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Swine Flu Finally Bears Fruit for Pharma

Remember April’s global outbreak of swine flu? A few promising pharmaceutical stocks went ballistic…. even before their companies actually developed a vaccine. Ironically, though a few of these companies are selling vaccines, the H1N1 hysteria is so dated that investors have lost interest. Too bad too… the payoff is just now materializing.

First, But Not Biggest: AstraZeneca PLC (AZN) technically won the H1N1 vaccine race, getting an approved swine flu treatment out early enough to see it drive a bit of revenue during the company’s third quarter. Their version – the FluMist nasal spray – took less time to develop as it was built around a live (weakened) virus rather than using a CDC-supplied dead virus.

So AZN is the stock to own then? Not so fast. Total FluMist sales in the fourth quarter should fall in somewhere around $500 million. That’s not much compared to the $32 billion in sales the company raked in last year…. only about a 6% annual revenue boost at current sell-through rates.

Most, But Not Best: GlaxoSmithKline (GSK), while not first, may be seeing the biggest fiscal impact from its swine flu treatment. Sales of the company’s broad-use Relenza vaccine were already strong, but the introduction of a true H1N1 treatment is expected to boost fourth quarter’s sales by $1.64 billion. That’s about 5% of the companies’ total revenue last year. Assuming the number can be repeated in future quarters, swine flu treatment sales could boost the company’s total revenue by 20% as long as the current demand persists.

GlaxoSmithKline’s massive production capability poises it as the company that could sell the most H1N1 treatment when it’s all said and done, even though it wasn’t the first, and even though the vaccine isn’t significantly better than the others.

The Best of the Rest: Investors should also keep tabs on Novartis AG (NVS), Sanofi-Aventis SA (SNY), and Baxter International (BAX). Each has their own revenue-bearing versions of a swine flu treatment that wasn’t launched until the present quarter.

The benefit to each company varies, as it did between Glaxo and AstraZeneca. Given that the combined production capacity of all the pharmaceutical companies may not catch up with demand until late 2010 though, the next several quarters could be solid for all of them…. GlaxoSmithKline in particular.

Perspective: At last look, the United States had possession of 73 million doses of the 250 million it had initially ordered; the shortfall is proportionally about the same across the globe. At roughly $20 per dose with so many more to make, H1N1 is going to bear some nice fruit for a while.

(Originally written for Kapitall.com)

Read the original blog entry...

More Stories By James Brumley

James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.

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