Viral Economics

Watch most TV networks or pick up any newspaper and chances are you'll be met with various doom-and-gloom reports on the possibility of an avian flu pandemic sweeping the globe. Hundreds of millions could die. The economy will be in shambles. Tourism and hospitality industries will suffer an enormous blow. Commodity prices will plummet and gold prices will soar. The list goes on and on.

Knowing what–and whom–to believe is difficult.

Regardless of whether the H5N1 virus mutates into a strain that can be easily transmitted between humans, the Canadian government isn't taking any chances. At a meeting of international health ministers and top-level bureaucrats in Ottawa in late October, Prime Minister Paul Martin discussed the importance of developing a global response to a possible pandemic and mitigating its risk in the meantime. Key priorities: advancing bio-security measures for Canada's $1.8-billion-a-year poultry industry, developing business continuity plans for large corporations and stockpiling antiviral drugs and vaccines for Canadians at greatest risk. In Asia, where some 62 people have already died from avian flu, global bank HSBC and Germany's Deutsche Bank are reportedly rushing to put together flu-specific contingency plans.

Here at home, David Wolf, head of Canadian economics and chief strategist for Merrill Lynch Canada, says there is “little material evidence” that North American stock markets have reacted to the threat of a pandemic, adding that quantifying the exact impact on economic growth in the event of a human outbreak would be “next to impossible.” Explains Wolf: “Without doubt it would be into the billions of dollars. This includes the cost of treating people, the cost of lost earnings of people who are sick and the cost of lifetime earnings of people that would die that otherwise wouldn't have. But you also have to make assumptions about people who are unwilling to go out of their house to shop because they're worried about getting [the flu]. Actually pinning it down with any sort of precision is very difficult.”

Some economists, however, have begun to make cautious predictions about certain sectors that could see increased demand for their products in the case of a pandemic. Two examples: telecoms, whose video-conferencing and networking equipment would allow people to work and communicate from home, and cable companies, which supply broadband Internet connections to residences and small businesses. Other companies on the forefront of a possible pandemic–including medical equipment suppliers, diagnostic-test-kit manufacturers and pandemic-flu-vaccine and antiviral drug makers–would also likely see a dramatic spike in business, says BMO Nesbitt Burns chief economist Sherry Cooper in a special report on avian flu.

In fact, Swiss drug maker Roche (OTC: RHHBY.PK) saw third-quarter sales of its antiviral flu drug Tamiflu more than double to $257 million on strong worldwide demand. GlaxoSmithKline (NYSE: GSK), which recently announced it was acquiring Vancouver-based vaccine maker ID Biomedical Corp. for $1.7 billion, has invested US$2 billion to expand its flu-vaccine manufacturing capacity and to increase production of its antiviral, Relenza. Canada's largest generic drug maker, Apotex Inc., is working on developing a synthetic copy of Tamiflu; if successful, Apotex could produce as many as 20 billion tablets and capsules per year.

For investors looking to cash in on the flu-drug craze, a word of caution from Brian Bapty, a Vancouver-based biotechnology analyst at Raymond James Ltd. Flu vaccines, he says, are “by and large, a low-margin business” because of lengthy production times and capacity constraints. “SARS has clearly flagged the interest of the public from both an investing standpoint and a public health standpoint,” says Bapty. “But making a long-term bet on a short-term economic trend could leave many people disappointed.

Perhaps Sherry Cooper said it best: “Putting actual numbers on the loss of life, productivity, growth and development is nothing more than a guessing game.” And with that in mind, the most important priority right now may be finding an antidote for fear.