GlaxoSmithKline’s (NYSE:GSK) Ship Comes In

One drugmaker has figured out how to pull down $2.52 billion over the next six months off a single disease – here’s how to get your piece of the action.

It could easily have been a headline from the 19th century. “Plague Ship Docks at Marseille: The arrival of the Norwegian flagged “Voyager of the Seas” caused much concern today, as 60 of its crew were found to be suffering from the new influenza virus that is spreading rapidly in Europe, Asia and the Americas. An additional 60 crew members are thought to be showing nascent symptoms of the potentially fatal disease.”

Problem is, this is no historical episode. Last Friday afternoon, when the Royal Caribbean Lines cruise ship destined for Marseille arrived dockside at Villefranche, French officials in masks and gloves scurried aboard and quarantined the entire 1,500-member crew.

Currently, France has some 1,000 confirmed cases of the H1N1 “Swine Flu” virus, and has just reported its first fatality – a 14-year old girl in Brest. This doesn’t hold a candle to the U.S., where we now have over a million confirmed cases and just added two more fatalities – two new mothers in the San Francisco Bay area – to the 305 U.S. H1N1 deaths reported as of July 29.
Women and Children First!

Because 6% of the reported H1N1 fatalities have been pregnant women, the U.S. Center for Disease Control (CDC) has advised that all pregnant women be moved to the head of the list when the new vaccine is available come September.

There are, however, several hitches in that plan.

It is proving to be somewhat difficult to manufacture the H1N1 vaccine at any great rate. The virus, which has proven so readily viable in humans, turns out to be a slow mover in the only practical growth medium, chicken eggs.
Not Quite Good Enough

There are several ingredients known to come in handy for stretching limited supplies of a vaccine: oil and water concoctions. These ingredients, known as adjuvants, work by stimulating and accelerating the human immune system’s reaction to infectious material.

Unfortunately, such adjuvants have not been approved by the Food and Drug Administration (FDA) for use here in the States. While U.S. authorities are buying up stocks of adjuvants just in case, it does not appear that such approval will be forthcoming prior to this fall, when another wave of infections is expected.

According to the venerable British medical journal The Lancet, the World Health Organization (WHO) has asked all players to deploy adjuvants so as to boost global supplies. The Lancet further reports that U.S. reticence to expand projected supplies of vaccine has European health officials’ knickers in quite the knot.
The Payoff for Paranoia…

The extremely forward-looking Swiss are an exception, of course, as they charted their own way through this mess ages ago.

In 2006, Switzerland signed a deal with vaccine maker GlaxoSmithKline (NYSE: GSK) to insure that, in the event of a pandemic, it would be in the “First Wave” – a group of 10 countries that will receive their vaccine months ahead of the rest of the world.

Speaking of GSK (and regular readers probably knew I would eventually), it is turning itself into a one-stop shop for doctors’ influenza-related needs.

Not only is it one of the few outfits ginning up the very limited supply of vaccine, its Relenza is one of the only two proven flu remediation drugs currently available to the public. And just to dot the “i,” GSK is introducing this fall’s newest hot fashion accessory: a line of flu-shielding masks.
… And the 523% Payoff for Being Prepared

When the analysts totted it all up, they slated GSK to bring in some $2.53 billion in H1N1-linked revenue over the next six months. (GSKStock Charts and Research Links: 38.98, -0.04 ) shares have already gained more than 42% since a decadal low last March, a rise that has pushed the options I recommended to WOW readers back in April to gains of 165%.

I anticipate GSK more than doubling (at the very least) before the dust settles. That additional increase in shares could push a carefully selected option purchased today to gains as high as 432%.

And before you say that gains like that are unreasonably speculative, I should like to point out that WOW readers’ Ford calls crested 523% last week.


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