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Sizing up the marketInvesting in biodefense companies

Published 6 June 2008

Billions of dollars are pouring into biodefense vaccines and treatments; do companies engaged in developing such vaccines and treatment offer attractive investment opportunities? The answer is a qualified “Yes” to this specific question — but a more resounding “Yes” when these companies’ other research and development endeavors are taken into consideration

So you are looking for investment opportunities in biotech? Read on. Since 2001, bioterrorism has become a well-recognized threat. The list of possible agents is long, and includes Bacillus anthracis (Anthrax), Clostridium botulinum (Botulism), Francisella tularensis (Tularemia), Variola Major (Smallpox), Yersinia Pestis (Plague), and more. Seeking Alpha’s Ketan Desai asks: Do companies that work on these threats represent an investment opportunity? He offers useful insights on two of the more visible diseases, smallpox and anthrax. Today we will run his discussion of companies working on Smallpox. Next week we will offer his discussion of companies working on Anthrax.

A virus, Variola Major, is the cause of Smallpox. The disease was declared eradicated worldwide in 1980; the last naturally occurring case was in Somalia in 1977. Routine vaccination against smallpox in the United States stopped in 1972, and Dryvax (made by Wyeth from Vaccinia, a relative of Variola) production was halted in 1982. After the eradication of smallpox, the World Health Organization (WHO) recommended that all remaining stocks of Variola virus be destroyed or sent to one of two designated reference laboratories: at the Centers for Disease Control and Prevention [CDC] in Atlanta, Georgia, or the Research Institute of Viral Preparations in Moscow, Soviet Union. It was discovered later that Russia moved its smallpox samples to VECTOR, a Siberian facility that had previously served as a biological weapons development plant.

What makes Smallpox a deadly possible weapon is that it is relatively easy to disseminate, the virus is relatively stable as an aerosol (size less than 5 um), and the disease has a high mortality rate of about 30 percent. Aerosolized biological agents may remain suspended in air for long periods and may travel long distances. There are also many reasons why Variola is not a good weapon (see more detailed discussion of these reasons in Desai’s book Germs of War). In order to encourage companies to develop drugs against Smallpox and other biological weapons, the U.S. Congress passed the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the Bioterrorism Act), which President George Bush signed into law 12 June 2002. Thereafter, Project Bioshield Act of 2005 was passed into law. These two acts undertook measures to induce the pharmaceutical/biotechnology industry to come up with new drugs to combat bioterrorism and biological warfare. The industry had been