Special Report: The War On Bugs: Zika Investing and the Art of Pest Control

What started out as a distant threat on the jungle frontier of South America has morphed into a global epidemic.

The mosquito-borne Zika virus is expanding its reach around the globe, now circulating in more than 60 countries, including the United States.

According to the Centers for Disease Control and Prevention (CDC), there are nearly 1,000 pregnant women with laboratory-confirmed Zika Virus in the United States and its territories.

Earlier this year, the CDC issued a travel advisory for part of the continental United States for the first time in the agency’s 70-year history, warning pregnant women to stay away from Miami.

The virus has made its way north, as well.

The number of cases in New York has risen to 483.

The City That Never Sleeps is constantly spraying, having conducted four aerial larvicide treatments in marsh and non-residential areas in Staten Island, Brooklyn, Queens, and the Bronx. That may not be enough.

The city says the virus is an even bigger problem considering a handful of New Yorkers contracted Zika through sex.

"Our city is second in our country with Zika cases and four of these were transmitted through sex," said Carolyn Maloney, representative of New York's 12th congressional district. "The threat across this country and in our city is deep. It is strong and it is real."

It's real in the American territory of Puerto Rico, as well. There, more than 10,500 Zika cases have been reported. That's a lot for such a tiny island.

ZikaMap

Still, Brazil has been hit hardest.

Midway through 2016 Brazil had 161,241 cases of Zika, leading the World Health Organization to declare a public health emergency. More than 38,000 cases have been registered in Rio de Janeiro, where the 2016 Summer Olympic Games took place.

It's a sad state of affairs.

The good news, however, is that bio-pharm companies around the globe are working hard to crack the case. And the first one that does will reap huge rewards.

Indeed, the Zika virus may be new, but the “War On Bugs” has been going on for decades.

There's a whole platoon of companies that make their bones off of dead bugs — protecting farmland, food, and people from pests.

Here's a look at a few...

Taking Aim at Zika

At least 15 drug companies are working to develop a Zika vaccine.

However, a cure is still years away. Development will require several phases of testing on animals and humans. And the fact that these drugs must be cleared for pregnant women is especially tricky. It makes for an exceptionally high regulatory bar. Any potential cure is going to have to demonstrate beyond a shadow of a doubt that it is safe for use during pregnancy.

Another wrinkle is that the Zika virus has shown a formidable ability to mutate, producing new complications as it travels the globe.

One pharmaceutical company that's made headway on these challenges is Sanofi (NYSE: SNY). The company recently announced a research and development deal with the U.S. Army to speed up the development of its vaccine.

Made from inactivated virus, it's already produced impressive results in mice, preventing Zika in 100% of the lab rats to which it's been administered. The vaccine is one of the furthest advanced in development and could be ready for testing on humans soon.

Under conditions of the deal with the U.S. Army, the Walter Reed Army Institute of Research will transfer virus vaccine technology to Sanofi Pasteur, the company’s vaccines division. The U.S. National Institute of Allergy and Infectious Diseases will conduct the Phase I trials during the technology transfer. And Sanofi will be in charge of clinical and regulatory development.

Sanofi is also developing a second Zika vaccine derived from its previous experience battling other mosquito-borne diseases such as dengue. Sanofi actually made the first vaccine shot against dengue, but it required 20 years of development and cost $1 billion.

The France-based Sanofi Pasteur has a factory in Lyon capable of producing 100 million annual doses of its dengue shot. That plant could easily be adapted to produce large quantities of a Zika vaccine.

Two other companies, Inovio Pharmaceuticals (NASDAQ: INO) and GeneOne Life Science (listed only on the South Korean exchange), have announced that their vaccine, called GLS-5700, would also undergo Phase I clinical testing.

This effort is a DNA-vaccine that has instructions to make Zika antigens directly encoded into it. Once injected, the vaccine allows the body to produce the antigens, and the immune system does the rest. And it's capable of targeting multiple Zika virus antigens.

Inovio, as a stock, is a little under-priced right now, too. It's trading around $9 per share when it should really by closer to $14. Sanofi is a much bigger company and has less upside. But it's also more stable and pays a real nice dividend that yields 4.06%.

Intrexon (NYSE: XON) is another favorite.

The company is working on a way to kill off the mosquito population en masse and prevent breeding, the same basic approach used during the construction of the Panama Canal to contain yellow fever and malaria.

To be more specific, Oxitec — a subsidiary purchased by Intrexon last summer — is working on “vector control” programs which release genetically-mutated male mosquitoes into the wild.

They only differ from the natural members of their species in that their offspring will have a genetic flaw, causing any and all offspring to die before maturity. The females that breed with them do not live long enough to breed again, thus reducing the amount of mosquitoes that effectively mate and dropping the total population.

Only female mosquitoes bite animals for blood, so there isn't even the possibility of infection from the released bugs.

Repeated releases have no risk of treatment resistance or unintended environmental effects. In controlled field trials, these vector control programs have reduced local populations of the Zika host species by 92%-99%.

Plus the approach is universally applicable to mosquito-born diseases. Malaria, dengue, yellow fever, encephalitis, West Nile virus, etc., are all possible targets.

Another approach from a smaller company is focused on blood transfusions.

Cerus Corp. (NASDAQ: CERS) makes a product called amotosalen, which has been shown to inactivate the Zika virus in plasma for transfusions.

With the rapid nature of this outbreak and the resulting difficulty in determining how many people are infected, blood banks across the Western hemisphere are looking at what Cerus can do for them.

Amotosalen is already FDA approved, and is used for blood platelets and plasma for a whole host of other infectious diseases such as: hepatitis B and C, HIV, West Nile virus, and bacteria, as well as emerging pathogens such as Chikungunya, malaria, and dengue.

Cerus' kits have already been used in 100 blood bank centers in 20 nations, with over 3,000,000 units of blood treated. Regulatory approval is pending across South and Central American nations most affected by Zika, which is bound to accelerate the process.

The Bayer Monsanto Merger

Another direction an investor could go is Bayer AG (OTC: BAYRY).

Valued at $81 billion, Bayer is one of the world's biggest companies — a conglomerate that covers pharmaceuticals, consumer health, animal health, and crop science.

And it's the latter segment that Bayer is greatly expanding with its acquisition of Monsanto — maker of genetically-modified crops and pesticides.

The $66 billion deal gives Bayer more than 2,000 varieties of seeds for crops such as corn, soybeans, and wheat. Adding that portfolio to its own vegetable, rice, cotton, and oilseed offerings gives Bayer a virtually unassailable position at the head of the market

It means the company controls more than a quarter of the combined world market for seeds and pesticides.

No doubt, anti-trust officials are going to have their hands full here. But provided the deal goes through, it'll create a monster in the rapidly consolidating agricultural industry.

So when it comes to the “War On Bugs,” Bayer will be their biggest adversary.

Outsider Club Research Team


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