Novartis flu vaccine banned: Who wins?

The revenue in question seems too small to make a difference.

By InvestorPlace Oct 31, 2012 11:11AM

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Jeffrey Hamilton Lifesize Getty ImagesBy James Brumley

 

If Novartis (NVS) were a Looney Tunes character, what happened to it last week would be the equivalent of an anvil landing on its head. Only in this case, it's no laughing matter. Real investors lost real money and, worse, real lives may have been put at risk.

 

Sales of two of its flu vaccines -- Agrippal and Fluad -- have been halted in Spain, Canada, Switzerland, Austria, Germany, Italy and France after small particles were found to have developed in some of the vaccine’s vials the company had in its possession.


Still, while it’s a high-profile mistake, the impact of the alleged stumble may be far smaller than the market has assumed. Let's take a further look.

 

The foul-up(s)

Having one of your products banned in one country due to safety concerns is never a good thing. Having one of your products banned in seven countries (with perhaps more on the way) can be downright miserable.


According to the company, during a routine pre-release quality analysis of Agrippal and Fluad, Novartis observed visible protein aggregates in one batch, and immediately held the distribution of the batch in question. Novartis conducted an internal investigation and shared its assessment, which supports the quality and safety of the vaccines, with the Italian Medicines Agency (AIFA). At that time, Italy’s governing body became the first to halt use of the vaccine pending further review.


If this seems a little familiar, that's because Novartis AG is the same company that was forced to stop production of its migraine medicine Excedrin for a while in the middle of the year when quality concerns were raised. The company also froze production of one its pet products as well as an athlete’s foot therapy -- also thanks to quality issues.


It was the two troubled flu vaccines, however, that put the kibosh on the stock last week, knocking 4% off its value after news of the bans started to come out.


It’s all academic at this point, though. What investors really want to know, now that the damage is done, is how much Novartis loses -- and who wins.

 

Now what?

Believe it or not, Novartis’ entire vaccine library only generates about 5% of its annual sales. That’s “only” $2.8 billion of the $57.5 billion in revenue the pharmaceutical maker has generated through the past four quarters. And only about a quarter of its vaccine revenue stems from flu shots, so there’s only $718 million in jeopardy with the ban on Agrippal and Fluad in effect. Point being, the fiscal risk here is actually pretty small; the company’s reputation is in more jeopardy.


Still, that’s $718 million up for grabs. Who’s waiting in the wings to win that business?

 

Potential winners

The Favorite: Europe isn't necessarily aiming to be protectionist, but it makes sense that the region would fill Novartis’ shoes with another local pharma manufacturer. That puts Sanofi (SNY) and GlaxoSmithKline (GSK) at the top of the list.

French corporation Sanofi makes an almost confusing number of influenza vaccines, including Intanza (IDflu), Panenza, Humenza, Fluzone and Vaxigrip (Mutagrip), with each aimed at a slightly different scenario based on age and need. UK-based GlaxoSmithKline makes the popular Fluarix vaccine.


Contenders: While European manufacturers have the inside track, that’s not to say an American company can’t squeeze its way in. Indeed, depending on the demand and perceived need for a flu vaccine this year, the medical community (and governing bodies) may welcome any and all sources for flu shots. That puts Baxter International's (BAX) Preflucel in the mix, as well as Merck (MRK).


Sure, Merck isn’t exactly the first name you think of when you think of flu shots, but they’re in the game as a distributor of Afluria -- made by CSL Biotherapies, a subsidiary of CSL Limited (CSL). Most investors may not realize it, but CSL is actually one of the biggest flu vaccine manufacturers in the world. It just doesn’t market much of anything under its own name.


A Dark Horse: While CSL Limited is one of the more compelling ways to play Novartis’ stumble, it’s also only available via the Australian stock exchange, and therefore may be out of reach for some investors. The next-best way to tip-toe into the influence vaccine market may be through AstraZeneca (AZN).


