Leave it to Wall Street to find an investment opportunity in the potential onset of pandemic bird flu.
Although it's unclear whether bird flu's spread around the world will result in a major U.S. public health threat, some in the investment community are beginning to place bets on potential hot stocks--and potential losers--should an outbreak arise.
A report on avian flu by Citigroup, for example, cast as investment losers air travel stocks and public places like malls, pubs and casinos. On the buy side, the specter of people holing up in their homes for days on end makes home entertainment, media and Internet companies potentially good investments, Citigroup said.
"The markets are anticipating it, and there are already investors making bets on the potential that there will be a pandemic," said Paul Heldman, senior health policy analyst for Citigroup in Washington.
Among potential losers listed in the Citigroup report released in March were airlines like American parent AMR Corp., Continental Airlines Inc. and United parent UAL Corp. Other problematic investments would be hotel companies like Hilton Hotels Corp. and Starwood Hotels & Resorts Worldwide Inc., the report indicated.
"The hardest part of this is to create some probability of if and when," Heldman said. "However, nobody can deny that it is an issue and nobody can deny that it's already having an effect in the stock markets."
To be sure, health-care companies are benefiting from worried governments looking to stockpile antiviral drugs and even vaccines that have not yet been commercially approved for wide use in humans.
One commercially available antiviral drug that is seen as effective in treating avian flu after it infects humans has been a sales boon to its maker. Sales of Roche AG's Tamiflu drug quadrupled last year to $1.6 billion, largely thanks to nearly $800 million in what the company calls "pandemic sales."
Companies such as Baxter International Inc., GlaxoSmithKline PLC, Aventis Pasteur and others developing vaccines also are considered potential good investments by some experts. The companies are starting to land contracts to produce stockpiles of experimental avian flu vaccines that may never be used.
After Baxter landed a contract in February from the United Kingdom to produce 2 million dosages of a cell-based vaccine, analysts who follow the company were optimistic about Baxter's prospects to land even more contracts.
"The UK contract [was] the first secured by Baxter, and the opportunity to expand to other markets could be significant," said Morgan Stanley & Co. medical products analyst Glenn Reicin in a report. "In the U.S. alone, we peg the dose potential at 750 million. If the company can expand this [UK] agreement to other markets, the opportunity could be big!"
Still, Baxter said some countries are taking a wait-and-see attitude toward its vaccine, which is not slated to begin human clinical trials until June. It's unclear how much Baxter and other vaccine makers would benefit from what is considered a low-margin business, but countries like the U.S. are increasing reimbursement to spur more innovation and production of vaccines.
Noel Barrett, Baxter's vice president of research and development for the company's vaccine business, said that some poorer countries do not have budgets to stockpile untested vaccines. "Many countries are not in a position to stockpile because of finances," Barrett said.
Some analysts have speculated that other drug companies that make antivirals, such as GlaxoSmithKline, maker of seasonal flu treatment Relenza, could see a benefit.
In February the U.S. Department of Health and Human Services ordered 1.75 million "treatment courses" of Relenza (a treatment course is two inhalations, twice a day for five days, the company said). GlaxoSmithKline said it began human testing of its vaccine against the H5N1 strain of bird flu in Europe. The company hopes to have a vaccine in production this year.
"We continue to be in discussions with the U.S. government regarding Relenza and a pandemic influenza vaccine," said GlaxoSmithKline spokesman Michael Fleming. "We are in discussions with governments and health agencies around the world."
Some firms have not been as fortunate, with their drug and vaccine contracts thus far having minimal importance to their bottom lines. Baxter's United Kingdom contract, for example, will bring in about $20 million in revenue, a paltry sumto Baxter, which generates $10 billion in annual sales.
Experts caution that there is a history of feared crises never really reaching international proportions that would be of great benefit to health-care companies, notably the smallpox and anthrax scares after 9/11.
Health-care stocks also failed to capitalize on the short-lived scare three years ago of SARS, a lethal strain of pneumonia.
After 9/11 Baxter, for example, landed a major U.S. contract to stockpile a British biotech company's smallpox vaccine, but additional contracts from other countries did not materialize despite discussions the company said it had a few years back with several countries.
"These things tend to get blown out of proportion," said Ben Andrew, health-care analyst at William Blair & Co. in Chicago. "To the extent you don't have the event, my sense is that things tend to get overblown. The odds are too low that there will actually be a pandemic."
Bruce Japsen is a staff reporter at the Chicago Tribune.