Flu’s Pain Is All Gain for These Companies

by Will Ashworth | January 24, 2013 9:00 am

This winter’s flu season has been deadlier than most. William Schaffner, chairman of the department of preventative medicine at Vanderbilt University’s School of Medicine in Nashville, suggests that as many as 36,000 people could die this year due to influenza. As InvestorPlace‘s Alyssa Oursler recently reported, the flu’s total economic cost[1] is somewhere around $87 billion. It’s a huge burden on society.

Less obvious are those on the other side of the coin, companies that benefit from all this sickness. From the flu shot manufacturers to those selling homemade remedies, everyone has their hands in the till.

Who they are? How do they benefit? And does it translate into significant profits? Let’s take a look.

Start with the five flu shot manufacturers — all of them publicly traded. With the exception of CSL (PINK:CMXHY[2]), which makes Afluria and trades on the Australian Stock Exchange, all can be bought on the NYSE. Of the products available, the one that stands out for me is FluMist, from AstraZeneca (NYSE:AZN[3]) subsidiary MedImmune. It allows those between the ages of 2 and 49 to receive a single spray dose in each nostril rather than a shot. If you’re not a fan of needles (I’m not), FluMist is a great alternative.

Unfortunately, the spray costs as much as $70 compared to $32 for the regular shot at CVS (NYSE:CVS[4]). The upside is it’s covered by 99% of health insurance plans that provide immunization coverage.

Flu shots on a global basis are estimated to generate $3 billion annually, or about 1% of the pharmaceutical industry’s overall sales. If you’re wondering how profitable this business is, Sanofi (NYSE:SNY[5]) opened a $150 million plant three years ago in Swiftwater, Pa., solely to produce more than 60 million flu shots annually. The U.S. Centers for Disease Control & Prevention estimate this year’s flu season will see the production of 145 million doses, suggesting Sanofi’s plant will contribute 41% of America’s vaccines in 2013.

The other flu vaccine makers are Novartis (NYSE:NVS[6]), maker of Fluvirin, and GlaxoSmithKline (NYSE:NVS[6]), maker of Fluarix and FluLaval.

Bloomberg recently pointed out that Sanofi’s flu vaccines in 2011 accounted for $1.15 billion of its $46 billion in global revenue. Assuming the U.S. market represents half its global revenue, I estimate it receives $10 per dose in revenue and $2.50 per dose in operating profit.

At the end of the day flu shots might add 10 cents per share to Sanofi’s bottom line. That’s hardly earth shattering for a company with 2012 earnings per share likely above $7. But Sanofi’s flu program also generates an incredible amount of research and information. As emerging markets grow, this can only help its business there.

Of course, people have to get the flu shot somewhere, and that creates another profit center: drugstores. Just ask Walgreen (NYSE:WAG[7]), which is the second-largest provider of flu shots in the U.S. In 2011, it administered 5.5 million shots, and this year that number will be higher.

Getting people in the store for their shot helps the pharmacy generate additional revenue. Raymond James analyst John Ransom estimates those flu shots add at least five cents in profit to Walgreen’s bottom line, through the shots themselves and in ancillary items like facial tissues. Ransom upped his rating on Walgreen shares to outperform from market perform, in part because of the intensity of this year’s flu season.

Other large pharmacy chains such as CVS  and Rite Aid (NYSE:RAD[8]) will also benefit.

Tissues and aspirin aren’t all people reach for when they’re flu-stricken. Seamless.com operates a food-ordering service in 10 major markets. Steven Young, director of marketing, says the big items his company is seeing an uptick in include chicken noodle soup, sports drinks and orange juice.

Two companies that immediately come to mind are PepsiCo (NYSE:PEP[9]), maker of both Gatorade and Tropicana, and Campbell Soup (NYSE:CPB[10]), which produce several varieties of chicken noodle soup. While I doubt the trickle down effect reaches this far, it’s interesting to speculate nonetheless.

Bottom Line

Of course, many other companies might also benefit from the annual flu season rituals. However, no one gains more than Sanofi and its vaccine-making peers. After all, not many vaccines these days are annual in nature. In fact, a number of companies are currently working on a universal flu vaccine that would eliminate the need for a yearly visit to your doctor or pharmacy. While Big Pharma won’t like it, I’m sure such a magic potion will be available some day.

As of this writing, Will Ashworth didn’t own any securities mentioned here.

Source URL: https://investorplace.com/2013/01/who-benefits-from-the-flus-economic-cost/

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