Here we go again. Though it hasn’t gotten a lot of attention yet among investors, there’s been an alarming spike this winter in a very deadly form of bird flu in China.
Only a few cases of this virus have ever been reported in North America. But this offers little comfort. That’s because this virus — already a serious killer — has morphed into more deadly forms that are easier to catch.
Plus, viruses can quickly travel and pop up in new parts of the world at any time. While a widespread outbreak is unlikely, this virus could potentially grab headlines over the next few months and spook the markets, just as various forms of bird flu have in the past.
So it’s worth taking a few steps to inoculate your portfolio now by owning some health-care stocks that would be driven higher by a new bird flu scare. Fortunately, these stocks are also worth owning anyway, for other reasons. That means you are not giving up much in terms of performance to own this insurance.
I suggest BioCryst Pharmaceuticals Inc.
and Roche Holding AG
because they produce vaccines or drugs that treat the flu, or both. You should also be watching airlines and poultry producers as potential trading stocks to buy after pullbacks because those names can get hit hard by a bird flu scare, but then rebound. Before we get to more detail on these names, here’s a look at the new strain of bird flu in China that’s alarming virus experts.
The bird flu I’m talking about, called H7N9, originally grabbed headlines in 2013 when it was first discovered in China. From the beginning, H7N9 has been relatively rare, smoldering at about 100 to 300 cases a year.
However, this flu season brought a 130% spike in the number of cases. So far this season, 460 cases have been confirmed, mostly in eastern China, compared with an average of 200 cases a season during 2013-2016.
Sure, 460 cases — in what is for most people a distant land — may not seem like a lot to be worried about. But you shouldn’t be sanguine, for the following reasons.
• This virus is really deadly. An alarming 41% of people who get it, die. “That’s really high,” says Dan Jernigan, director of the influenza division at the Centers for Disease Control and Prevention (CDC).
• This year a brand-new version of H7N9 has popped up, called the Yangtze River Delta lineage. Since it’s new, our vaccines don’t work well against it, if at all. Scientists will solve that problem soon enough.
• But some variants of the new form of this virus have changed in ways that make it much more problematic. One change makes it a lot easier for some variants to bind to the human respiratory system. This means it is a lot easier to catch.
• In some cases, H7N9 has morphed into what experts call a “high path” virus (as opposed to “low path”).This means it can spread more easily inside the body, causing more damage and killing victims much more easily.
All of these changes make H7N9 one of the riskiest viruses around.
“H7N9 is at the highest risk level of all the viruses out there because it has the ability to transmit more easily to humans and because the disease is bad,” says Jernigan. “We are concerned. It is something we want to monitor very closely.”
Just because winter is winding down and flu season is ending, doesn’t mean this virus is going away.
“Since 2013 there have been five waves and each of those waves [has] gotten progressively wider,” notes Jernigan. Last year, for example, significant numbers of cases were reported through the end of June. The unusually large number of cases this year also means it will take longer for the virus to trail off as the year progresses. Then reports will pick up again in November.
Will it spread?
Fortunately, virtually all cases so far have been confined to mainland China, chiefly in the provinces of Zhejiang, Guangdong and Jiangsu. There have been cases reported in Taiwan, Malaysia and Canada, but they happened among travelers to China. People catch H7N9 mainly from exposure to poultry — in open-air markets, for example. Human-to-human transmission is rare, and limited to caregivers or immediate family.
But viruses can move around the globe rapidly, and there’s no reason H7N9 can’t do this, too. The H5 strain of avian flu, for example, spread from China to birds and poultry in the U.S. in 2014-15. That happened after birds carrying it flew from Russia to Alaska. From there, migratory waterfowl spread it to the continental U.S. This could happen with the nasty form of H7N9 that’s currently limited to China, says Jernigan.
It’s already here … sort of
A different form of H7N9 was discovered in early March in a chicken farm in south-central Tennessee that supplies Tyson Foods Inc.
This was a “high path,” or more lethal form, of the virus, so it killed off part of the flock. The Tennessee site was quarantined and the flock was destroyed to prevent the spread of the disease.
But there’s no way to really know whether this form of H7N9 was picked up by wild birds who might be spreading it to other chicken farms. Chicken farmers use “bio-secure” facilities which supposedly isolate chickens from contact with the outside world. But obviously this technique doesn’t always work, since the Tennessee flock got infected. So no one knows whether this form of H7N9 is spreading in the U.S. right now — about to pop up, grab headlines and tank stocks.
