Flu-related companies set to profit

With nations around the world gearing up to prepare for an outbreak of bird flu, investors should consider adding Western bio-technology companies with profit potential and strong research and development capabilities to their portfolios.

"Although avian flu has become a hot issue recently, investors should still examine companies' future potential and drug manufacturing capabilities, instead of just checking their price-to-earnings ratios," said Mark Fu (傅子平), senior fund manager at Allianz Global Investors Taiwan Ltd (德盛安聯證券投信).

Fu manages biotech and pharmaceutical funds worth NT$8 billion (US$238 million).

Addressing a seminar organized by the publisher Wealth Group (財訊) yesterday, Fu said that in contrast with the 2003 SARS outbreak, when no cure was available, the drug Tamiflu has been proven effective in relieving the symptoms of avian flu, thereby creating a massive business opportunity for biotech shares.

US biotech firm Gilead, which developed Tamiflu but signed a development and licensing agreement with Swiss pharmaceutical company Roche nine years ago, remains a major beneficiary as it is entitled to royalties of between 7 percent and 14 percent from Roche.

For every US$1 billion of Tamiflu sold, Gilead can pocket US$100 million of royalties, Fu said, adding that the US firm's earnings per share (EPS) for next year is expected to jump 8 percent, or US$0.14.

Roche, which sold US$300 million of Tamiflu last year, is projected to report skyrocketing sales in the anti-bird flu drug this year, to US$1 billion, rising to US$1.2 billion next year.

Per-share earnings next year are forecast to climb by 7 percent, Fu said.

Share prices of these two companies, along with British drug maker GlaxoSmithKline, which manufactures the Relenza inhaler, have reached new highs this year, with analysts also upgrading their ratings on the firms.

In addition, as the fourth quarter is the biotech sector's traditional peak season when major medical conferences are held, releasing the latest company reports, Fu said interested investors should watch closely and adjust their portfolios accordingly.

"Taiwan should be able to see biotech companies emerging" to become favorable investment targets, he said.

Hsieh Chin-ho (謝金河), president of the Wealth Group, meanwhile, predicted the US Federal Reserve would not raise interest rates by the year's end because of the avian flu.