Three ways to make super profits from superbugs

Government plans to introduce a new hygiene code into hospitals may not be enough to tackle the threat posed by MRSA so expect to see an increase in outsourcing of infection control. We pick three firms set to clean up.

One of Gordon Brown's first ports of call in his new role as prime minister was Kingston Hospital in southwest London. He was there to highlight a 47% fall in the hospital's cases of MRSA (methicillin-resistant Staphylococcus aureus), the lethal superbug that claims around 1,250 lives in British hospitals each year. But he shouldn't celebrate too soon. The Government is so concerned about superbugs that it has introduced a hygiene code in hospitals, says Joanne Hart in The Mail on Sunday. But despite receiving a £300,000 grant from the Department of Health earlier this year to combat infections, one in four hospitals is still not meeting the hygiene targets imposed in November 2004 by the then-health secretary John Reid, says Jo Revill in The Observer.

First discovered in 1961, the superbug has emerged as a major health concern in the UK in recent years. The highly contagious germ is resistant to normal antibiotics. Typically, bacteria enter a patient's body through an intravenous tube or catheter. The disease is sometimes associated with skin infections, but also causes blood infections, pneumonia and other illnesses. Quite apart from the risks and distress to the patient, the intensive treatment required is costly and time-consuming a major problem for our perennially overstretched health service.

So it's vital that the problem is tackled. But even if hospitals get up to scratch on their hygiene, these measures alone won't hold the bug in check. Until fairly recently, it was thought that MRSA lived mostly in hospital or nursing settings. But new research has shown that up to 25% of the population carry colonies of the bacteria on their nose and skin without contracting the infection. So no matter how carefully a hospital fumigates its premises, the infection can easily be reintroduced at any moment by a carrier walking into an emergency room.

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This need for more sophisticated controls and the fact that hospitals are under pressure to cut costs as the spending splurge seen under Gordon Brown's chancellorship dries up means that infection control is increasingly being outsourced. Specialist companies can introduce measures to track patient movements and assess the risk of infection spreading, locating high-risk areas in the hospital. And in the US, hospitals are having some success in isolating the superbug by using skin-swab tests on high-risk patients from other hospitals and nursing homes. There are also promising breakthroughs being made in the area of medical-equipment sterilisation.

But even with improved controls, the NHS will still struggle to meet its target of halving cases of MRSA by March 2008. And the bacteria continue to mutate. In the past month, medical officers in Holland have found that 50% of Dutch farmers are carrying a new strain of MRSA that is passed from hormone-fed pigs to humans. The new virus is already affecting patients in Holland, Denmark, Belgium and Germany spreading skin, heart and bone infections and could soon find its way into UK hospitals. These problems are by no means confined to Europe. In the US last week, the first nationwide study of the infection, from the Association for Professionals in Infection Control and Epidemiology, found that MRSA is eight times more prevalent than previously thought. It seems certain ­ unfortunately that infection control will be a growth industry for some time to come.

Three firms cleaning up in infection control

Synergy Healthcare (SYR), the UK's leading provider of sterilisation services, "should increase its 13% share of the market fairly rapidly as hospitals start outsourcing more", says Joanne Hart in The Mail on Sunday. Profits rose 33% to £440m last year. The shares trade on a forward p/e of 20 for 2008, a substantial discount to the industry average of 27.9. However, a more attractive play may be one of Synergy's partners, Aim-listed Byotrol (BYOT). The cleaning products developer has launched a range of anti-microbial products aimed at NHS hospitals, which are expected to be a key source of future sales for the company. It has also gained access to the US market its Polysphere disinfectant product was snapped up by US heathcare group Fellows following an American study that detailed its positive effects in battling MRSA. The shares trade on a forward p/e of 8.5 for 2009.

Infection control group Tristel (TSTL) could also benefit from the drive to clean up Britain's hospitals. The group specialises in sterilising endoscopes and has a dominant position, supplying 60% of all UK hospitals. The company's shares are valued on a forward p/e of 14 for 2008 but with a price-to-earnings-growth valuation of 0.3, any earnings growth is coming very cheaply.

Eoin came to Money Week in 2006 having graduated with a MLitt in economics from Trinity College, Dublin. He taught economic history for two years at Trinity, while researching a thesis on how herd behaviour destroys financial markets.

Eoin acts as managing editor of MoneyWeek's newsletters.