The swine flu has turned out to be a relative dud, hasn't it? Going the way of the bird flu and SARS, so far (thankfully), it hasn't done much but create a buying opportunity for those who didn't panic.
There has been some spending to combat the swine flu and the potential that it will crop up again next flu season, but that's been muted by the sheer size of the companies involved. Last week, the U.S. government set aside $1 billion to develop a vaccine against the virus, but that's not going to move the revenue needle much for the major drugmakers.
Company |
Award to Produce Vaccine Ingredients |
Revenue -- 12 Months Ending March 2009 |
Increase to Revenue |
---|---|---|---|
Novartis |
$289 million |
$42.3 billion |
0.7% |
sanofi-aventis |
$191 million |
$38.6 billion |
0.5% |
GlaxoSmithKline |
$181 million |
$36.5 billion |
0.5% |
Source: The Wall Street Journal and Capital IQ.
There's also an additional $150 million available to these and other companies to produce a small amount of vaccine that will be used in clinical trials, but the additional cash won't change the numbers above by a whole lot. Unless we have an actual pandemic, it doesn't seem that preparing for the swine flu is going to affect these pharmaceutical companies' top lines much.
Stockpiling
Some smaller companies have benefited quite nicely from preparations for a flu pandemic and other outbreaks, but it does come at a cost: the stockpiling eventually ends. Look at what's happened with a couple of companies that have relied on stockpiling to drive revenue.
In 2007, Gilead Sciences
Human Genome Sciences
But now what? Unless there's an anthrax attack and the stockpile is depleted, there's not much of a market for anthrax treatments. That revenue from ABthrax is nice and all, and it will keep Human Genome going for a while longer, but ultimately, the company will need to get another drug approved -- one that can create a more consistent revenue stream.
Fortunately, it has two shots in relatively quick succession. Hepatitis C treatment Albuferon passed its phase 3 trial and will likely gain approval. But without a way to differentiate itself, sales may be small, considering the intense competition from Schering-Plough
What's an investor to do?
Staying ahead of the game is hard work, but predicting the future is impossible. Stockpiling drugs and vaccines is likely to continue as new threats occur, but it'll always be one-time shots without a guarantee of future revenue.
Instead of looking for companies that can fulfill one-time needs, it's better to find companies with disruptive technologies that can change the game. Instead of looking for companies that can predict the future, look for ones that can change it.