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Swine Flu Concerns Give Biotechs Shot in the Arm

Many of San Diego’s biotechs and medical device makers hoping to capitalize on the increased demand for flu-related products have seen a dramatic rise in revenues and stock prices in recent months.

Uncertainty surrounding the H1N1 swine flu has attracted a great deal of government attention, giving some cash-poor vaccine companies healthy doses of funding at a time when they need it most.

But questions remain as to how long those gains will last, or whether it will send some businesses back to the brink if their technologies prove unreliable, or the flu season is less severe than many anticipate.

“No one has any visibility that this can continue,” said Quintin Lai, an analyst with Milwaukee-based Robert W. Baird & Co. “That’s the downside.”

For Inovio Biomedical, a small San Diego company with plans for a “universal” DNA-based vaccine, concerns over swine flu have quadrupled its stock price, which traded as high as $2.43 last week. Its stock is listed as INO on the American Stock Exchange.

On Aug. 19, Inovio reported revenue of $2.5 million and $2.9 million for the three and six months ended June 30, compared with $663,000 and $1.3 million for the three and six months ended June 30, 2008, respectively.


Good For Business

J. Joseph Kim, who assumed the role of CEO following Inovio’s merger with VGX Pharmaceuticals in June, downplayed much of the effect swine flu has had on business.

“Swine flu just brought needed attention to the vaccine industry,” he said.

But like other small firms testing flu vaccines, cash-strapped Inovio was suddenly able to attract enough capital to sustain it for a while. It said it received $28.4 million in proceeds related to selling and issuing common stock and warrants, and now has cash and cash equivalents to meet its planned working capital requirements through the second half of 2011.

Much of the money will go toward preclinical trials that will help support an FDA filing to begin human trials of its vaccine next year.

“Towards the end of next year we’ll be able to combine all four (trials) to truly test our universal vaccine concept,” Kim said. “That still survives whether the swine flu is deadly or not this year.”


Major Impact

Rapid flu test makers, such as San Diego-based Quidel, have undeniably noticed the swine flu effect. Quidel, which sells rapid flu test kits to hospitals and doctors’ offices, largely attributed its second-quarter revenue gains to an increase in global sales of flu products.

For the quarter ended June 30, revenues were up 12 percent to $24.6 million, compared with $21.9 million a year earlier. Much of the gain was attributed to infectious disease test revenues, which rose 70 percent in the second quarter from a year earlier, to $16.1 million.

Shares of Quidel, traded as QDEL on Nasdaq, have doubled since the flu outbreak began in April. The stock closed at $15.86 on Sept. 3, and its 52-week range was $7.05 to $19.78.

Just three months earlier, Quidel had cited a weak flu season as the reason behind a drop in sales.

But recently published studies suggest that rapid flu tests are no better, and possibly less reliable, at detecting swine flu.


Questions Arise

In a letter to investors, Wedbush analyst Un Kwon-Casado noted that “some clinicians are beginning to question the performance of these tests.”

San Diego Navy researchers wrote in a letter to the New England Journal of Medicine that the Quidel test missed half the swine flu infections detected by more sensitive techniques. A study by the Centers for Disease Control and Prevention of three rapid flu tests showed Quidel’s to be most reliable, but it detected swine flu only 69 percent of the time.

CEO Doug Bryant said Quidel’s tests prove 90 percent reliable if nasal swabs are taken correctly and the tests given early on.

“The way the samples were handled and tested could have dramatically affected the outcome for all the manufacturers’ tests,” he said.

One thing is certain, however: Quidel hasn’t stopped around-the-clock production of its QuickVue flu tests since April, when concerns of swine flu first surfaced. Bryant said it typically makes as many as 5 million flu kits a year, but expects this season to require two to three times that amount.

“Our commitment to our customers is we will make enough product as we possibly can,” he said.

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