2 Healthcare Stocks To Watch In The Vaccine Market

Sep.28.12 | About: Sanofi (SNY)

Tourists from Europe and North America are often advised to seek adequate protection against tropical diseases such as malaria, dengue, tuberculosis and chikungunya. While there are vaccines and precautionary methods to ward off some tropical diseases, dengue and malaria do not have vaccines that are effective. The only precaution that tourists and locals alike can take is to make sure that they don't let dengue or malaria carrying mosquitoes bite them. That is next to impossible, as a mosquito repellent will still not ensure that every species of mosquito is repelled. What results is that we continue to see a number of people getting sick after being infected with dengue or malaria, and some even succumb to it.

It is important to note that though malaria and dengue are both caused by mosquito bites, they are two different infections. While both the infections cause high fevers, chills and nausea, dengue is known for its characteristic muscle and bone pains. Dengue is also known by the term 'breakbone fever' because of the excruciating muscular and joint pains that the infected individual experiences. It is important to note that an infection of either malaria or dengue is diagnosed after conducting blood tests, and at the moment both the infections are present in tropical and subtropical regions.

Dengue is thought to be endemic in more than 100 countries in the world. The most affected continents are South America, Asia, and Africa. Typical symptoms of dengue include headache, muscle and joint pains, and fever. The infected person quickly develops rashes that may resemble measles. Some people may even experience dengue hemorrhagic fever, which can be fatal. Patients usually complain of symptoms like dehydration, tiredness and lethargy, which may get worse drastically if not treated immediately. Dengue can sometimes be fatal, especially if the patient is not healthy or is very old. Thus, treating dengue in time is crucial for a patient's survival.

Malaria on the other hand can cause convulsions, coma and retinal damage along with symptoms associated with dengue. Malaria is also more lethal and can cause severe liver damage and renal failure. Malaria is closely linked to stagnant water and unhygienic conditions where mosquitoes thrive. Africa, India and Thailand are hotbeds of malaria infections and it is extremely important for visitors to use mosquito repellents as much as possible when they visit these countries.

Sanofi (NYSE:SNY) is at the forefront of dengue vaccine research and has remained ahead in the race towards developing an effective preventive cure. GlaxoSmithKline (NYSE:GSK) has been working on developing a vaccine for malaria. GlaxoSmithKline's malaria vaccine, also known as RTS,S, is expected to be introduced by 2015 and will offer 56% protection against malaria. When released, Sanofi's dengue vaccine, ChimeriVax, and GlaxoSmithKline's malaria vaccine, the RTS,S malaria vaccine candidate, will help people to fight mosquito-borne diseases that are endemic to particular parts of the world.

Sanofi has invested several millions of dollars in the quest to discover an effective and safe vaccine that prevents all strains of dengue from infecting humans. The vaccine was first tested in rural Thailand, where dengue is endemic. The trials were conducted by Mahidol University of Thailand and Sanofi, and the subjects included 4,000 children between the ages of 4 and 11. The vaccine proved to be effective for 3 of the four types of dengue virus. It failed to protect children against serotype 2. Moreover, the vaccine was found to be less effective in preventing serotype 1 as compared with serotypes 3 and 4.

But there is hope. Despite the initial setbacks, industry experts said the ChimeriVax vaccine is still well ahead of its rivals in terms of development, and should still have a first mover advantage. Sanofi is now focusing its attention on the results of its ongoing phase III trials. A commercial launch of the product is expected in 2015 or later. If the vaccine is successful in preventing dengue outbreaks, Sanofi will make billions of dollars by selling it to governments, NGOs and organizations in tropical countries across the world. Sanofi's vaccine for dengue is the farthest in terms of scientific effectiveness and researchers believe there is ample scope to develop a better vaccine using the same protocols that Sanofi has been using at the moment. While the preventive vaccine against dengue will be pushed a few months or years away, success will still be in the hands of Sanofi and not with other pharmaceutical giants.

From an investment point of view, this presents Sanofi in a favorable light and will ensure that its business remains relevant in the long run. There may be short-term fluctuations that may affect Sanofi's fundamentals negatively. However, in the long run the company will not only be able to develop a vaccine to prevent dengue, but it will also be able to ensure that the vaccine is safe and without harmful side effects.

Similarly, GlaxoSmithKline's malaria vaccine RTS,S is expected to be available by 2015. Initial results from a phase 3 trial in 2011 show RTS,S cuts the risk of malaria in half in African children between the ages of 5 and 17 months. Additional information about the long-term benefits of the vaccine are expected to be released by the end of 2014. I urge investors to consider buying both Sanofi and GlaxoSmithKline, as they both are working on profoundly important vaccines at the moment.

When it comes to competitors, Pfizer (NYSE:PFE) is working on a vaccine that will target meningococcal serogroup B disease. This vaccine will help in preventing meningitis, also known as brain fever in some countries. Another vaccine is being developed for hospital-acquired infections related to Staphylococcus aureus. Among transplant patients, cytomegalovirus (CMV) reactivation is a huge risk and Abbott (NYSE:ABT) is working on a vaccine that aims at preventing it. Just a few weeks ago, Abbott announced that it has signed an agreement with Astellas Pharma Global Development to collaborate in a Phase III trial for ASP113. If successful, this vaccine is expected to become Abbott's cash cow.

Merck (NYSE:MRK) already has a number of vaccines that seek to prevent influenza, measles, mumps, Hepatitis A, Hepatitis B and Rubella. It is working on newer ones and some have already reached Phase III clinical trials. While the malaria and dengue vaccines are complementary to each other, GlaxoSmithKline and Sanofi remain competitors because of continued interest in purchasing the outperforming U.S. group BioMarin (NASDAQ:BMRN). Back in June, Guardian reported that GlaxoSmithKline and Sanofi directly compete with each other in trying to purchase BioMarin, which is valued at $7 billion.

It is only a matter of time before Sanofi will be able to develop a vaccine for dengue that targets all the 4 serotypes and GlaxoSmithKline for malaria. When that happens, both Sanofi and GlaxoSmithKline will make a lot of money selling them to people in tropical and subtropical countries. There may be fluctuations in the short term but both Sanofi and GlaxoSmithKline look good from a long-term perspective.

At the moment, Sanofi is trading around $43 and has a market cap of $114 billion. The company's enterprise value is $129 billion and it is doing pretty well for itself. With a profit margin of 18% and an operating margin of 12%, Sanofi is one of the more stable stocks to invest in. The company had a gross profit of $31 billion, which is impressive for a pharmaceutical company. With a total cash of $6 billion and a total debt of $21 billion, I would be a little worried about Sanofi's liabilities. Nonetheless, it has an operating cash flow of $12.5 billion and a levered free cash flow of $10.5 billion.

GlaxoSmithKline has a market cap of $115.51 billion and an enterprise value of $130.82 billion. With a return on assets of $12.26, GlaxoSmithKline is a great stock to invest in. The company has a total cash of $12.33 billion and a total debt of $27.99 billion, which is more than Sanofi's. Their operating cash flow trails behind Sanofi's at $10.92 billion. With these numbers in mind, Sanofi looks appealing, but when we consider the dengue and malaria vaccines, both the stocks are great decisions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.