Forget Swine Flu: The Big Money Is Here

With swine flu vaccines headed into clinical trials, we're getting a new round of articles about how great things are going to be for pharmaceutical companies.

The truth is, that's a load of pig ... um, manure. The swine flu is not going to bring home the bacon for pharmaceutical companies.

There are two problems with counting on a boost from swine flu. First, supplies are likely to be somewhat constrained, because drugmakers aren't set up to supply for a pandemic, and the virus seed strain didn't grow well.

But more importantly, the swine flu will -- we can only hope -- be a one-off thing. In other words, I think the swine flu is kind of like a pork rind: a tasty snack that isn't all that filling. So if you're looking to benefit from an investment in vaccines, look a bit further.

The main course
Although the swine flu isn't going to do much for the long-term health of pharmaceutical companies, vaccines in general are contributing nicely to pharmaceutical companies' revenue:

Company

Revenue From Vaccines in First Half of 2009, in Millions

Year-Over-Year Increase (Decrease) in Vaccine Sales in First Half, at Constant Currencies

Year-Over-Year Increase (Decrease) in Total Revenue at Constant Currencies

GlaxoSmithKline (NYSE: GSK  )

$2,072

16%

(3%)

sanofi-aventis (NYSE: SNY  )

$1,880*

3.7%

3.1%

Novartis (NYSE: NVS  )

$494**

(9%)

8%

Source: Company press releases.
*Excludes partnership with Merck (NYSE: MRK  ) .
**Includes diagnostics.

A couple to keep your eye on
Kids may not like it, but Merck will benefit a little from catch-up doses for its chicken pox vaccine, Varivax, which medical associations now believe requires two shots instead of just one for kids to reach full immunity.

But the real benefit to Merck's sales from the chicken pox vaccine is likely to come from patients who had the chicken pox years ago. The virus that causes chicken pox also causes shingles, a painful rash that older people can get as the dormant virus wakes up.

Merck has had some manufacturing issues with its shingles vaccine, Zostavax, but it appears to be all caught up on filling back orders and has begun promoting the vaccine again. With more baby boomers hitting the age at which shingles becomes a problem, there's potential for Zostavax to take off from the paltry $117 million in sales in the first half of the year.

Wyeth's (NYSE: WYE  ) Prevnar, which protects against seven strains of the bacterium that causes pneumococcal disease, including meningitis, is a whopper of a vaccine. The vaccine brought in more than $1.5 billion during just the first half of the year, a 21% increase at constant currencies over the first half of last year. Prevnar, which is quickly approaching Effexor for the top spot on the company's sales roster, was probably one of the main reasons that Pfizer (NYSE: PFE  ) decided to purchase Wyeth.

Fortunately for Pfizer, it doesn't appear that the vaccine is done with its growth. Wyeth has developed an improved version of the vaccine that covers an additional six strains of the bacterium. The Food and Drug Administration should be done reviewing the vaccine, appropriately called Prevnar 13, by the end of the year.

Going all in
Let's face it: Blockbusters like Prevnar and potentially Zostavax aren't going to move the revenue needle all that much for companies bringing in tens of billions of dollars a year. If you want to benefit from vaccines, you have to go smaller and more focused.

The best candidate for that job is probably Crucell (Nasdaq: CRXL  ) . The company has seven vaccines on the market and quite a few more in the pipeline. Crucell is a former acquisition target of Wyeth -- before Pfizer stepped in and made a bid for Wyeth -- so don't be surprised if it catches the eye of another large pharma.

Draw the connections
Investing is about taking advantage of trends. Sometimes what's in the news is the next big thing, but more often than not, you've got to use that as a stepping stone to find the larger trend. The swine flu vaccine may not be a long-term winner, but vaccines surely will be.

Pfizer is a Motley Fool Inside Value pick. Novartis is a Global Gains selection. Try any of our Foolish newsletter services 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.


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  • Report this Comment On August 24, 2009, at 12:52 PM, malcolmcochran wrote:

    Vaccines are valuable to companies because they're messy to produce and yet are needed in quantity. I little generic drug copycat can't compete.

    But assuming H1N1 behaves like all other flu epidemics, it should be nicely embedding just now and will then take off in the coming months, before burning itself out.

    ie public awareness of an epidemic. That's why I have bought SVA. I've watched it for mistakes over the last 5 years and barring one, quickly dealt with, it seems well run. It is likely to get pay-dirt from vaccination of a large (Chinese) population, and I suspect it will jump some 20% over the winter, though I plan to take profit if that happens.

    Malc

    (<_>)

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