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This marks the first active cases of locally transmitted Zika virus reported in the US. While the world has been very concerned about Zika as it has spread throughout Latin America, unfortunately, due to the bias of English-speaking Western media, Zika concerns are likely to dramatically increase now it has affected the US mainland. As such, while certain stocks with potential Zika treatments saw bounces earlier in the year, they have begun to rally again as the full force of US medical research funding starts to step into gear.
Going long a basket of Zika-related biotechs may be the best way to trade this opportunity. An equal-weighted basket of longs in BioCryst (BCRX), Intrexon (XON), Inovio (ION), Cerus (CERS) would provide exposure to those that outperform and a hedge against those that don’t. The major risk is BCRX and CERS both report earnings today 4/08, while XON and INO report earnings on 8/08, which are huge event risks for biotechs. For those interested in picking up the stocks it may be better to wait for inevitable dramatic earnings reaction before entering a position.
Zika virus only has symptoms in 20% of cases, and when present are often mild and subside within seven days. The major worry is that a pregnant mother can pass the virus onto her baby in the womb, and Zika does have very serious effects on unborn babies, most notably microencephaly. Microencephaly is where the brain does not develop properly resulting in a smaller than normal head, which are the disturbing images that have caused dramatic media show reels. And regrettably, the first Western baby born in the US with such a defect with an English-speaking mother that can be interviewed live on US national TV is likely to set the 24-hour news networks into a paroxysm of panic that will whirr the cogs of major pharmaceuticals and governments worldwide into action.
Four companies who could potentially benefit
It is far from clear which method will be best in combating Zika, certain companies that were working on vaccines for other mosquito-based diseases are quickly trying to reapply it to Zika. And there are growing calls for a significant US federal government response, which could dramatically increase funding towards all potential solutions.