Charting the Ebola Outbreak: Winners and Losers

With the first diagnosis of Ebola within the United States coming this week, American companies have begun to contemplate the potential economic impact of an Ebola outbreak in the United States. Although the chance of a major epidemic within the United States is small, many companies across a broad range of industries have begun taking proactive and preventive measures geared towards the disease.

One of the few positives to come out of the recent Ebola outbreak has been a resurgence amongst small-cap biotech and pharmaceutical stocks. Obviously, if Ebola starts to become a larger issue within the U.S., hospitals will clamor for new treatment options aimed at both curing and preventing the disease. Tekmira Pharmaceuticals, one of the more notable companies developing an Ebola treatment option, is already seeking to begin formal clinical trials on African patients using its investigational drug TKM-Ebola. Other pharmaceutical companies working on treatment options include BioCryst Pharmaceuticals and Sarepta Therapeutics, both of which have experimental drug options ready for investigational use. Of these three companies, Tekmira has the best chance to see its drug hit market first, due to its unique relationship with the FDA, which has granted fast-track status to TKM-Ebola and is currently allowing the drug to be used on already infected individuals. Tekmira has seen the price of its shares climb to $26.80 on October 2, up from under $10 per share in July.

On the other side of the picture, the airline and energy industries have begun to see a fundamental disruption of operations relating to West Africa. While major U.S. carriers are scrambling to reassure passengers that air travel to West Africa is still safe, most European carriers have cancelled service completely. Many of the carriers cited lack of profitability and plunging demand as the reasons for cancelling service, despite extensive efforts made by the carriers to detect symptoms prior to passengers boarding the plane. With respect to energy, oil and gas giant Exxon Mobil has already suspended future plans to drill off the coast of Liberia. Exxon also prohibited employees from travelling to the affected West African countries.

In my opinion, the biotech and pharmaceutical price euphoria generated by the domestic Ebola diagnosis is simply unsustainable. Fundamentally, the likelihood of a major outbreak in the United States is minimal, and the economic value of these treatment options lie in their long-term ability to save lives, rather than to monetize and market. Personally, I don’t buy the CDC’s prediction model used to project Ebola cases—essentially, the FDA take s the current exponential rate of growth and applies it over the next five months. Bearing in mind that the virus is not airborne, and that transmission requires physical contact,it’s difficult to conceive that the number of cases could jump from around 5,000-21,000 now to 21 million by January. Therefore, if the target market remains small and fails to spread in the United States, therelated demographic will simply not be large enough to support any significant monetization of an Ebola treatment therapy.

-Dillon Cumming