investors see bird-flu impact
Investors See Bird-Flu Impact
Will It Affect Roche, Sanofi, Or Smaller Firms Biota, Pulmuone? By NICHOLAS ZAMISKA Staff Reporter of THE WALL STREET JOURNAL October 14, 2005
As scientists grapple with the most serious aspects of a possible bird-flu pandemic, investors are trying to ferret out pockets of potential in the shares of medical and health companies.
If avian influenza broke out widely among humans -- that is, if the virus's H5N1 strain mutated to become readily transmissible among people -- there could be immense demand for the products of two global pharmaceutical heavyweights, Roche Holding AG and Sanofi-Aventis SA.
Roche, based in Switzerland, makes Tamiflu, the main antiviral drug that governments have begun stockpiling, and a unit of Sanofi is working on a bird-flu vaccine. Roche shares had climbed 15% in the past three months to flirt with a 52-week high, before a 1.5% drop yesterday to 184.60 Swiss francs ($143.51).
But some investors, including hedge-fund managers, have turned to smaller, less-well-known companies, whose shares they believe will move more sharply on bird-flu demands.
One such company is Australian pharmaceuticals maker Biota Holdings Ltd., whose stock almost doubled on bird-flu fears in the space of a few recent trading sessions, as investors bet that demand would increase for its antiviral drug Relenza. Over the past three months, the company's shares have more than quadrupled, though they pulled back 8.8% yesterday to A$1.87 (US$1.41) each.
While Tamiflu is far better known than Relenza, governments eager to stockpile something may turn to lesser-known antivirals if they fear Roche won't be able to keep up with the surging demand for its drug.
The play has its skeptics. "The market has run very hard on Biota, and you could argue that it has run too hard," said Alison Coutts, a director at Emerging Growth Capital, a brokerage firm in Sydney.
One of the larger companies, Chiron Corp., of Emeryville, Calif., is betting it has an edge on rival Sanofi in making a bird-flu vaccine, even though Sanofi's clinical trials are ahead of Chiron's. Chiron is hoping to get approval to market what it says is a unique vaccine supplement in the U.S. that would allow for inoculations with a smaller amount of vaccine -- a key concern of health officials worried about supply.
"We believe we have something that nobody else has," said Rino Rappuoli, Chiron's chief scientific officer. Shares of Chiron are in range of a 52-week high, finishing at $43.17 in Nasdaq Stock Market composite trading yesterday. Although the shares have been pressured by contamination concerns at two of Chiron's vaccine plants in Europe, a possible acquisition of Chiron by Swiss drug giant Novartis AG has recently propped them up, said Noushin Irani, a manager at the Frankfurt biotech fund DWS Investment. In fact, she argues the shares have little or no upside at their current price.
DWS, which recently lightened its holding of Chiron, maintains a significant stake in Gilead Sciences Inc. of Foster City, Calif., which developed Tamiflu in partnership with Roche.
Some investors are betting on the offbeat, such as Pulmuone Co., South Korea's leading maker of health-food products. Among its offerings is the national dish kimchi, a spicy melange many Koreans believe can ward off infection. When severe acute respiratory syndrome broke out in 2003, Pulmuone's kimchi sales rose 46% from the previous year, according to Macquarie.
Pulmuone's shares surged earlier this week after news reports over the weekend stirred further concern about bird flu. The shares rose 3.8% yesterday to 33,800 won ($32.39).
