These COVID Stocks Could Be Hurt by a Global Raw Material Shortage

COVID-19 vaccine production continues to increase to vaccinate Americans. However, there are some looming challenges in much of the rest of the world with a global raw material shortage. In this Motley Fool Live video, recorded on March 10, Fool.com contributors Keith Speights and Brian Orelli discuss which specific stocks could be negatively impacted by this shortage.

Keith Speights: Now, there's some more COVID-19 news. Last week, the CEO of the Serum Institute of India, and that's the largest vaccine maker in the world, the CEO, I think you pronounce his name Adar Poonawalla, spoke out at a World Bank meeting. And he spoke out about U.S. export restrictions on key raw materials that are needed for making COVID-19 vaccines. He expressed serious concern about this potential global shortage of these raw materials.

The reason behind the shortage, by the way, is that the Biden Administration enacted the Defense Production Act, and they did so to help make sure that US companies, in particular Pfizer, had the needed raw materials to meet their commitments to supply vaccines to the U.S. So that's causing a problem because as a result, the exports to other countries of those raw materials are being limited.

Brian, let me ask you this, which companies do you think might be impacted by this raw material shortage first, and is this something for investors and those stocks to be especially concerned about?

Brian Orelli: He specifically mentioned Novavax (NVAX 3.80%). The Serum Institute of India is working with Novavax. They also have a contract with AstraZeneca (AZN 0.25%) to make AstraZeneca's vaccine. I think it's hard to know how much this is going to hurt those two companies because we don't really know the financial situation of both the contract between Novavax and the Serum Institute of India. We don't know how much Novavax is making off of that.

We also don't know the price that the Serum Institute of India and Novavax are selling their drug to the purchasers, which I think is COVAX, which is a WHO entity with some other people. I think it's really difficult to know how much the lack of production or slowdown of production would hurt either AstraZeneca and Novavax.

I think the bigger issue is that we need to get the entire world vaccinated. It's not just the United States, because I heard that Brazil has now surpassed the United States in COVID cases and deaths. People are traveling the globe, and having us vaccinated and not having other people vaccinated is a serious problem for the United States, because as it rages on in other parts of the world, it allows for variants, and now if our vaccines aren't covering the variants, then we're going to have the same problem again. Somebody's going to come from that country and it's going to spread in the United States.

Speights: You mentioned, with Novavax particularly, I think they have a commitment with the Serum Institute of India to make 1.1 billion doses of their COVID-19 vaccine. But they have supply deals with the U.S. and other countries that total around 300 million doses.

Novavax is going to make a lot higher profit margins from those 300 million doses than it will 1.1 billion doses, I'm sure. Like you said, we don't know the financial details, but it's a virtual guarantee that Novavax is making more money from its deals with the U.S. and Europe and other developed nations than it is with the Serum Institute of India.

But you're right. COVID-19 doesn't recognize borders and this is not just a U.S. fight. My guess, Brian, is that whatever impact this shortage might have on Novavax or AstraZeneca, or any other company, will probably only be temporary. I wouldn't think that the U.S. would necessarily hoard its supplies of these raw materials indefinitely. I would think that once we have enough vaccine for immunizing all Americans, I would think that the Biden administration will probably begin to relax some of those export restrictions, don't you think?

Orelli: We're going to end up with more vaccines than we could possibly ever use. The U.S. government can end up giving those vaccines that were used with the raw materials that they want. We're going to end up giving away final products. Because I think we're going to just by looking at the numbers, we have enough vaccine for the country and then just based on what the US government is already ordered.

Speights: The bottom line here is probably that, yeah, the companies like Novavax and AstraZeneca could be impacted by this. But just probably not anything for investors to really worry about.

Orelli: Yeah, I would agree.

Speights: Your Novavax shareholder, are you worried?

Orelli: No, I'm not worried.

Speights: OK, there we go. There we have it.