Fears of a “swine flu” pandemic propelled pharmaceuticals stocks higher on Monday, with GlaxoSmithKline—one of the two companies that has an approved drug for the treatment of influenza—jumping over 5% to lead the blue-chip gainers.
The broader picture, however, of economies already struggling with recession now facing a drop in the productivity of their workforces, had dragged the FTSE 100 index down 0.3% to 4,142.7 by 3.00pm. Shares in the travel and tourist industries felt the pinch the most, with airline British Airways shedding 8.9%, cruise operator Carnival off 7.0% and Thomas Cook Group down 4.7%.
The spread of the H1N1, known as “swine flu” as it affects pigs foremost but is also contractible by humans, has killed over 100 people in Mexico already and cases have been reported in the US, as well as suspected case in Europe, Israel and New Zealand. The virus has been declared the World Health Organisation (WHO) a "public health emergency of international concern."
Writing on the impact for pharmaceuticals companies, analysts Dr Keith Redpath and Charles Pick at FinnCap said this morning it appears, if caught early, that H1N1 responds to Roche’s Tamiflu drug and GlaxoSmithKline’s Relenza—the only two approved drugs for influenza. The broker suspects that Tamiflu, which is taken in tablet form rather than inhaled as Relenza is, would be the drug of choice. Shares in both Roche and GlaxoSmithKline were in demand on Monday.
FinnCap noted that now that the specific strain of H1N1 is known, there will be a push for companies to develop a vaccine, and those capable of doing this at scale include Anglo-Swedish firm AstraZeneca, British group GlaxoSmithKline, Swiss firm Roche, French group Sanofi-Aventis, and American Baxter International. However, “it will be at least six months before a vaccine is available,” the broker said, adding that global cooperation would cease if flu took hold and protectionism would come into play in an attempt to contain the virus, which would mean local manufacturers producing drugs only for the local market.
Panmure Gordon analysts Savvas Neophytou and Damian McNeela said in a note on GlaxoSmithKline this morning that with some WHO officials having called the outbreak a “potential pandemic,” the anti-viral Relenza drug should obviously benefit but it is the vaccine business that can be transforming for GlaxoSmithKline if any of its vaccines are able to stop the spread of this flu.
“That being said, the global damage to the economy from a flu pandemic should also adversely affect all pharmaceutical companies,” the broker said, “so we are cautious about our reaction to this news.”
Panmure Gordon said it remains Buyers of GlaxoSmithKline but continues to prefer AstraZeneca.
In addition to the more obvious macro effects of a potential pandemic on economic productivitiy and the micro effects on pharmaceuticals, travel and tourism companies, we could also see signs of a knock-on effect on, for example, meat producers. “Although you can’t catch flu from eating pork, as happened with the avian flu scare consumers may well avoid it through fear and ignorance,” FinnCap analysts said, noting that if this were to happen it could create a buying opportunity for investors to get their teeth into mid-cap food producer Cranswick, while sausage-casing company Devro and meat-packing group Hilton Food Group could also see their share prices eaten away at. All three stocks were trading in the red at last check.
