Glaxo Avian Flu Vaccine: Gilead and Sanofi-Aventis Lose?

Includes: GILD, GSK, SNY
by: David Jackson

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

Glaxo Announces Breakthrough On Bird-Flu Vaccine; Net Rises

  • Summary: GlaxoSmithKline PLC announced its Q2 results and that it has produced an effective bird flu vaccine for humans. Glaxo's clinical trial of 400 people used a vaccine with a low level of active ingredient, or antigen, yet produced a strong immune response against the H5N1 virus in 80% of those who received it. Questions remain about how Glaxo will manufacture the vaccine in quantity and how effective an H5N1 vaccine will be if the virus mutates into a pandemic strain. But Glaxo CEO Jean-Pierre Garnier is beginning to speak with governements and plans to approach the Bill & Melinda Gates Foundation about providing it to poorer countries. Glaxo plans to charge £4 to £7 a shot, about the same as for a seasonal flu vaccine. Separately, Glaxo announced that Q2 revenue rose 11% to £5.81 billion and profit rose 14% to £1.32 billion ($2.43 billion), and raised its full year EPS growth guidance to 12% from the prior guidance of 10%. Deutche Bank estimates that the H5N1 vaccine could generate potential sales of $2 billion.
  • Comment on related stocks/ETFs: Glaxo's stock, which trades in the US as an ADR (NYSE:GSK), fell slightly after the company reported results as analysts were expecting stronger guidance. But if the DB analyst is right and the H5N1 vaccine could generate $2 billion in sales, that's a significant percentage boost to Glaxo's potential revenue. Glaxo's development of an effective H5N1 vaccine should also impact other pharma stocks that have run up on potential sales of Avian flu treatments. Potential shorts include Gilead Sciences (NASDAQ:GILD), which partners with Roche to produce and distribute Tamiflu, and Sanofi-Aventis (NYSE:SNY) which has been developing a competiting H5N1 vaccine. According to the WSJ article, "Two doses of Glaxo's vaccine, each containing 3.8 micrograms of antigen, achieved the 80% protection rate. By contrast, Sanofi-Aventis SA earlier this year said two doses of its vaccine, each containing 7.5 micrograms of antigen, achieved a 40% protection rate." The successful development of an H5N1 vaccine may also lead traders to unwind "Avian flu" short positions. Seeking Alpha has a category tracking the stock implications of Avian Flu.