S.

  • Report this Comment On April 28, 2009, at 12:27 AM, exseries7 wrote:

    While drug companies may earn revenues ling term, there is a micro cap that I mentioned in another post before the flu scare, that is already profiting from their line of medical protective clothing. The stock was a solid investment even before this outbreak, has good fundamentals, and is prudently but aggressively expanding in its manufacturing and sales markets worldwide: Lakeland Industries (LAKE).

  • Report this Comment On April 28, 2009, at 12:28 AM, exseries7 wrote:

    P.S. Sorry, I forgot the disclaimer that I own this stock (LAKE)

  • Report this Comment On April 28, 2009, at 1:04 AM, esxokm wrote:

    What about Walgreen and CVS? Sure, they won't make the kind of money that your admittedly more directly related ideas might, but I'd have to assume that a flu pandemic would cause a big spike in customer traffic to these stores. Just think of all the people buying hand sanitizers.

    There's also Amazon -- would people be more comfortable shopping online during a flu scare?

    I agree with a previous comment on shorting some markets, too. Have to be quick on such trades, though.

  • Report this Comment On April 28, 2009, at 8:01 AM, Pitoburo wrote:

    And we shouldn't forget Chugai Pharmaceutical (TSE : 4519), the distributor in Japan of Roche's antiviral.

    Japanese are worried about swine ful: (Antiviral) (Chugai Pharma)

  • Report this Comment On May 01, 2009, at 10:36 AM, rdecker2009 wrote:

    Brian O forgot BioTech Medics, Inc.

    Pinksheets: BMCS

    They have SHBAN Antiviral/Antimicrobic Solution

    that has been clinically proven to kill the Avian

    Bird Influenza and should kill the H1N1 Influenza.

    SHBAN is for topical use on hands/nostrils and

    is 1,000 times longer lasting than alcohol gels.

  • Report this Comment On May 02, 2009, at 10:50 PM, 1stGradeStudent wrote:

    Big Pharma is plotting to make a fortune from the swine flu "pandemic".

    Small problem – it's not going to happen.

    The media, as usual, is blowing swine flu out of proportion.

    Rmember, they told us that avian flu was going to destroy the planet a few years ago.

    What about Y2K. Another media frenzy that didn't even make a ripple.

    Aids has killed 20 million people so far. Still no cure. But that's "old" news.

    Swine flu has affected so few people in the U.S. that it's hardly worth mentioning. We would be seeing numbers like 10,000 by now if there were a pandemic.

    Mexico doesn't have health care or what they do have is terrible. Mexico lacks clean water and basic sanitation. Mexico has a lot of other diseases that are successfully treated in the U.S. People in Mexico still die from diarrhea.

    That's not to say that Big Pharma won't make a fortune either. There're plenty of sheep to fleece to go around.

    We'll see.

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