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The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
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Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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These Two Drug Makers Are
Benefiting as Governments Stockpile Flu Medication |
[http://www.streetauthority.com/includes/article-top-ao.htm]Published:
April 29, 2009
It didn't take long.
We went from hearing about swine flu mentioned in passing on the evening
news to President Barack Obama announcing he wanted to commit $1.5
billion toward fighting it.
In fact, it took less than a week.
Before physicians and epidemiologists had much of a chance to look at an
evidently new swine virus -- now labeled "H1N1" so as not to offend
Muslims or the U.S. pork lobby -- the President was already telling us
how the federal government would deal with it.
The answer, of course, was with money.
It is, so far, our nation's collective good fortune that the
overwhelming majority of U.S. cases have proven to be mild, mostly
dangerous to the very young or elderly. Panic has yet to rear its head.
People in Mexico, where the virus is exacting a death toll, are staying
indoors and wearing surgical masks if they must venture out of doors.
The response stateside has been more measured. The best barometer for
this is moms. If moms start voluntarily keeping kids home from school,
that's when we'll know we have a real problem. As of yet, kids are in
school where they belong (though a few schools in districts near the
Mexico border have opted to close as a preventative measure).
To be sure, the flu is a serious matter. The 1968-1969 Hong Kong flu
epidemic killed a million people. More recently, SARS had a profound
effect on international business. And now, the World Health
Organization has raised its global pandemic alert, saying the disease
isn't containable and that health agencies must prepare for an outbreak. The international health agency raised its alert to a
five on its
six-point scale. The system, adopted in 2005, has been at level three
since a 2007 outbreak of avian flu.
The worst-case scenario, a
full-blown outbreak of a deadly flu virus spread human to human, is
bleak: A true pandemic, one akin to the deadly 1918 strain, could kill
71 million people -- twice the population of California -- and wreak
utter economic havoc. In fact, the World Bank says a serious deadly flu
outbreak could evince a worldwide recession and rack up $3 trillion in
costs.
I don't want to seem insensitive.
This flu outbreak is serious, and I feel bad for the victims
and their loved ones. But if our government and others
around the world are going to prevent an escalation of this
outbreak -- White House spokesman Robert Gibbs says the
president wants to stockpile antiviral drugs -- then that's
just one more example of how the government creates
opportunities for investors.
So when the FDA lowers the minimum age for the
morning-after pill, I have to ask what effect the move will
have on sales of that Teva Pharmaceutical product. When the
president says he wants to spend billions on digital-medical
records, I wonder who's going to get rich writing the
software. And someone's going to make money from all the
roads the government is building and the wind farms it is
subsidizing. There's opportunity everywhere, even in
public-health disasters. (See below for more details.)
The two market leaders in the antiviral market are Roche's (NYSE: RHHBY) Tamiflu and
GlaxoSmithKline's (NYSE: GSK) Relenza, according to Stephen Morse, an
epidemiologist at the Mailman School of Health at Columbia
University. Roche and Glaxo shares both trade
over-the-counter as ADRs. Roche is based in
Switzerland; Glaxo is British.
Several companies are involved in the swine flu epidemic. For instance,
it was an Australian company, Biota Holdings, that licensed Relenza to Glaxo.
A U.S.-based drug maker,
Baxter International (NYSE: BAX), has asked the WHO for a sample of the virus to
develop an experimental vaccine. Baxter already has a vaccine that
protects against avian flu that it has sold to governments. Even
non-drug companies are getting in on the action. A 3M
spokeswoman says the company has added shifts in its factories to
manufacture more surgical masks, which are flying off shelves around the
world.
Significant stockpiles of various flu-fighting drugs exist -- many
governments bought the drugs after the avian flu scare. Roche says the
lead time for Tamiflu, from synthesis of the medicine to packaging, is
eight months. Glaxo has already shipped additional doses of Relenza to
Mexico. Of the two drugs, Relenza is thought to be most effective,
though Tamiflu also works. Tamiflu, which is a pill, is also easier to
take than Relenza, which must be inhaled. Roche, which posted 2008 sales
of $39.5 billion, sold $3.5 billion worth of the drug to governments in 2006 and
2007.
Both of these companies have experienced short-term pops. The market
always overreacts to big news. When swine flu fades from the headlines,
these companies likely will lose whatever pop their stock prices saw.
The trick is to have a longer memory than the market. By the time
the drug companies can make more doses of existing flu treatments or
synthesize new vaccines, traders will have forgotten about it.
Health officials and bureaucrats, however, will not have forgotten about
it. Not only will they be buying more, you can bet they'll make sure all
the doses on hand stay current. (Coming to the rescue with expired
Tamiflu would have roughly the same political blowback as, say, arriving
in New Orleans two weeks after the hurricane had passed.) Glaxo and
Roche could sell 500 million or a billion doses of flu treatment -- at
least enough to treat the developed world. This will bolster earnings
for several quarters.
What's more, Roche, Glaxo and Baxter are already selling at a discount
to their historical valuation. One side effect of the flu outbreak
will be to remind investors that these companies and their products are
absolutely vital to
world health, which will go a long way toward accomplishing two happy
goals: One, it should increase the earnings multiple for each
company to its respective five-year average and, two, it has the power to
juice earnings. Roche and Glaxo don't have hundreds of millions in R&D
costs to recoup. Tamiflu and Relenza were both discovered by other
companies. U.S.-based Gilead Sciences invented Tamiflu (and now
receives a 20% cut of sales). Roche and Glaxo
merely bought the rights and have inked
the deals to market the drugs. They merely have to ship the treatments
and collect the money.
Markets, like any crowd, always overreact. Sometimes investors forget
that there are still opportunities after the initial wave of panic
subsides.
Good Investing!
-- Andy Obermueller
StreetAuthority Investor Update
P.S.
The government may be a lumbering bureaucracy,
but it has the power to move the market like no other force
on earth. And now that the feds have spent, lent, or
committed $12.8 trillion dollars to heal our ailing economy,
we're looking at what could be the biggest profit
opportunity of our lifetimes. A select basket of key players
in health care, alternative energy, and infrastructure will
all see their fortunes rise. Several in a matter of years.
Some in months. A few practically overnight. If you don't
want to miss the boat on these government-triggered profit
opportunities,
click here right now.
Disclosure: Andy Obermueller does
not own any of the stocks
mentioned in this article.
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