The World Health Organization on Thursday informed its 11 member nations that it is declaring an H1N1 (aka “Swine Flu”) pandemic. The declaration of a flu pandemic, the first since 1968, means that the WHO believes a global outbreak of H1N1 has begun. As a result of the declaration, all countries, including those with no reported cases, will be required to launch pandemic-prevention plans. “At this early stage, the pandemic can be characterized globally as being moderate in severity,” WHO said in the statement. “(We) remain in close dialogue with influenza vaccine manufacturers.”
As media coverage dwindled, the swine flu threat faded from the minds of most Americans, despite warnings that we weren’t out of the woods yet. Many believed that the virus could return with a vengeance come flu season, but it appears that even those predictions may have been optimistic. On Wednesday, the WHO announced that 74 countries had reported 27,737 cases of H1N1, including 141 deaths. About half of the confirmed cases are in the U.S. In Australia, the number of reported cases has tripled in the last week, drawing the attention of the WHO as it evaluated the severity of the threat.
Pharmaceuticals in Focus
As perverse as it sounds, this latest development is good news for some. Pharmaceutical manufacturers have continued work on vaccines behind the scenes despite the apparent abatement of the threat. With the elevation of the pandemic alert level from 5 to 6, many pharmaceutical companies are likely to be flooded with requests (and funding) for vaccine development and testing. And as the likelihood of a worst-case scenario (a full-blown global outbreak) increases, so does the potential for a huge payday for vaccine manufacturers.
Three pharmaceutical ETFs to keep in focus as this story develops are:
- iShares Dow Jones Pharmaceuticals Index (IHE): Holds many of the big name U.S. pharmaceutical companies. Pfizer, Merck, Wyeth, and Eli Lilly each account for more than 4% of the fund’s holdings. IHE was up 1.7% in Thursday morning trading on news of the pandemic alert.
- iShares S&P Global Healthcare Sector Index Fund (IXJ):Provides more global exposure to the health care industry, holding international pharmaceutical companies such as Novartis, GlaxoSmithKline, and Sanofi-Aventis in addition to major U.S. firms. IXJ jumped 1.4% in Thursday morning trading.
- HOLDRS Merrill Lynch Pharmaceutical ETF (PPH): One of the largest and most actively-traded pharmaceutical ETFs, PPH provides diversified exposure to U.S. pharmaceutical companies. PPH was up 1.8% in Thursday morning trading.
These ETFs will be in focus in coming weeks as the WHO continues to evaluate the pandemic and makes additional recommendations. This current development should by no means be taken lightly. This is far more than a precautionary measure – the WHO hasn’t declared a flu pandemic in 41 years, indicating that this disease it different from previous health scares (remember SARS?). Hopefully, the WHO is acting somewhat conservatively by declaring a pandemic at this point, rather than trying to play catch-up if the situation worsens significantly. But at this point, we must certainly consider the potential for a widespread outbreak that would likely wreak havoc on global markets. In this sense, pharmaceutical ETFs might be a good hedge for investors worried about a worst-case scenario.