Otherwise, what’s the potential timing of any negative catalyst?
Outbreaks can happen at any time. But the World Health Organization provides regular mid-month H7N9 updates that could be a trigger. The CDC could produce updates at any moment, if significant developments call for them.
Stocks to own as insurance
Here’s more on the stocks to consider owning as portfolio insurance against a bird flu scare:
Because this company is small and it has a drug called Rapivab (peramivir) that’s used to treat viruses, it’s one that’s most likely to move up a lot in any bird flu scare. It’s recently been bouncing higher and retreating on bird flu headlines, suggesting that it is a good trading stock on bird flu news.
Besides peramivir, BioCryst is developing galidesivir as a virus treatment. This is a broad-spectrum antiviral for use against Ebola, Zika and Marburg virus, among others.
I last suggested BioCryst in my stock letter, Brush Up on Stocks, in February 2016 when it traded for under $2 a share, and I’ve owned it since. Though the stock has moved up to around $8.70, I think it’s still a hold because of the promise in virus therapies, but also because BioCryst is developing a drug to treat a nasty, rare disease called hereditary angioedema attacks (HAE).
This rare ailment causes swelling, called edema, which can be devastating because it can restrict airways and cause death. Otherwise, it can cause severe nausea, stomach pain and vomiting.
The company’s HAE therapy works by inhibiting plasma levels of an enzyme called kallikrein. Doing so suppresses a peptide that helps cause HAE swelling. One problem is in how to effectively deliver the company’s treatment, called avoralstat. In late February, BioCryst announced “very encouraging” results with a pill form of avoralstat called BCX7353, says Bruce Zuraw, an HAE expert who is a medical school professor at the University of California, San Diego.
GlaxoSmithKline sells the flu medicine Relenza, and it also makes vaccines. So it’s the kind of company whose stock can get a bid in any bird flu scare.
But GlaxoSmithKline looks interesting for other reasons. Yes, it’s facing trouble in the form of generic competition for its top drug, Advair, a respiratory therapy that accounts for about 12% of sales. This threat may be one reason the stock looks undervalued, according to Morningstar analyst Damien Conover.
“The remaining parts of the business are on solid footing, led by new HIV drugs Tivicay and Triumeq as well as strengthening positions in vaccines and consumer products,” he says. The HIV drugs are gaining market share quickly, and they produce high profit margins.
Roche sells Tamiflu, another go-to drug for flu sufferers. So it’s likely to get attention from investors in any bird flu scare.
But Roche is more about cancer drugs than flu. Its cancer drugs Rituxan, Avastin and Herceptin produce 40% of revenue. The company just reported compelling results for its breast cancer drug, Perjeta.
Morningstar’s Karen Andersen says Roche looks undervalued, given its promising pipeline beyond Perjeta, and its thriving line of business in diagnostics.
Stocks for trades
Traders may want to take positions in stocks that fall sharply on any bird flu scares, as a bet that these stocks will rebound as the fears recede.
Stocks in this category include poultry-related names, such as Tyson Foods, Hormel Foods Corp.
Sanderson Farms Inc.
and Pilgrim’s Pride Corp.
; travel-related stocks, including Expedia Inc.
Priceline Group Inc.
Royal Caribbean Cruises Ltd.
and Carnival Corp.
; and airline stocks favored by Warren Buffet — Southwest Airlines Co.
Delta Air Lines Inc.
United Continental Holdings Inc.
and American Airlines Group Inc.
How to avoid bird flu
H7N9 and other variants of bird flu are transmitted mainly through contact with live poultry. So to avoid this horrible disease, it’s best to avoid live bird markets, backyard farms and any contact with live poultry, especially in China. You should remember that most birds that are infected show no signs of illness. They look healthy. Experts say it’s also important to make sure poultry products are fully cooked.
At the time of publication, Michael Brush held shares of BCRX. Brush has suggested BCRX, RCL, CCL, DALand UAL in his stock newsletter, Brush Up on Stocks. Brush is a Manhattan-based financial writer who has covered business for the New York Times and The Economist group, and he attended Columbia Business School in the Knight-Bagehot program.
View more information: https://www.marketwatch.com/story/its-time-to-vaccinate-your-investments-against-a-deadly-bird-flu-2017-03-14