Biotech is an especially tricky case.
luskinreport.com
In one sense, biotechnology will be one of the least affected sectors of the economy. Cures for cancer never go out of style, and war or no war, people are still going to go to the doctor for the latest medicines. I expect the non-cyclical nature of the biotech industry will cause it to outperform other technology sectors over the next few months. The passive way to position your portfolio for the new paradigm is just to buy more biotech, thinking of it as "defensive growth."
But we can do better than that. One of our government’s greatest concerns is that the next terrorist attack will use biological or chemical weapons. We already know that the bad guys have these weapons – heck, you could order small amounts of Anthrax through the mail until a few years ago – and recent technological advances have given them the means to use them.
We’re doing our best to prevent such an attack – grounding crop dusters, cracking down on illegal haz-mat truckers, etc. – but there’s always a chance that a terrorist will slip through the cracks. In preparation for that possibility, the government is stockpiling massive quantities of vaccines and antibiotics to deal with the aftermath. The companies that produce these products stand to benefit tremendously.
Bioreliance (BREL) and Acambis (ACAM)
Smallpox is one of the more dangerous weapons in the bioterrorist’s arsenal. Yesterday Don wrote about the role Abgenix could play in the defense against smallpox. Here are two more ideas.
Why is smallpox a threat in the first place, when public health efforts to vaccinate the world against smallpox during the twentieth century were so successful that the disease all-but vanished from the earth? In theory, the disease is eradicated “in the wild”: it is only supposed to exist in select government laboratories. So we stopped vaccinating people against smallpox, since almost no one came into contact with this "heirloom virus." It was a major victory for public health.
Unfortunately, the government now believes that terrorist groups may be harboring copies of the smallpox virus. With our population unvaccinated, the release of these viruses in a major American city would quickly create an epidemic -- smallpox spreads like crazy, and has a 30% mortality rate.
One year ago, concerned with just this possibility, the Centers for Disease Control awarded a 20-year, $343 million contract to two biotech companies -- Acambus and Bioreliance -- to stockpile 40 million doses of the smallpox vaccine. Acambus is in charge of designing the new vaccine, and Bioreliance is in charge of making it.
The first batch of the vaccine was supposed to be ready in mid-2004. But following the attacks on September 11, the CDC has “convinced” the two companies to accelerate their programs. The vaccines should now be ready “in quantity” by the middle of next year.
That acceleration should simultaneously accelerate the recognition of revenue from the contract. Moreover, I wouldn’t be surprised to see the CDC up the number of doses called for in the contract: if the terrorists can coordinate simultaneous air attacks on New York and Washington DC, they can coordinate much less sophisticated biological attacks on a number of cities. I wouldn’t be surprised to see other countries follow the US lead in preparing for a smallpox attack.
Bayer
Of all the weapons in the bioterrorist’s arsenal, Anthrax is probably the most immediate threat. Unlike smallpox, which (in theory) exists only in a few select academic laboratories, anthrax is relatively easy to find. For example, Aum Shinrikyo, the religious sect that released sarin gas into the subways of Tokyo, had an anthrax weapons program.
An anthrax attack would be devastating. A 1970 study by the World Health Organization estimated that an anthrax attack on a city of 5 million people would take 100,000 lives.
To respond to the anthrax threat, the US is stockpiling massive quantities of antibiotics at strategic locations. The best drug to treat anthrax is Cipro (ciproflaxin), and Bayer manufactures it. In light of the uptick in the terrorist threat, I suspect that Bayer is making all the Cipro it can right now. (Note: Bayer has plenty of internal problems, and an uptick in demand may not be enough to offset those difficulties.)
Cubist and Gilead
Along with Cipro, the government is stockpiling enormous quantities of broad-spectrum antibiotics. These antibiotics – like penicillin – work against most bacteria, and would be useful in treating most biological attacks. Unfortunately, over the past twenty years, the over-prescription of antibiotic drugs has lead to the development of antibiotic-resistant strains of disease. A savvy terrorist – whether he wanted to use anthrax or tularemia or any other agent – would use a strain that’s resistant to conventional antibiotics. That’s where Cubist and Gilead come in.
Cidecin, an experimental drug being developed by Cubist Pharmaceuticals , is the best of a new wave of antibiotics that fight antibiotic-resistant bacteria. Unlike conventional antibiotics, which merely constrain the growth of a bacterial infection, Cidecin actively kills the bacteria, making it more difficult for resistant strains to develop. I have no reason to believe that the Department of Defense is stockpiling Cidecin, but I know that I were them, I’d be buying it in size.
Cubist holds the rights to market Cidecin in the United States, and they have licensed the rights to market the drug in Europe to Gilead. |
