Firms Look to Prevent Swine Flu Pandemic, Turn a Profit

April 28, 2009— -- Face-masks and hand-sanitizer are flying off the shelves and pharmaceutical stocks are skyrocketing on fears that a swine flu outbreak could go global.

Even as much of the economy took a blow from news of the potential epidemic, some companies with the tools to tackle a wide outbreak have already seen a bump in their share prices and could be poised to profit if the disease continues its deadly spread around the world.

Photos splashed across newspapers worldwide Monday showed Mexicans wearing surgical-style face masks and public health professionals urged Americans to wash their hands using alcohol-base sanitizers to stem the spread of the disease.

Mask sales already saw sharp increases. By Monday evening the top two best sellers on Amazon.com in the Health and Personal Care section were face masks.

The top seller, a 3M surgical mask labeled for "bird flu" use, had sold out on Amazon. Another manufacturer, Alpha Pro Tech, announced it would increase production to keep pace with demand.

Sales of hand sanitizer have been steadily on the rise for years, and a spike in mask sales seemed noticeable on Monday. Purell, the sanitizer market leader produced by Johnson & Johnson, has seen its sales double since 2003 to nearly half or $42 million of total $90.3 million market, according to Information Resources Inc., a Chicago-based market research firm.

"The hand sanitizer business will soar," said Professor Mahmud Hassan, director of the Pharmaceutical Management MBA Program at Rutgers University. "People will use more napkins and lotions. That business will go up."

Of course, J&J is a huge worldwide company with sales of over $140 billion a year, so sanitizer profits aren't likely to move the company's shares, which closed down slightly Monday in an overall bad day for stocks.

Manufacturers of antiviral drugs, companies gearing up to produce a vaccine, and those firms that make and sell low-tech products like hand-sanitizer and face-masks are turning profits in an otherwise skittish and down market.

"If this becomes a major pandemic, no one over the long-term will profit. No one makes money if everyone gets sick. In the short term, however, there are a couple of drugs that the CDC says could potentially treat swine flu and those companies are worth watching in the short term," said Dr. Mark Schoenebaum, a physician turned biotechnology analyst for Deutsche Bank.

As of Monday, some 1,600 people were suspected to have the disease in Mexico, killing as many as 149 people. In the U.S. 40 cases have been confirmed, with no related deaths recorded. The virus, considered dangerous because of an ability to pass from person to person, has also been found in Canada, Spain and the United Kingdom.

Companies gearing up for swine flu, including Roche, Gilead Sciences and GlaxoSmithKline, the manufacturers of the leading antiviral flu medications, are best positioned to see a boost in profits if the disease escalates to epidemic proportions, analysts said.

Tamiflu, which comes in pills, was developed by Gilead and manufactured by Roche. Gilead continues to collect royalties from Roche's sales of the drug. Both companies' share prices spiked soon after the U.S. government allowed for its stockpiles of the drug to be made publicly available.

Gilead stock surged to $47.53 at the end of the day Monday, up 3.78 percent. Roche rose to $31.72, up 4.34 percent.

Drug Companies Respond to Swine Flu Outbreak

Roche would not comment on Tamiflu sales, stockpiles or future availability. "Our focus right now is getting Tamiflu to customers. We're really not in a position to comment on any opportunity for potentially increased sales," said company spokesman Terry Hurley.

According to the company's annual report, sales for Tamiflu fell 68 percent to around $527.5 million in 2008. "Due to a substantially reduced pandemic," read the report, "stockpiling orders from governments and corporations" dropped.

The other major flu drug currently on the market is Relenza, also stockpiled and released by the government, and manufactured by GlaxoSmithKline.

Shares of Glaxo closed surged Monday to $31.56, up 7.57 percent.

Both Tamiflu and Relenza are stockpiled by governments and in the case of an outbreak the companies are often required to sell the drugs directly to the government at a discount.

Though the drugs are sold to the government at a lower margin, that actually helps the stock price, Schoenebaum said.

"Government stockpiling is viewed as boon for profits. Though the government gets a discount and the margins sold to the government are lower than those if they sold to Walgreens, from a stock perspective it's an unexpected positive surprise," he said.

Companies that make antivirals are not the only firms poised to profit from the outbreak.

Firms that specialize in vaccines, disease detection and low-tech prevention tools like hand sanitizer and face masks may also benefit, said Hassan.

Race to Produce a Swine Flu Vaccine

"The race is on to develop a vaccine," Hassan said. "The first company to develop a vaccine with the patent and gets a monopoly wins."

A potential leader in the race, he said, is Sanofi Pasteur, the vaccine development division of Sanofi Aventis.

Sanofi already manufactures a popular seasonal flu vaccine and a pediatric vaccine. It is currently awaiting word from the CDC to begin work on a swine flu vaccine, said company spokeswoman Donna Cary.

"We are preparing to begin production if we are requested to do so. The CDC first needs to characterize the virus and then develop a seed virus. We're getting everything ready now," she said.

Another contender in the race to develop a vaccine is Novavax, which has already developed a multi-strain vaccine that has yet to be approved by the FDA.

Shares of Novavax, a small Maryland developer of vaccines, soared $1.30, or 79 percent, to close at $2.50.