StreetTalk: Investments in Avian Flu Soar

Companies and global governments open their pocketbooks to prevent a pandemic
May 01, 2006
Volume 19, Issue 5

You can't swing a dead yellow-bellied sapsucker without running into an investment speculator whooping it up over the impending bird flu bonanza. Sure, there's been a big potful of money earmarked for avian bird flu vaccines, both public and private. In March, Health and Human Services Secretary Michael Leavitt announced that the federal government plans to spend $3.3 billion on bird flu initiatives, about half of that on a vaccine.

Brian O'Connell
States are getting into the act, too. In Maryland, Governor Robert Erlich broke ground on a new bird flu vaccine laboratory in Rockville. The lab is capable of producing 150 million doses of flu vaccine annually.

Trust me, investors notice these things. Shares of Cel-Sci Corp. skyrocketed in early April after the small biotech company announced that its vaccine might be a stopgap measure to immunize people during the period it takes for a bird flu vaccine to take effect. The stock rose 22% on the news.

That's not an isolated incident. Novavax, the flu vaccine manufacturer based in Malvern, Pa., saw its stock climb to a 52-week high last October after media reports that the bird flu epidemic had escalated in countries like Turkey, Rumania, and Russia; and even Great Britain (where a lone parrot shipped from South Africa was found to have the disease).

BioCryst Pharmaceuticals of Birmingham, Ala., which had a now-disbanded partnership with Johnson & Johnson to develop a vaccine, also saw its stock fly to new heights, hitting a five-year high of $18.42 a share in October on the same news that drove up Novavax's stock.

Here is a list of the companies included in the index:
One of my favorite economists, Donald Luskin, has written a great deal on the investment opportunities in bird flu vaccines. As Luskin—and many scientists—points out, if the H5N1 virus makes the expected jump from birds to humans, a pandemic could follow.

"If H5N1 makes the jump to human-to-human transmissibility, then watch out" says Luskin. "People can stay away from birds. But they can't stay away from each other. And because H5N1 is so biologically unusual, the human race has no natural immunity to it." Luskin estimates that such a pandemic could take the lives of 16 million Americans—the equivalent of World War III.

Scientifically, current vaccines don't work all that well. Scientists need to plot a biological road map from the disease and, until we see such a viable strain in humans, that becomes a future activity.

That hasn't stopped both companies and global governments from opening their pocketbooks to prevent such a pandemic—and that's where the investment opportunity comes into the picture.

Luskin has developed a useful benchmark to see exactly how biopharm companies are profiting from bird flu vaccine technologies. His "Avian Flu Index" comprises 21 companies engaged in vaccines, testing, therapies, and non-fowl food production. Since launching the index on August 31, 2005, Luskin's index is up a spectacular 64% through March, 2006, far and away higher than the American Stock Exchange (Amex) Biotech Index, which was up 18% over the same period Not a bad year for biotech stocks, is it?.

While Luskin says he will add more firms to the index as more companies get involved with bird flu vaccines, 64% is hardly chicken feed. Perhaps that's why President Bush has asked for $7.1 billion in avian bird flu vaccine spending, to stockpile an antidote that could be given to all 300 million or so American citizens.

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