Tuesday, April 28, 2009

Top Swine Flu Stocks To Own

by Michael Shulman

Swine flu, first identified in Mexico, has spread to the United States, Canada and many other countries.

What makes pandemic flu like this more dangerous than regular flu is its virulence -- it kills (more than 100, according to press reports) -- and the inability of current vaccines to prevent the spread of the disease.

A few years ago, the bird flu scare put a few companies on traders' and analysts' radars, and these stocks have already exploded in value, beginning Friday and accelerating today.

Is it too late to get in on the swine flu stocks?

It all depends on the severity of the outbreak. If it passes quickly, these stocks will probably come down. If the flu spreads, they may go up. Sorry, I am no an epidemiologist.

But here are some of the most prominent swine flu stocks:

4 Swine Flu Stocks to Watch

As the news plays out, there are four companies you should take a look at: BioCryst Pharmaceuticals (BCRX), Novavax Inc. (NVAX), Crucell (CRXL) and Cerus (CERS).

Swine Flu Stock #1: BioCryst Pharmaceuticals

BioCryst Pharmaceuticals (BCRX) has a flu treatment for common and pandemic flu in development called Peramivir, which is much more potent than Roche's Tamiflu. Due to previous trial for an oral version of the product (the new version is injected), most of the scientific community believes it will pass through final trials.

There is a special provision that allows the federal government to stockpile a treatment after it has passed a 12-person safety trial, and Peramivir has done this. So even though the company is going forward with all trials to get a general approval, in a real emergency the government could legally buy and distribute this treatment.

More importantly, it is made in the USA, and it is the only flu treatment of note that is made here.

Swine Flu Stock #2: Novavax Inc.

Novavax Inc. (NVAX) has exploded on the recent swine flu news. This vaccine company's primary focus is the flu, and it can actually make a new flu vaccine in roughly thee months. And it has a manufacturing platform that is extensible to other manufacturers.

Novavax has a broad-based vaccine development program that is heavily, if not completely, dependent on government support. The company is cash-poor and burns cash at a furious pace. And it has committed heavily to a new development program in India with pharma company partner, Cadila Pharmaceuticals.

Swine Flu Stock #3: Crucell

Crucell (CRXL) is the 21st-century vaccine technology company, and its business model is to be the "Intel Inside" for many vaccine makers. Crucell owns a traditional vaccine business and is also developing new vaccines for many infectious diseases.

Its technology platform -- cell-line manufacturing -- is much more efficient than traditional egg-based vaccine production, and the company has partnered with many of the major players in the vaccine business.

Swine Flu Stock #4: Cerus

Cerus (CERS) is the oblique play on this scare. I wrote about Cerus recently, saying that it was one penny stock you have to own.

This company has the technology and products to clean blood, removing infectious pathogens and making blood banks indifferent to the health of donors' blood. Cerus' INTERCEPT Blood System has been shown to work on HN51 flu strains (avian flu) in laboratory work that has been published and subject to peer review.

The INTERCEPT Blood has approvals in 18 countries, and with the pressing need to make sure the blood supply is safe from pandemic flu, HIV and other pathogens, there is a huge market for its product line.

The biggest upside catalyst for CERS would be the creation of a shortened regulatory pathway by the FDA for approval in the United States.

How to Play Swine Flu

I see these four stocks as long-term plays, albeit risky ones, especially is the swine flu pandemic takes hold. But these stocks shot up today, with BioCryst and Novavax actually doubling.

And if the swine flu scare dies down in the next 24-48 hours, these four stocks will be excellent shorting candidates.

A Bonus Swine Flu Options Trade

Tamiflu is the recognized treatment for the flu and has been shown to work on the swine flu strain. Governments stocked up on this product a couple of years back, but then slowed down purchases. However, they may begin buying it again.

Tamiflu is made by Roche -- possibly the best Big Pharma company in the world -- but the play here is Gilead Sciences (GILD).

Gilead invented Tamiflu, and gets a roughly 20% royalty on sales -- 100% pure profit. Any uptick in government purchases for stockpiles or use puts a new floor under Gilead's already incredible profits, earnings and real cash flow.

Look at a call option with a longer-term expiration date if you are a longer-term player, but consider a short-term call option if this scare gets worse.

Good investing, Kingsley.

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