Investors look for stocks that could gain from swine flu

Rather than reaching for rubber gloves and face masks for protection, some investors are trying to expose their portfolios to the swine flu.

As governments brace to see if the H1N1 flu strain, better known as swine flu, worsens, investors are looking for companies that might profit from the pandemic.

"Investors can make money and avoid losses when it comes to swine flu," says Jason Kantor, analyst at RBC Capital. "The secret is to own companies that will benefit directly regardless of (the outbreak's) severity."

That includes companies that:

•Produce mainstream flu treatments. Perhaps the most straightforward way to invest in swine flu is through companies that make popular mainstream drugs that fight viral infections.

GlaxoSmithKline's gsk Relenza and Gilead Sciencesgild' co-developed Tamiflu are two of the most commonly used to combat swine flu symptoms, says analyst Jason Kolbert of ThinkEquity. Gilead gets a roughly 20% royalty from Tamiflu sales from Roche, which makes and sells the product.

Gilead stands to benefit if the regular flu this year is worse than expected, Kolbert says, and also benefits if the H1N1 flu is more virulent than forecast. It's a highly profitable licensing arrangement, Kantor says. Gilead is expected to reap $200 million in sales from Tamiflu in 2010. GlaxoSmithKline and Novartis could benefit, too, since they make seasonal flu vaccines, he says.

•Develop vaccines targeted to swine flu. BioCryst bcrx is working on the antiviral agent peramivir, which may be more appropriate for H1N1 due to its greater potency, says analyst Joe Schwartz of Leerink Swann. If H1N1 is more serious than thought, this treatment may be more popular. Plus, the drug is more important economically to BioCryst than Tamiflu is to Gilead. Monday, BioCryst got $77.2 million more in funding from the U.S. Department of Health and received a request for information about potentially stocking the treatment.

Other smaller firms working on H1N1 vaccines include Novavax nvax and Vical vicl, Kolbert says. If those vaccines pan out, they could be more meaningful than Tamiflu is to Gilead at 5% of revenue, Schwartz says. Meanwhile, large French drugmaker Sanofi-Aventis sny said Monday that it received an additional order from the U.S. for H1N1 vaccine, bringing the total order to 75.3 million doses. And Monday, the U.S. ordered more nasal-spray vaccine from AstraZeneca's aznMedImmune.

But there's reason to be skeptical. Previous scares, such as mad cow disease and avian flu, only gave stocks a short-term boost until the hysteria faded. "The concern is H1N1 gets worse. That's the unknown," Schwartz says. "It has that potential, but that's far from a certainty."

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