Some Companies Benefit From Bio-Terrorism

Oct. 11, 2001 -- With the increasing threat of bio-terrorism looming in many people's minds, a handful of companies that can help treat and detect bio-terrorist outbreaks have been thrust into the spotlight.

Even though some of these companies are still in the red and others have products that have yet to hit the market, that has mattered little to stock investors. Many of these companies' stock prices have shot up astronomically in recent days, propelled by the idea that their products could be in widespread use should the specter of bio-terrorism attacks continue to loom over the nation.

Cepheid, a Sunnyvale, Calif.-based maker of a system that analyzes genetic material in record time, has seen its stock shoot up dramatically in the weeks following the Sept. 11 attacks. Shares of U.K.-based biotechnology company Acambis, which is developing a vaccine for smallpox and the West Nile virus, is another company to benefit. Others include companies that make biological detection systems like Bruker Daltronics and Nanogen and biotechnology company Avant Immunotherapeutics, to name a few.

Spurring the interest in these companies is increasing interest from the U.S. government in shoring up its defenses against potential attacks of bio-terrorism.

The threat of bio-terrorism "has been a topic that's been of great interest to people and has generated a lot of publicity," notes Cepheid's Chief Financial Officer Cathy Smith.

Smith says Cepheid's agreement, announced in August, to develop biological agent detection systems with Baltimore-based engineering firm Environmental Technologies Group was "the right deal at the right time." Investors have agreed. The company's stock has shot up from $1.53 at the close of Sept. 10 to $8.19 at Tuesday's close — a rise of 435 percent.

Profits Elusive

The catch? Cepheid is not profitable, and some analysts don't expect it to show a profit until 2004. Further, the incredible run-up in the company's stock has prompted some analysts to advise investors to take a breather.

UBS Warburg analyst Howard Horn downgraded his rating on the stock to "hold" from "strong buy" and changed his price target on the stock to $5 from $6, citing the intense increase the company's stock has had.

"We are obviously pleased with the recent performance of the stock and are a believer in the company's technology," wrote Horn in a research note. "However, with no material announcement or changes in the past few weeks, until we can get more direct insight into where government monies newly earmarked for defense purposes will be spent, we cannot justify a strong buy rating at these levels."

Products in the Pipeline

Another unprofitable player, Acambis, recently announced that it is accelerating its plans to develop a new smallpox vaccine for the U.S. Centers for Disease Control. Originally, Acambis had been slated to submit a vaccine for regulation in 2004. A spokeswoman for the company could not comment on how quickly the company is expected to develop the vaccine.

Since the smallpox vaccine has not been produced since 1982, Acambis is one of the few players currently developing it. But the small firm is still in the research and development phase and profits have been elusive — Acambis posted a net loss of 5.5 million British pounds for the six months ended June 30 this year.

Still other companies are pegging their hopes to a vaccine for anthrax. BioPort, a privately held company based in Lansing, Mich., is currently the only U.S. firm that produces a vaccine for anthrax. BioPort President and Chief Operating Officer Robert Kramer told ABCNEWS' 20/20 that while the company has enough supply to support the Department of Defense's immunization program, it could be several years before the company has additional vaccine available for widespread civilian use.

German drug maker Bayer is also stepping up to the plate. The company plans to increase production of its antibiotic anthrax treatment, called Cipro, by 25 percent to meet rising demand in the United States for the drug.

An Unfortunate Benefit

Despite the frenzy for these companies, many remain cautious on their outlook for the future. Nobody truly knows what the government's need for tools to combat bio-terrorism will be, and there is much uncertainty over whether the U.S. military strikes against Afghanistan will affect demand.

Bruker Daltronics, which makes devices that can detect biological warfare agent for both the life sciences industry as well as the U.S. government, is one company that is not banking on the future just yet.

The Billerica, Mass.-based company, which sells about 20 percent of its products for government application, had a net income of around $1.8 million for the first six months of this year. And while the company has gotten more inquiries about its products, business development manager Frank Thibodeau says sales have not seen a dramatic increase since Sept. 11. Still, the company's stock has risen a robust 34 percent since Sept. 10.

"I think we make great products. Whether that translates into a lot more sales in the future, it's tough to tell," says Thibodeau. "I just think we're going to do better because of what's going on, unfortunately."