The Severe Acute Respiratory Syndrome (SARS) outbreak in 2003 is still fresh in our memories. More than 800 people before SARS was controlled. Dr. Gerald Keusch of Boston University says that the current outbreak of Swine flu is like a wildfire. According to World Health Organization, Swine flu is already at level 6, meaning pandemic.
According to the European Centre for Disease Prevention and Control (ECDC), as of September 25, confirmed deaths due to Swine flu were 4,216. Majority of those deaths were in the Americas. Other than frightening health concerns, what are the implications for investors? How will the outbreak of Swine flu affect many different sectors of the economy?
SARS impacted Hong Kong and China's economy significantly – international travel to and from China came to a standstill; hotel occupancy rates plummeted; bio-exports halted among others. Weakness in these sectors aggravated the shock to consumption demand, with retail sales falling not just in Hong Kong and China but in a number of other East Asian economies in the early part of the outbreak period. Business costs rose somewhat due to the loss of working hours from SARS-related illness or absences, and the introduction of precautionary measures to prevent the spread of SARS. In the second quarter of 2003, Hong Kong's economy contracted by 0.5% due to SARS. China's economy suffered a much higher contraction of 0.8%. Now due to Swine flu outbreak economic scenarios are developing in Mexico and other parts of Americas.
Till now no specific vaccine has been developed for swine flu, WHO noted that two antiviral drugs have demonstrated effectiveness in treating the disease. These are Relenza (zanamivir), produced by U.K.-based GlaxoSmithKline, and Tamiflu (oseltamivir), manufactured by Roche under license from Gilead Sciences (GILD), which receives royalties on Roche's Tamiflu sales. Quidel, a manufacturer of flu diagnostic tests, also stands to benefit from the swine flu issue. While Relenza and Tamiflu are efficacious, older antivirals such as amantadine and rimantadine were not found to work against this strain of drug-resistant flu.
U.S. health officials have declared the swine flu outbreak a public health emergency, and announced plans to ship some 12 million doses of antivirals from the national stockpile. Glaxo has in-licensed rights to Relenza from Biota Holdings Ltd., a Melbourne, Australia based anti-infective drug development company. For the three months ended March 2009, Glaxo booked Relenza sales of $333 million, on which Biota earned royalties of $23.1 million. The strong Relenza sales data were attributed to significant pandemic stockpiling orders from the U.K. and Japanese governments. Tamiflu sales totaled $350 million in the quarter. Supplying government stockpiles throughout the world, Roche's aggregate Tamiflu sales during 2006-7 totaled $3.5 billion.
Since the start of the swine flu outbreak, GSK said it supplied 100,000 packs of Relenza and 170,000 additional doses of seasonal influenza vaccine to Mexican authorities, at their request.
Recently, European Medicines Agency gave green signal to one of UK's swine flu vaccines - the GlaxoSmithKline vaccine, called Pandemrix. Despite the fact that some early clinical trials suggested that one dose may be enough in healthy adults, the Pandemrix vaccine will still be licensed on a two-dose basis. The British government, which has bought 60 million doses of the vaccine, will first offer the vaccine to 13 million people in the priority groups next month, before providing two-doses for the whole population.
Both Roche and Glaxo are scrambling to ratchet up production of Tamiflu and Relenza. However, there is a long lead time to produce Tamiflu. Because it is available in tablet form, Tamiflu has been the better seller than Relenza, which is an inhaled drug. However, sales of Relenza recently outpaced Tamiflu, partly because the U.S. Centers for Disease Control and Prevention recommended that patients choose Relenza. The latter drug is not resistant to a common strain of seasonal flu, whereas Tamiflu is.
Glaxo at the time of its second-quarter results in July said that it was charging developed countries €7 a dose of Pandemrix. The British Government is getting a discount, but neither the company, nor the Department of Health is prepared to say how much GSK is earning from Britain.
Other companies which are likely to see improved earnings due to Swine flu outbreak include vaccine producers such as Baxter International, Sanofi-Aventis, Novartis, Wyeth, and Merck.
