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Don't Get Suckered into Swine Flu Biotech Stock Trades

Companies / Global Pandemic May 03, 2009 - 05:49 PM GMT

By: DailyWealth

Companies

Best Financial Markets Analysis ArticleRob Fannon writes: Every time a news story about SARS, avian influenza – and now swine flu – hits the headlines, a handful of biotech executives swap high-fives.


See, "public-health emergencies" often mean big moves in the stocks of a dozen or so biotech companies chasing new ways to fight infectious disease or develop the "next-generation" vaccine. When panic strikes, these firms crank out press releases like popcorn, claiming their drug or technology will be indispensable in a crisis.

Take two Maryland-based biotech firms – Novavax (NVAX) and BioCryst (BCRX) – for example...

Novavax claims its technology is the fastest way to develop new vaccines. Problem is, it's never been used for an FDA-approved product and is still in trials. But that hasn't stopped the CEO from talking-up reporters, telling them how he's reached out to the Centers for Disease Control and Mexico's Ministry of Health.

Novavax shares shot up 175% on Monday. And management didn't waste time taking advantage of the situation: On Wednesday, it sold enough new shares to retire 23% of its outstanding convertible debt.

BioCryst lays claim to the "most advanced" antiviral drug in development. The company says its drug can treat bugs resistant to Tamiflu, the antiviral drug governments around the world have stockpiled in case of a pandemic. Here's the catch: BioCryst's drug is hiding in Phase II clinical trials and wouldn't be considered as a treatment even in the most dire of disasters. Nevertheless, its stock jumped more than 80% this week.

Don't get me wrong. I'm not trying to minimize the possible threat of swine flu... But regardless of how things resolve, you should steer clear of tiny, junk biotechs with technologies and drugs years away from the market.

Instead, you should buy companies that have real products and real profits...

Company
Market Cap
2009 P/E
5-year Earnings Growth
Technology
Novartis (NVS)
$85 B
10x
10%
Cell-based vaccines
Baxter (BAX)
$30 B
13x
12%
Cell-based vaccines
Gilead (GILD)
$40 B
18x
15%
Anti-viral drugs
Crucell (CRXL)
$1.5 B
50x
30%
Cell-based vaccines

Gilead will receive royalties on every dose of Tamiflu sold by Swiss-based Roche. The current efforts to beef up emergency stockpiles of Tamiflu could add $80 million to Gilead's bottom line within two years.

Novartis, Baxter, and Crucell are each developing vaccine-production methods to replace our antiquated system (which uses chicken eggs). From start to finish, each of the new approaches can generate an original vaccine within 12 to 16 weeks.

Novartis already has the genetic code of the current swine flu virus. Now, it's waiting for an actual sample of the virus to arrive in its labs. Baxter expects a sample, as well, in the next few days.

Of these three players, my favorite is Crucell. As a pioneer of cell-based technology, this Dutch-based biotech company has successfully used its platform to develop new vaccines, drugs, and research products with dozens of partners.

So, ignore the hype from names like Novavax and BioCryst. These stocks will end up right where they started (if not lower) after the media drops swine flu for the next big story.

If you want to profit when this round of fear translates into stepped up vaccine sales next winter and more government stockpiles, stick with the four names above.

Good investing,

Rob Fannon

http://www.growthstockwire.com

The Growth Stock Wire is a free daily e-letter that provides readers with a pre-market briefing on the most profitable opportunities in the global stock, currency, and commodity markets. Written by veteran trader Jeff Clark, and featuring expert guest commentaries, Growth Stock Wire is delivered to your inbox each weekday morning before the markets open.

Customer Service: 1-888-261-2693 – Copyright 2009 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth / Growth Stock Wire Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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