Birds of a Feather

Images of crowded Asian marketplaces lined with feather-filled cages are paired with voiceovers somberly telling us an outbreak could kill millions. New ideas, strategies and contracts have come out of the United Nations, the World Bank and the White House, along with panels of talking heads to weigh in on their effectiveness. On some days, the threat of a bird flu pandemic garners more media attention than the Iraq war. Indeed, so loud is the town crier of avian flu that satirical news programs like "The Daily Show" have run their own mock stories to keep pace. It's enough to send a turkey scrambling for the oven, his goose all but cooked.

But before you swear off McNuggets, take a look at some of the raw numbers. Thus far, avian flu has killed 60 or so people in Asia. In contrast, roughly 36,000 people die every year from run-of-the-mill influenza in the U.S., according to the Centers for Disease Control and Prevention. Moreover, the strain of bird flu that has garnered the most attention, H5N1, is believed to be transmissible only through birds, limiting the potential reach of an outbreak.

All bets are off, however, if the virus mutates into a form that would allow it to spread from one human to another. In that scenario, scientists agree that H5N1, with its mortality rate of roughly 50%, has the potential to cause substantial damage — in dollars and lives. That puts flu vaccine companies in a tight spot. While it's unclear whether we'll ever need an avian flu vaccine, we would certainly like to have one on hand just in case. Without the mutated virus to study, though, companies are forced to hunt for a solution to a problem they don't yet fully understand.

Of course, that doesn't mean those companies aren't trying. Drug developers around the world are exploring potential treatments, and the one that ultimately brings the most effective one to market could score a financial windfall. Not that any investor wants a pandemic, but preventing a global disaster could prove lucrative for shareholders. Here's a look at some of the major players in avian flu:

Roche Holdings
This Swiss pharmaceutical giant makes Tamiflu, which is widely acknowledged as the best weapon on the market today to combat the avian flu. However, Roche Holdings had been chastised by world governments and Gilead Sciences (GILD), the developer of the drug with whom Roche has a revenue-sharing agreement, for not being able to meet a potential pandemic-level demand. "Roche has been really blasted lately for its inability to ramp up capacity," says Thomas Shrader, an analyst with the New York investment bank Harris Nesbitt, "but in all fairness, capacity has always been way over use. It's not like anyone's guaranteeing they're going to sell X number of doses. Pandemic planning is tough stuff." (Shrader doesn't own shares of Roche; Harris Nesbitt doesn't have an investment-banking relationship with the company.)

Roche responded to the criticism by devising a plan to boost production to 300 million treatments by 2007. More troubling could be a development in Japan. Earlier this month, Tamiflu was linked to the deaths of 12 children there, but the Food and Drug Administration said Friday that it found no evidence of a causal relationship and declared Tamiflu as safe as ever. The bottom line: If a bird flu pandemic were to strike tomorrow, Roche executives and investors would be able to afford plenty of chicken soup.

Chiron
After struggling to meet demand in the U.S. for its standard flu vaccine Fluvirin in 2004, Chiron (CHIR) received a $62 million government contract last month to manufacture a vaccine against the avian flu. The agreement, albeit relatively small considering Chiron posted $480 million in total revenues for the third quarter, represents a large vote of confidence in the Emeryville, Calif., company's vaccine maker. In fact, Chiron has become such a big name in the vaccine business that Novartis (NVS) is now in the process of acquiring the company. Which brings us to...

Novartis
Not to be stuck on the sidelines, Novartis, also based in Switzerland, announced on Halloween that it would purchase roughly 113 million Chiron shares, or 58% of the company, for $5.1 billion, or $45 a share. Novartis says it expects the global vaccine business to double to more than $20 billion by 2009 from $9.6 billion last year. By spinning Chiron's vaccine unit into a new division, Novartis could generate fewer management hiccups as the new conglomerate develops its bird flu vaccine, re-establishes its credibility and positions itself to go after global contracts.

Sanofi-Aventis
The Paris-based conglomerate might be considered the most established of the vaccine companies. Sanofi Pasteur, which is a joint venture between Sanofi-Aventis (SNY) and Merck (MRK), is the world's largest supplier of flu vaccine. The company plans to provide about 60 million doses of Fluzone this season. Like all major companies in the space, Sanofi's flu vaccine manufacturing process occurs in chicken eggs, but the company is working on a cell-based vaccine manufacturing process, which could substantially speed up manufacturing. If that cell-based process could be applied to a bird flu vaccine, the added speed in production could potentially save millions of lives. "You can turn [a vaccine] around quicker once you have a strain in hand, and it's more scalable than eggs," says Alexander Hittle, an analyst with A.G. Edwards & Sons. That could make Sanofi a strong player in bird flu down the road. (Hittle doesn't own stock in Sanofi; A.G. Edwards & Sons doesn't have an investment-banking relationship with the company.)

MedImmune
This Gaithersburg, Md., company also makes a nonavian flu vaccine called FluMist, which unlike a traditional flu shot is delivered as a nasal spray. In September, MedImmune (MEDI) announced it would collaborate with the National Institute of Allergy and Infectious Diseases to develop a new nasal vaccine against several potentially pandemic flu strains, including the avian strain H5N1. The company believes that the nasal delivery will help speed up vaccinations in the event of a pandemic.

However, some health industry analysts are concerned that the new spray, like the original, would include live, albeit genetically weakened, flu virus that in theory could infect people with the very disease that they're being vaccinated against. "It's a good technology," says Shrader, "but the theoretical problem has plagued them nonetheless in pandemic cases." There have been no documented cases of people developing the flu from FluMist, he added, but the potential downside of such an occurrence with avian flu is more substantial. (Shrader doesn't own shares of MedImmune; Harris Nesbitt doesn't have an investment-banking relationship with the company.)

GlaxoSmithKline
The U.K.-based pharmaceuticals giant markets Relenza, an inhaled influenza treatment that has been shown to work against avian flu. Relenza, which was developed by Biota, an Australian company, isn't a prophylactic treatment. Rather, it's typically taken shortly after flu-like symptoms show up. In August, GlaxoSmithKline (GSK) received approval from the FDA to market its own flu vaccine Fluarix in the U.S. And just a week later, Glaxo announced its plans to purchase Canada's ID Biomedical (IDBE), the largest flu vaccine supplier north of the border with its injectable Fluviral. Neither Fluarix nor Fluviral has shown to be effective against bird flu, but the flurry of activity suggests Glaxo is looking to become more active in the space.