The Viral “Tripledemic” Opportunity

Biotech

Scientists began warning of a potential “twindemic” – a simultaneous surge in both Covid-19 and flu cases – in the autumn.

Add in the respiratory syncytial virus (RSV) into the mix and you have the United States in the throes of a viral “tripledemic”. In early December, the U.S. Centers for Disease Control and Prevention (CDC) reported higher numbers of flu cases and hospitalizations than at the same point in any year for more than a decade.

For those of you not familiar with RSV, most people who contract it recover in a week or so. However, it can be particularly serious in babies and older adults with underlying conditions.

The end result was that both Walgreens Boots Alliance Inc. (WBA) and CVS Health Corp. (CVS), the country’s largest pharmacy chains, limited sales of pediatric fever reducers in several states in the week before Christmas. Walgreens said “various supplier challenges” were part of the problem, but manufacturer Johnson & Johnson, exclusively blamed soaring demand.

Investors in over-the-counter consumer pharmaceutical companies might be wondering if now is a logical time to up their holdings in the companies that make cold and flu medicines. Let’s take a look…

Tripledemic Beneficiaries

Companies which stand to benefit include Reckitt Benckiser (RBGLY) and Haleon (HLN), formerly the consumer health division of GlaxoSmithKline (GSK). The latter reported that sales of its respiratory medicines were up 30% from 2021 levels in the third quarter. That was before the cold and flu season was in full swing. The company upgraded its full-year revenue guidance in November to reflect this. Tobias Hestler, Haleon’s CFO, noted that “We’ve seen a strong and prolonged cold and flu season this year, which has been widespread.”

The world’s largest maker of cold and flu medicines globally is Johnson & Johnson (JNJ), followed by Haleon and Reckitt Benckiser, according to Euromonitor. JNJ is scheduled to spin off this division, named Kenvue, in a $5 billion IPO later this year. JNJ will retain an 80% interest.

Sanofi Vaccine for RSV in Infants

Another major beneficiary of the ongoing tripledemic is France’s pharmaceutical giant, Sanofi (SNY).

The company’s cough and cold medicines franchise grew nearly 31% in the third quarter of 2022 and it’s also a global leader in flu vaccines. On a third-quarter results call, management said that the firm’s flu franchise was on track for another record sales year and that growth would be driven by the switch from standard to “differentiated”, or improved, shots.

Here is what really has me excited for Sanofi’s outlook.

AstraZeneca (AZN) and Sanofi’s Beyfortus – a  single-dose, long-acting antibody – had already been approved by the European Union’s and the United Kingdom’s medicines regulator. And now the FDA has chimed in.

The January 5 press release stated: “The U.S. Food and Drug Administration Center for Drug Evaluation and Research (CDER) has accepted the Biologics License Application (BLA) for nirsevimab (brand name Beyfortua) for the prevention of respiratory syncytial virus lower respiratory tract disease in newborns and infants entering or during their first RSV season and for children up to 24 months of age who remain vulnerable to severe RSV disease through their second RSV season.

Nirsevimab, if approved, would be the first protective option for the broad infant population, including those born healthy, at term or preterm, or with specific health conditions. The FDA has indicated they will work to expedite their review. The FDA target action date for their decision is in the third quarter of 2023.

According to its manufacturers, the product has the potential to prevent around 80% of infant RSV hospitalizations. Sanofi thinks the infant RSV market opportunity could be nearly $2.5 billion annually by 2030.

It could be even bigger. The CDC says that, in the U.S., RSV is the leading cause of hospitalization for babies under one. Also that any infant can be hospitalized in their first RSV season. About 75% of infants hospitalized for RSV in the U.S. are born at term, with no underlying conditions.

Investing in Sanofi

Of course, Sanofi is more than OTC flu medicines or virus vaccines.

Argus Research describes the company this way: “We like Sanofi’s diverse range of businesses, which include branded pharmaceuticals, generics, vaccines, and consumer healthcare products. . .Sanofi has a strong new drug pipeline of 81 molecular entities and vaccine candidates, of which 31 are in Phase 3 trials or have been submitted for regulatory approval.”

And Morningstar said: “Sanofi’s wide lineup of branded drugs and vaccines and robust pipeline create strong cash flows and a wide economic moat. Growth of existing products and new product launches should help offset upcoming patent losses.”

Here is the reason behind what Morningstar said: “Sanofi’s existing product line boasts several top-tier drugs, including immunology drug Dupixent. Dupixent looks well positioned to reach peak sales over 14 billion euros ($15 billion), with an initial focus on the moderate to severe atopic dermatitis market. We expect additional indications in areas such as the more recently added severe asthma indication will help the drug serve additional patients. While Sanofi shares profits on the drug with Regeneron, the very high sales expected for the drug should provide a strong tailwind to overall growth for the company. Additionally, Sanofi holds a strong position with several vaccines and rare disease drugs that should hold up well as pricing pressures and competition tend to be less severe in these areas.”

On top of all this, Sanofi pays a respectable dividend. The company has targeted slightly above a 50% payout in dividends, as a percentage of normalized earnings. This seems about right to me.

The current dividend yield is 3.62%. However, Sanofi is a bit different than other European firms that pay dividends semi-annually. Sanofi pays only an annual dividend, and it always goes ex-dividend in May. Last year it paid a regular dividend on its ADR of $1.7468 per share and a special dividend of $0.2972 per share.

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