Drug Stores Poised To Benefit From Potential H1N1 Resurgence
September 03 2009 - 11:17AM
Dow Jones News
Drug stores are poised to benefit should a second wave of the
H1N1 virus emerge in the U.S.
How much the country's three largest drug chains, Walgreen Co.
(WAG), Rite Aid Corp. (RAD) and CVS Caremark Corp. (CVS), stand to
gain, however, depends on how severe and far reaching H1N1,
commonly known as swine flu, becomes.
A more widespread and virulent H1N1 flu has the potential to
boost sales of front-of-store items like hand sanitizer, as well as
lift the number of drug prescriptions, especially if another wave
brings with it bacterial infections among patients. Traffic at drug
store retail clinics could also potentially pick up, if people seek
treatment for H1N1 symptoms.
Another possible boon: Walgreen, CVS and Rite Aid are all in
discussions with state and federal officials to see how they can
help with distribution of a swine flu vaccine, expected to be
available in mid-October, the companies' spokespersons said.
Medical professionals at Walgreen and CVS retail clinics already
administer seasonal flu shots each year and also provide
vaccinations for things like chicken pox.
Some analysts are making rough estimates of the earnings boost
drug stores could see, based on government estimates of how bad a
second swine flu wave might be. Sanford Bernstein analyst Helene
Wolk, who covers only CVS and has a rating of outperform, says the
joint pharmacy benefit management and drug store company's earnings
could be lifted around 4 to 8 cents a share. Raymond James analyst
John Ransom puts that number higher, at about 10 cents on the
retail side and roughly 2 cents on the PBM side.
Ransom estimates that Walgreen's fiscal year earnings could
benefit about 17 cents a share, assuming a second dose of H1N1
makes the regular flu season at least twice as strong. He did not
provide an estimate for Rite Aid, saying it is too difficult to
estimate, given the drug-store chain's turnaround efforts.
However, Rite Aid "should experience a benefit, given it's
10%-plus market share," Ransom said in a note. Ransom has a "strong
buy" rating on CVS, and "outperform" ratings on Rite Aid and
Walgreen.
While swine flu cases have been relatively mild so far,
government officials expect the virus to resurface more
significantly in the coming months, as the new school year gets
under way and the regular flu season kicks into gear.
As of Aug. 22, 8,843 hospitalizations and 556 deaths were
associated with H1N1, according to the Centers for Disease Control
and Prevention.
According to a report released last month from the President's
Council of Advisors on Science and Technology, H1N1 has the
potential to cause between 30,000 and 90,000 deaths in the U.S.,
concentrated among children and young adults. The report says one
"plausible scenario" is that 30% to 50% of the U.S. population
could be infected by this fall and winter, with symptoms in
approximately 60 million to 120 million people.
The report estimates that more than half of those showing
symptoms would seek medical attention, a potential boon for
Walgreen and CVS, which operate hundreds of retail clinics around
the country.
For their part, drug stores are making sure they are adequately
prepared for any possible swine flu resurgence, ensuring stores are
adequately stocked with Roche Holding AG's (ROG.VX) Tamiflu and
other preventative products.
Rite Aid spokesperson Cheryl Slavinsky said the drug store had
seen a spike of Tamiflu sales recently in the Southeast, where an
increased number of cases have been reported as students return to
school. Tamiflu is a prescription medicine, taken in pill or liquid
form, used to treat and prevent the flu.
In the meantime, Rite Aid, CVS and Walgreen are focusing on the
regular flu season, launching their seasonal flu vaccine programs
several weeks early this year.
Shares of Rite Aid were recently down 2% to $1.51, while CVS
dropped 0.3% to $36.33. Walgreen shares fell 1.1% to $33.44.
-By Kelly Nolan, Dow Jones Newswires; 212-416-2167;
kelly.nolan@dowjones.com