There was a time within the past couple of years that it seemed you couldn't open a major newspaper or watch a TV news program without seeing a story about the bird flu and Tamiflu--the antiviral medicine from Roche and Gilead Sciences . GILD invented the drug and later sold rights to Roche which pays GILD a royalty on sales.
The capsules are taken to fight off the seasonal flu and if swallowed soon enough they may also combat certain strains of the bird flu. That led governments and companies across the globe to stockpile Tamiflu for distribution in case of a flu pandemic. But, knock on wood, that has not yet come to pass. Unfortunately for investors in Gilead, though, the die-down of media coverage about an allegedly looming pandemic flu has hurt the once-skyrocketing Tamiflu sales and hence, GILD's bottom line.
In the wake of the Swiss drugmaker Roche (it only trades over-the-counter in the U.S., but the company owns a majority stake in Genentech ) reporting that Tamiflu revenue plummeted 60% in the third quarter, Bernstein analyst Geoffrey Porges is out with a research note to clients this morning titled, "The End of Pandemic Profits? Roche Tamiflu Royalties Below Expectations; Lowering GILD EPS (earnings per share) Estimates."
Porges says the drop in Tamiflu stockpiling is sooner and deeper than he'd expected. And there's no light at the end of the tunnel. "The decline is likely to continue indefinitely, as we see no sign that concern about the pandemic threat is re-accelerating..," he writes. A part of Bernstein owns at least one percent of GILD shares and the firm makes a market in the stock.
Porges is cutting his Tamiflu revenue forecasts through 2009 by 25-30% which he says "has a significant effect on Gilead's revenue and earnings outlook." The Tamiflu sales decline has a direct impact on Gilead's bottom line because the company doesn't have to spend anything to get that revenue--it's all gravy.
So, through 2011, Porges is slicing between two cents and five cents a year off his EPS estimates. He also notes that if companies like GlaxoSmithKline,Sanofi-Aventis,Novartis and Crucell, continue to have success developing safe and effective pandemic flu vaccines that it "would reduce the importance of Tamiflu stockpiles."
But, I think Tamiflu fever could quickly break out all over again if or when a confirmed case of bird flu--either in bird, fowl or human--arrives on this continent and the media frenzy erupts. You can track the virus at www.pandemicflu.gov. GSK also makes an inhalable flu antiviral, Relenza and BioCryst Pharmaceuticals is trying to develop an injectable one.
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