A 90% Cure Rate For the Flu at 4X Earnings
March 15, 2010
By Michael Murphy, Editor, New World Investor
Michael Murphy
As editor of New World Investor, Michael is one of the nation's leading experts in exciting technology industries. He began his career in the industry's infancy, first as COBOL programmer and mainframe systems analyst, then as the technology stock analyst for American Express in 1970, and later as the CEO of two software companies.
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Every year, seasonal flu puts about 200,000 Americans in the hospital and kills 36,000 of them, mostly the elderly. Worldwide, the numbers are more than triple the U.S. statistics -- and that's not even counting the swine flu deaths now that this strain is sweeping the globe. With this illness causing so much trouble around the globe, it's no wonder that biotech stocks are racing for a cure.
The swine flu, H1N1, was less than half as deadly in the flu season now ending, killing perhaps 11,000 people in the U.S. and double or triple that worldwide -- the final count won't be known for months. But instead of the elderly, it preferentially attacked young adults and children. It also did not follow the usual flu pattern of getting worse as the weather got colder. The swine flu pandemic started early in Mexico, kicking off last spring, No one knows what will happen this year.
For the sickest patients that wind up in the Intensive Care Unit, the Food & Drug Administration gave emergency use authorization (EUA) under the Bioterrorism Act to use Tamiflu, a five-day antiviral pill treatment, or Relenza, an inhaled antiviral. They also went to BioCryst Pharmaceuticals (BCRX) last March to request data for an emergency use authorization of peramivir, an intravenous antiviral that is in clinical trials funded by Health & Human Services. When a flu patient is sick enough to be admitted to the ICU, they often can't take an inhaled drug, and they might not have five days to build up a drug load in their bloodstream. Intravenous administration of drugs is standard procedure in the ICU, where lives hang in the balance.
In mid-June, the FDA decided peramivir was safe and likely to be effective. But instead of issuing an EUA, they issued an Emergency IND (Investigational New Drug). Doctors had to apply on a case-by-case basis to get the drug. BioCryst was not allowed to tell doctors the drug was available, and the Centers for Disease Control did not change their antiviral guidelines to mention the drug. It was not until mid-October that the EUA was granted. In the interim, only 32 patients were treated with peramivir, all at death's door. They ranged from three months to 80 years old, including some pregnant women. Twenty-nine of them survived and walked out of the hospital, a remarkable 90% cure rate. Sadly, during the four months between the E-IND and EUA, several thousand Americans died, mostly young people and children.
After the FDA granted the EUA, the Centers for Disease Control still did not allow peramivir to be stocked in hospitals, and made doctors apply for it on a case-by-case basis. They bought 10,000 courses of treatment (five days of doses) for the National Stockpile, but still did not let BioCryst educate doctors or talk about the 90% cure rate. They did change their antiviral guidelines to admit peramivir exists, but surrounded it with enough cautions and incorrect advice to scare off many doctors. During the rest of the epidemic in the U.S., only about 1,100 patients were treated with peramivir, again all at death's door. Over 1,000 survived, again a 90% or better cure rate.
Peramivir was been approved in Japan in January for seasonal flu, as Shionogi Pharmaceuticals, BioCryst's partner, fast-tracked it through Phase III trials and the Japanese FDA approved it in a record 2 ½ months. BioCryst receives milestone payments and 10% to 20% royalties on Shionogi's sales in Japan and Taiwan. Green Cross, BioCryst's partner in Korea, should get their FDA approval shortly.
In the U.S., peramivir is in two Phase III trials now for seasonal flu, which will conclude after the 2010-2011 flu season ends. The drug also works against bird flu, H1N5, which is still circulating in Asia and the Middle East, as well as the deadly swine flu mutation that recently killed so many people in Ukraine. It is available now for purchase by other countries, and small amounts have been sold to Australia, Mexico and Israel. Brazil and China will probably be the next countries to order it, at approximately $2,250 for a course of treatment. With one day in the ICU costing around $30,000, peramivir saves money as well as lives.
Morgan Stanley (MS), BioCryst's investment banker, has the highest earnings estimate on the Street at $1.80 for this year. BioCryst is a heavily shorted stock, with naked shortsellers and paid message board bashers making it difficult for investors. There have been fake "research reports" predicting a course of treatment would cost $15, and at least one brokerage firm is publishing extremely low revenue and earnings estimates to keep the average consensus estimate at a low level. But I think Morgan Stanley has it right, and all the pressure from the often-wrong naked shortsellers gives us the opportunity to buy a drug with a 90% cure rate for a worldwide pandemic at around 4X earnings. That's a remarkable opportunity that makes BCRX my #1 stock right now.
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