Stock Option Advisory

Companies Standing to Benefit from the Swine Flu Outbreak

We live in an age and environment when, no matter what threat we face, there are organizations that stand to benefit. The current swine flu outbreak (more scientifically known as H1N1) is no exception. Several large international companies are well placed to gain from what is now being referred to as a pandemic. The two essentials in combating this flu will undoubtedly be diagnostics and treatment via antiviral drugs and vaccines.


QIAGEN (QGEN) is a leading provider of sample and assay technologies used to make specific target biomolecules, such as the DNA of a specific virus, visible for subsequent analysis. They have developed more than 500 consumable products and automated solutions which are sold to academic research markets, leading pharmaceutical and biotechnology companies and molecular diagnostics laboratories. QGEN employs more than 2,600 people in over 30 locations worldwide and manufactures universally used assays for influenza screening as well as a number of components used for testing samples which are widely used by laboratories to create their own tests. In 2005 the company launched the highly specific PCR-based virus kit for the detection of influenza and the H5 subtype of avian flu in humans. QGEN also works with diagnostic applications from Roche. It posted a profit of $20.8 million, or $0.10 per share, for the first quarter of 2009 compared to a net loss of $7.3 million, or $0.04 per share, for the third quarter of 2007.

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QUIDEL CORP (QDEL) provides easy-to-use, rapid diagnostic tests designed to effectively triage patients in acute care facilities as well as physicians’ rooms. According to a company representative, QDEL’s QuickVue rapid flu test can detect the presence of swine flu and may be used in a screening setting to detect and manage flu outbreak. QDEL shares recently jumped 49 cents, or 5.1 percent, to $10.03 as the outlook for its flu tests improved.

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ROCHE. As a Switzerland-based healthcare company focused on research, Roche discovers, develops and provides innovative diagnostic and therapeutic products and services. Roche manufactures Tamiflu, an oral preventative and treatment for all clinically relevant influenza viruses, and the only drug of its kind approved for prevention and treatment of influenza in children aged 1 to 5 years. Roche has confirmed that the swine flu virus is sensitive to Tamiflu.

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Roche shares have taken a recent 10% drop following news that a clinical study of its drug Avastin was relatively ineffective in treating early-stage colon cancer. However as a highly regarded international research company, they will no doubt recover quickly with Tamiflu’s reputation standing it in good stead.

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GILEAD SCIENCES INC. (GILD). This company further developed the widely used Tamiflu, the oral flu preventative and treatment manufactured by Roche. Gilead receives royalties from Roche for this product. Gilead shares rose recently by $1.73, or 3.8 per cent, to $47.53.

GLAXO SMITH KLINE (GSK). GSK manufactures almost four billion packs of medicines and healthcare products every year, employs more than 15,000 people in research teams and supplies one quarter of the world’s vaccines.

GSK, Roche and Gilead, which all have a stake in flu treatments and detection, will likely see revenue boosts if the swine flu outbreak continues to spread, according to several Wall Street analysts.

Relenza (zanamivir), an anti-viral inhaled drug, is made by GSK and in 2006 was approved for use in 15 European countries. In January 2009 the UK Government signed an influenza pandemic contract with GSK for the use of Relenza to treat infected individuals in the event of an influenza pandemic. It was recently confirmed that the swine flu strain is sensitive to Relenza.

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GSK US-traded shares have recently risen $2.22, or 7.6 per cent, to $31.56.

NOVAVAX INC (NVAX). This company uses advanced virus-like particle [VLP] technology to manufacture vaccines that address a broad range of infectious diseases worldwide, including influenzas. Novavax is currently clinically testing a pandemic and seasonal flu vaccine. VLP technology is one of the fastest methods for creating a vaccine and allows for rapid mass production. It is therefore well positioned to capitalize on the H1N1 outbreak. Recently Novavax shares have nearly doubled to $2.55.

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Investing in swine flu could be very lucrative, however, it could disappear just as quickly as it appeared. Investing in a biotechnology stock can be very risky, one bad drug trial and the stock can head for the cellar. Investors considering investing in biotech should consider portfolio insurance. Portfolio insurance can be implement via put options. A put option can protect a stock trade in the event the stock takes a freefall. A married puts strategy is also a method for capital preservation. A married puts strategy combines a stock trading position with a long put option to implement a position which has unlimited upside and limited downside.

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[tags] swine flu, H1N1, DNA, virus, pharmaceutical, biotechnology, influenza, PCR, avian flu, Roche, QuickVue, Switzerland, Tamiflu, Avastin, anti-viral, drug, Relenza, VLP, pandemic, vaccine, GILD, Gilead Sciences Inc., GSK, GlaxoSmithKline PLC, NVAX, Novavax Inc., QDEL, Quidel Corp., QGEN, Qiagen N.V. [/tags]

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