Pandemic threat prompts surge of speculative investments

As governments and scientists rush to analyse the threat of the new influenza strain, investors are hurrying to spot which companies might stand to benefit. EP Vantage has identified 23 companies which have registered significant share price gains that can be attributed to the health scare, since news of the situation in Mexico began to make headlines last Friday (see table below).

Overall, $23.2bn has been added to the combined market cap of this group, a figure that is unlikely to be translated into real value in the long term. Of the group only nine could be in line for tangible benefits, most notably GlaxoSmithKline and Roche, in the shape of a surge in demand for antiviral drugs Relenza and Tamiflu. Realistically, very few of the smaller drug developers working on early stage, experimental vaccines with limited proof of efficacy are likely to end up winners in the short-term.

Biota and Gilead Sciences will also derive a tangible benefit. They are the originators of Relenza and Tamiflu respectively, and recipients of royalty payments, with Gilead pocketing almost $1bn from Roche in just the last three years.

As well as Glaxo other larger companies with vaccine manufacturing plants like Sanofi-Aventis, AstraZeneca and even Crucell may also see a benefit if a pandemic does break out. It is likely that they would be called upon to meet demand for large volumes of flu shots.

Speculative gainers

Topping the list of more speculative bets is Novavax, which has seen its shares triple in value since last Thursday. The researcher is working on virus-like particles which it believes could lead to a vaccine that provides broad protection across flu strains. If it works, this would be ideal for stockpiling in case of a pandemic, as it could be administered whilst the actual flu strain is isolated and a specific vaccine created.

The group is also working on cell-based vaccine technology, which has the potential to significantly reduce the lead time compared with traditional manufacturing methods. However, its flu jabs have not yet completed phase II trials, meaning considerable work remains to be done before regulators would allow them to be launched; unless the current threat reaches pandemic proportions when governments may be forced to try as many alternatives as available.

Another big gainer has been Generex Biotechnology, better known for an oral insulin spray, which has seen its share double, seemingly benefiting from a phase I avian flu vaccine, in what looks like a very speculative choice by investors.

BioCryst Pharmaceuticals's share have also doubled, and although its antiviral is only in phase II, it looks a better bet, given the lack of new antivirals in development, as highlighted by EP Vantage earlier this year (Flu antivirals in demand but few options in pipeline, January 12, 2009).

The majority of the companies in this list have not passed phase I with their flu vaccines, meaning that if the pandemic threat wanes their share prices will probably follow. Still, vaccines are a hot area of research, regardless of the current flu scare, and this extra attention could reinvigorate the scramble for any promising new technology.