Don't Get Suckered into These Swine Flu Trades
By Rob Fannon, editor, Phase 1 Investor
May 1, 2009
Every time a news story about SARS, avian influenza – and now swine flu – hits the headlines, a handful of biotech executives swap high-fives.
See, "public-health emergencies" often mean big moves in the stocks of a dozen or so biotech companies chasing new ways to fight infectious disease or develop the "next-generation" vaccine. When panic strikes, these firms crank out press releases like popcorn, claiming their drug or technology will be indispensable in a crisis.
Take two Maryland-based biotech firms – Novavax (NVAX) and BioCryst (BCRX) – for example...
Novavax claims its technology is the fastest way to develop new vaccines. Problem is, it's never been used for an FDA-approved product and is still in trials. But that hasn't stopped the CEO from talking-up reporters, telling them how he's reached out to the Centers for Disease Control and Mexico's Ministry of Health.
Novavax shares shot up 175% on Monday. And management didn't waste time taking advantage of the situation: On Wednesday, it sold enough new shares to retire 23% of its outstanding convertible debt.
BioCryst lays claim to the "most advanced" antiviral drug in development. The company says its drug can treat bugs resistant to Tamiflu, the antiviral drug governments around the world have stockpiled in case of a pandemic. Here's the catch: BioCryst's drug is hiding in Phase II clinical trials and wouldn't be considered as a treatment even in the most dire of disasters. Nevertheless, its stock jumped more than 80% this week.
Don't get me wrong. I'm not trying to minimize the possible threat of swine flu... But regardless of how things resolve, you should steer clear of tiny, junk biotechs with technologies and drugs years away from the market.
Instead, you should buy companies that have real products and real profits...
Company |
Market Cap |
2009 P/E |
5-year Earnings Growth |
Technology |
| Novartis (NVS) |
$85 B |
10x |
10% |
Cell-based vaccines |
| Baxter (BAX) |
$30 B |
13x |
12% |
Cell-based vaccines |
| Gilead (GILD) |
$40 B |
18x |
15% |
Anti-viral drugs |
| Crucell (CRXL) |
$1.5 B |
50x |
30% |
Cell-based vaccines |
Gilead will receive royalties on every dose of Tamiflu sold by Swiss-based Roche. The current efforts to beef up emergency stockpiles of Tamiflu could add $80 million to Gilead's bottom line within two years.
Novartis, Baxter, and Crucell are each developing vaccine-production methods to replace our antiquated system (which uses chicken eggs). From start to finish, each of the new approaches can generate an original vaccine within 12 to 16 weeks.
Novartis already has the genetic code of the current swine flu virus. Now, it's waiting for an actual sample of the virus to arrive in its labs. Baxter expects a sample, as well, in the next few days.
Of these three players, my favorite is Crucell. As a pioneer of cell-based technology, this Dutch-based biotech company has successfully used its platform to develop new vaccines, drugs, and research products with dozens of partners.
So, ignore the hype from names like Novavax and BioCryst. These stocks will end up right where they started (if not lower) after the media drops swine flu for the next big story.
If you want to profit when this round of fear translates into stepped up vaccine sales next winter and more government stockpiles, stick with the four names above.
Good investing,
Rob Fannon |
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| • |
The do-it-yourself trade is still on... AutoZone and O'Reilly Auto at new 52-week highs. |
| • |
Horse bookie firm Youbet hits a new 52-week high ahead of the Kentucky Derby. |
| • |
Natural gas continues its slide... U.S. Natural Gas (UNG) at another 52-week low. |
| • |
Earnings today... Chevron, Clorox, Fortune Brands, MasterCard, Simon Property. |
|
Last |
Change |
52-Wk |
| S&P 500 |
874.95 |
+0.15% |
-36.85% |
| Oil (USO) |
28.66 |
+0.35% |
-69.02% |
| Gold (GLD) |
87.57 |
-0.86% |
+1.06% |
| Silver (SLV) |
12.21 |
-2.70% |
-26.97% |
| U.S. Dollar |
87.95 |
+0.24% |
+19.30% |
| Euro |
1.33 |
-0.05% |
-15.14% |
| VIX |
35.92 |
-0.44% |
+72.78% |
| HUI |
297.27 |
-3.16% |
-26.03% |
| 10-Year Yield |
3.14% |
0.04 |
-0.52 |
|
| Company |
Sym |
Industry |
AutoZone |
AZO |
auto parts |
Computer Program |
CPSI |
tech |
ICU Medical |
ICUI |
medical supplies |
O'Reilly Auto |
ORLY |
auto parts |
Orchids Paper |
TIS |
tissue paper |
Ameristar Casinos |
ASCA |
casinos |
Clarient |
CLRT |
diagnostics |
Highlands Acq |
HIA |
acquisitions |
NVE |
NVEC |
nanotech |
Steak n Shake |
SNS |
restaurants |
ARRIS |
ARRS |
telecomm |
Capitol Acq |
CLA |
acquisitions |
Hansen Natural |
HANS |
soft drinks |
NuStar Energy |
NS |
oil & gas pipelines |
Steven Madden |
SHOO |
shoes |
Williams Pipeline |
WMZ |
oil & gas pipelines |
Amerigroup |
AGP |
health care |
Cerner |
CERN |
health care |
Green Mountain |
GMCR |
coffee |
Merge Tech |
MRGE |
medical software |
RRSat Global |
RRST |
broadcasting |
USA Mobility |
USMO |
wireless comm |
APAC Cust Svc |
APAC |
customer svc |
CHS |
CHSCP |
agriculture co-op |
Great Southern |
GSBC |
bank |
National Presto |
NPK |
appliances |
Seneca Foods |
SENEB |
food products |
Valspar |
VAL |
coatings |
Aaron's |
AAN |
rent-to-own |
Central Garden |
CENT |
lawn & garden |
Global Consumer |
GHC |
acquisitions |
Modavox |
MDVX |
digital dist |
Quality Systems |
QSII |
health care |
Youbet |
UBET |
wagering |
Broadpoint |
BPSG |
broker |
Evercore Partners |
EVR |
investment bank |
Isle of Capri |
ISLE |
casinos |
Pantry |
PTRY |
grocery |
TeleComm Sys |
TSYS |
software |
|
| Company |
Sym |
Industry |
US Natural Gas |
UNG |
natural gas |
ManTech |
MANT |
software |
Sequenom |
SQNM |
biotech |
Burger King |
BKC |
fast food |
Abbott Labs |
ABT |
Big Pharma |
|
|
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