Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Coming Flu Season Will Strengthen These Companies

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The U.S. flu season, which usually starts in October and peaks in January, is right around the corner. The number of flu deaths per year varies, between 3,000 to 49,000 depending on the circulating strains. Last year's flu season was particularly deadly, claiming the lives of 164 children, up from 34 pediatric deaths in the previous year.

Yet this year, reports from the Centers for Disease Control and Prevention will be delayed due to the government shutdown -- keeping everyone in the dark regarding the scope of this year's flu season. However, as investors, we can analyze drugstores and pharmaceutical companies to find the companies that will benefit the most from an increased demand for flu vaccines and medications.

A shot in the arm for drugstores
Walgreen (NASDAQ: WBA  ) , the largest drugstore chain in America, recently reported that its September sales rose 8% year over year, with a same-store-sales increase of 7.4%. Its pharmacy revenue increased 10.2% thanks to 1.9 million flu shots -- a 19% jump from the 1.6 million shots it administered in September 2012.

Those numbers indicate that Walgreen's strong top and bottom line growth from last quarter would continue. For the fourth quarter ended Aug. 31, Walgreen posted a 15.9% jump in earnings on a 5.1% gain in revenue. The company's same-store-sales rose 4.6%, while pharmacy same-store-sales rose 7.1%. Investors have noticed Walgreen's strong performance, and shares have climbed 13% over the past month.

Meanwhile, Rite Aid (NYSE: RAD  ) , the third largest drugstore chain, reported a 1.9% year-over-year increase in September same-store sales. The company's pharmacy revenue rose 3.1%, partially fueled by an increase in flu shots.

Rite Aid's robust September sales also indicate that the stock's 49% climb over the past month shouldn't slow down anytime soon. Rite Aid has impressed investors with its return to profitability. During its second quarter, Rite Aid reported adjusted earnings of $0.08 per share, compared to a loss of $0.05 in the prior year. Revenue edged up 0.8% as same-store sales remained flat year over year. However, pharmacy sales climbed 1.7% thanks to increased sales of generic drugs.

The second largest chain, CVS Caremark, does not report revenue on a monthly basis, although more flu shots should boost its quarterly sales. Both Walgreen and Rite Aid stated that flu shots leveled off after the initial surge in September.

A closer look at the two main flu treatments
On the pharmaceutical side of things, all eyes are on Roche's (NASDAQOTH: RHHBY  ) leading flu treatment, Tamiflu. It was developed by Gilead Sciences (NASDAQ: GILD  ) and licensed to Roche in 1996. Gilead currently receives a 10% royalty on Tamiflu sales.

During the first half of 2013, which included last year's flu season, sales of Tamiflu climbed 79% year over year to $420 million due to a stronger-than-expected flu season and the H7N9 outbreak in China. Despite that growth, Tamiflu sales only accounted for 1.6% of Roche's top line, which is primarily generated by oncology treatments.

For Gilead, higher sales of Tamiflu contributed to a 31% year-over-year increase in royalty revenue to $106.5 million during the second quarter. Yet just like Roche, that royalty revenue was not significant to Gilead, only accounting for 3.8% of its second-quarter revenue, which mostly comes from its HIV franchise.

Meanwhile, Tamiflu's closest competitor, Relenza, has fallen far behind. Relenza was developed by Biota Pharmaceuticals, marketed by GlaxoSmithKline (NYSE: GSK  ) , and approved in 1999. At one point, the drug was considered to be the next blockbuster flu treatment, since it was cheaper, and showed better efficacy rates during clinical trials than Tamiflu.

However, Relenza was more difficult to administer, requiring a diskhaler compared to Tamiflu's pill and liquid forms. Due to its inhaled form, Relenza aggravated respiratory problems in some patients, and it could only be given to children over the age of seven, whereas Tamiflu could be administered to babies as young as two weeks old. These factors caused Relenza's sales to plunge, generating only $13 million in revenue in all of 2006 -- a year that Roche reported $770 million in Tamiflu sales in the first half alone. Tamiflu went on to hit peak sales of $3 billion in 2011 due to the H1N1 swine flu, as Relenza slowly faded away.

Tamiflu and Relenza are currently the only two flu treatments recommended by the CDC. Both can be used as a preventative measure as well as a treatment. Although pharma investors won't likely see a huge boost for Roche and Gilead as a direct result of higher sales of Tamiflu, it can still provide both companies with useful extra revenue, which can be reinvested elsewhere.

The Foolish takeaway
As the flu season approaches, drugstores like Walgreen and Rite Aid will directly benefit from the increase in flu shots, which could also turn around the lagging front end same-store sales that I addressed in a previous article. Investors should view these drugstores as the primary beneficiaries of a strong flu season.

Meanwhile, big pharma and biotech companies like Roche and Gilead Sciences still play a crucial role in treating the flu and its various seasonal strains, albeit the resulting revenue gain will be limited and cyclical. Last but not least, companies with large consumer health divisions, such as Johnson & Johnson, GlaxoSmithKline, and Novartis, could see higher sales of over-the-counter cold medications as well.

Don't let your portfolio get sick
Your financial health is just as important as your personal health. The Motley Fool's special free report "3 Stocks That Will Help You Retire Rich" names specific investment opportunities that could help you build long-term wealth and help you retire well. The Fool also outlines critical wealth-building strategies that every investor should know. Click here to keep reading.

Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2670808, ~/Articles/ArticleHandler.aspx, 9/24/2016 8:48:53 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 23 hours ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:00 PM
GILD $81.37 Down -0.15 -0.18%
Gilead Sciences CAPS Rating: *****
GSK $43.42 Down -0.16 -0.37%
GlaxoSmithKline CAPS Rating: ***
RAD $8.09 Down -0.03 -0.37%
Rite Aid CAPS Rating: ****
RHHBY $31.54 Down -0.01 -0.02%
Roche Holding Ltd.… CAPS Rating: *****
WBA $82.05 Down -0.33 -0.40%
Walgreens Boots Al… CAPS Rating: ****