by Marc Lichtenfeld, Chief Income Strategist, The Oxford Club
Wednesday, March 6, 2013: Issue #1984
The following conversation took place between my wife and I a few months ago.
Mrs. L: I really think you should get a flu shot this year.
Me: I’ve never gotten one before and I’ve never come down with the flu.
Mrs. L.: It’s supposed to be a really bad flu this season.
Me: I’m Superman, I don’t get the flu.
I’m sure you can guess what happened.
I made it through most of flu season unscathed as friends and family around me were dropping like bad guys in a video game. Meanwhile, I was eating right, exercising and getting enough sleep. No way the flu was going to get me and my Clark Kent like immune system.
And then it did. Last week.
It was as sick as I’ve ever been. I don’t remember Thursday.
Fortunately, I’m on the mend and back to thinking about stocks.
And not surprisingly an area I’m thinking about are flu stocks.
Even in my delirium, I knew there was big bucks in some stocks that have products related to the flu. When my wife called from the pharmacy to tell me that my Tamiflu prescription was going to be $105 (and that’s with health insurance), I knew someone was making a bundle off my misery.
Roche Holdings (OTC BB: RHHBY) – The beautiful people who make Tamiflu. Two doses and I was on the road to recovery. It was worth every penny of that $105.
Tamiflu sales are expected to more than double this flu season to $750 million from $350 million last year. Roche is a huge company with $45 billion in sales, so the growth in Tamiflu won’t move the needle much, but it can in the future if there is a pandemic. In 2009, sales hit $3 billion as governments stockpiled Tamiflu on pandemic fears.
Sanofi (NYSE: SNY) – The smart people whose product I should have used. Sanofi is the largest flu vaccine provider in the U.S. In 2012, flu vaccines brought in $884 million in sales. GlaxoSmithKline (NYSE: GSK) and Novartis (NYSE: NVS) also make flu vaccines.
It is estimated that the flu vaccines was effective just slightly more than half the time this year. So drug and biotech companies are always searching for a better vaccine. And investors are looking for the next great company to come up with that vaccine.
There are several small companies that are working on the vaccines like Innovio (NYSE: INO) and Vical (Nasdaq: VICL), but I would stay with the big pharmaceutical companies on this one. The small names don’t have a good track record of being able to bring a product to the market. And even if they succeed, they would have to partner with a larger company for its sales network.
That doesn’t mean you should never invest in a small cap biotech company. Many have some great breakthroughs in various diseases, especially cancer. But many of these indications are wide open markets or the drug is such an improvement that the company will take significant market share.
With flu vaccines dominated by big pharma, it will be tough for a small fry to break in and be successful.
Walgreen’s (NYSE: WAG) – Not only can you buy your Tamiflu, decongestants, and ibuprofen at Walgreen’s, you can also get your flu shot at the pharmacy. In fact, 6.9 million people did as of January 31st. That compares to 5.5 million the year before. And if those people are already in the store, chances are they’re also picking up a box of band aids, a two liter bottle of soda or some other household items they may need. In fact, Walgreen’s reported a strong 6% increase in sales in January.
Pilgrim’s Pride (NYSE: PPC) – While the Tamiflu appeared to help me, it might have just been a coincidence. After all, I’d been eating homemade chicken soup for several days prior.
Pilgrim’s Pride processes about 9.5 billion pounds of chicken annually. The company offers fresh and frozen whole chickens and parts.
While Pilgrim’s isn’t exactly a biotech or pharma company, its products are used to make the best medicine I know of.
And it’s not just an old wives’ tale. Several medical studies have shown that chicken soup actually does help. One study out of the University of Nebraska Medical Center concluded that chicken soup stopped the movement of white blood cells that fight infection. By inhibiting their movement upper respiratory symptoms were reduced. Another study showed that chicken soup increased air flow in the nasal cavity.
Next year, the vaccine makers can count on me to add one more to their rolls. And I’m going early. As much as I loved the Tamiflu, I’d prefer not to have to take it again.
Editor’s Note: Last week Marc wrote about why the companies providing the picks and shovels to speculative biotech companies were some of the safest bets in biotech.
Our favorite company in the space could hand early investors life-changing gains with its revolutionary new way to create billion-dollar drugs. After four years of research on this single company, Marc is finally pulling the trigger. For more information, click here.