Tamiflu resistance, Japanese ducks and dumb luck Posted by Stacy-Marie Ishmael on Oct 02 15:42.
John Hempton at Bronte Capital is the archetype of the polymath hedge fund manager. In a piece posted on his blog on Friday, Hempton describes why he advised his clients to go long Biota Holdings, an Australian drug development company which own a 7 percent royalty on all sales of GlaxoSmithKine’s Relenza.
An influenza antiviral drug, Relenza is a “distant number two” in a market dominated by Tamiflu, according to Hempton. But as he explains, there’s an interesting reason why he told his clients Biota is worth holding (emphasis FT Alphaville’s):
In Japan, where Tamiflu is widely prescribed, the active compound (oseltamivir carboxylate) is excreted by the body (in urine) or is activated by the biological processes at the sewerage treatment works itself. Water at and downstream from the sewerage treatment works is high in oseltamivir carboxylate. That is really bad news because birds (especially ducks) like to bathe in the nutrient rich waters. Those ducks are the hosts in which new influenza viruses breed - and because the water is rich in antivirals the Japanese are breeding new strains of Tamiflu resistant influenza. This is not good news because the US government and other drug stockpiles are heavily weighted to Tamiflu - and there is a reasonable chance that the next global flu epidemic will be Tamiflu resistant.
Whilst that is not good news for the world - it is wonderful news for Relenza sales and hence our clients’ position in Biota. And it is nothing that we anticipated. If you told me my blog would wind up being about ducks in Japanese sewerage works I would have laughed. From the perspective of our clients it is plain luck - but that will not stop us profiting from it.
Hempton argues that “anyone with good investing results who does not admit to a dose of luck is lying.”
We’d be lying if we didn’t admit we hope he’s wrong about the next global flu epidemic. If not, short Roche, tin hats at chin strap six - and biohazard suits, please
BTA Price at posting:
$2.78 Sentiment: LT Buy Disclosure: Held