Like Merck, AstraZeneca isn’t exactly a high-profile name in the flu vaccine world. Its Medimmune subsidiary makes the FluMist spray vaccine, however, which was approved for sale in Europe last year.

 

The last word

While these are all tempting picks, capitalizing on a company’s mistake by buying shares of another company may not be worth the trouble in this case. It’s very likely the five companies or partnerships discussed here could simply split the $718 million that Novartis AG doesn’t look like it will be able to earn this flu season. That isn’t a big amount to begin with and it won’t even be a drop in the bucket if it’s split between the five names in the global flu vaccine race.


UPDATE: At the time this story was published, seven countries had halted use of two Novartis AG flu vaccines. Since then, Canada and Switzerland have lifted those bans.

 

As of this writing, James Brumley did not own a position in any of the aforementioned securities.

 

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17Comments
Oct 31, 2012 3:42PM
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Flu shots are nothing more than big pharm trying to make more money, unless you are a sickly child or elderly stay away from them! Step away from the Kool-Aid, people!
Oct 31, 2012 3:27PM
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Best way to avoid the Flu is not to inject it in you on purpose! Every year my family and friends who get the shot end up with the Flu. Diet, vitamins, and stay away from the virus works best.
Oct 31, 2012 1:19PM
Oct 31, 2012 4:53PM
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I just can't believe how many people are (upset) over a flu shot, yes you can still get the flu, it only has so many variations in it. Does your (upset) also apply to tetanus shots, where you could die from lockjaw? or polio shots, my uncle had polio, not a bad case but left with a limp and some wound up in iron lungs, no more thanks to polio vaccine. And for some who say they got shot and got the flu, it takes a couple of weeks for shot to work up in system, so you could've came in contact with flu virus a couple of days before you got the shot. You (cannot) get the flu from a flu shot and yes the stores etc who give do like to make money, it's called business.
Oct 31, 2012 4:14PM
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Never once had the flu, and never once taken a flu shot.... I'll stick to my body's great defense, til I'm old and weak at least
Oct 31, 2012 12:55PM
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Looks like 100 million in Insider stock of FB was "disposed off" on 10/26 before the rank and file got to sell theirs.

How does that feel to you rank and file FB employees ?
Oct 31, 2012 1:43PM
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did anyone get a shot of this?I got my flu shot and was sick for 1 week after...........

 

Oct 31, 2012 6:12PM
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Get some facts before you pretend to have medical knowledge and text your biases. The flu vaccine isn't perfect, but it prevents a lot of flu cases, and it is inactivated (except for FluMist, which you shouldn't be taking if you are an adult), so it does not cause influenza infection. If you think you got the flu from the vaccine, you are incorrect. A certain number fo viruses are active in the autumn when we get flu vaccine, so *someone* is bound to get a cold after the get the vaccine. What else did you do 4 days before you got the vaccine? Go to the mall? Maybe that's why you got sick.
Oct 31, 2012 5:10PM
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I received a flue shot on October 15th, 2012, and became sick four days later. I haven`t had the flue or a cold for many, many, years, in fact was just saying that before I had the Flue Shot. NEVER AGAIN.
Oct 31, 2012 4:41PM
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This is the biggest scam in History - So you get a shot to protect you from the Flu 2 years in the past ? This is borderline insanity. Not to mention it unessarily lowers your immunity and puts you at risk for Gulliam Barre Syndrome - Put my mother in a wheel chair for 25 years & she died this year !

 

My family stays away from Flu shots - too much risk for nothing !

Nov 3, 2012 12:32AM
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This story is all about winners, and losers in money.

How much is enough?

Like Trump & Mitt, there is never enough.

 

Nothing said about those that may have been injured from this injection.

Both my wife and I had a double dose because of our age, we were told.

Been taking it for years, and have had no side effects except for a sore arm for a few days. 

Oct 31, 2012 2:38PM
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best way to get the flu is to get a flu shot
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