The number of people with COVID-19 has been rising rapidly in China in recent weeks, and there are concerns that the government in Beijing could consider reviving its strict lockdown policies again. A surge in COVID-19 there means other parts of the world could soon face similar problems. And if that happens, demand for COVID-19 vaccines such as Moderna's (MRNA +4.26%) Spikevax could reaccelerate.
Does that mean that this would be an opportune time to buy shares of the biotech company? Let's take a look.
New cases to top 65 million per week?
COVID-19 cases have been surging in China, largely due to the spread of the omicron XBB variants. Earlier this year, these variants became the most prevalent ones in the U.S. as well.
In February, the Centers for Disease Control and Prevention pointed to early study results showing that for the bivalent vaccine boosters created to target omicron variants, "[vaccine effectiveness] was generally similar against BA.5-related infections [original omicron] and XBB/XBB.1.5-related infections." But the CDC is still gathering data and refining its understanding of how well those boosters will protect people.
According to public statements made last week by Dr. Zhong Nanshin, director of the Guangzhou Institute of Respiratory Diseases (and a scientist who helped guide China's COVID-19 response), this week alone infections in China could top 40 million. And by the end of June, weekly infections could hit 65 million.
Through last year, China had been enforcing a highly restrictive COVID-zero policy in an effort to keep its case numbers down, and it wasn't until early January that it lifted those measures. China's reopening has benefited many businesses with strong presences in that country. As of now, there are no indications that the central government will revive those zero-COVID protocols, even as case numbers there continue to climb.
Why Moderna's stock could benefit from these developments
Shares of Moderna popped in May on news of the rising case numbers in China. Although the company's vaccine isn't approved for sale in China, investors were likely expecting that this nation's surge would be followed by rising case numbers in other parts of the world. A significant global resurgence in COVID-19, or even simply the fear that one could happen, could lead to an uptick in people seeking vaccinations and booster shots.
According to CDC's COVID data tracker, more than 79% of adults in the U.S. are vaccinated. However, less than 21% have received an updated (bivalent) booster dose that also targets omicron subvariants of the virus.
This year, Moderna expects to generate a relatively modest $5 billion in revenue from its COVID vaccine, down from more than $18 billion in 2022. But the company wouldn't need to match demand from previous years for its revenue to equal 2022 levels as it is now going to charge more per dose. Previously, it sold vaccine doses to the U.S. government for less than $30 apiece, but selling to the private sector, the company expects to price them at about $130 apiece.
NASDAQ: MRNA
Key Data Points
Should you buy Moderna's stock?
Although case numbers have been rising, this isn't a reason to buy shares of Moderna. Investing based on a particular variant can be a risky strategy to take on because as investors have seen, stocks such as Moderna can be extremely volatile depending on the outlook for COVID-19. The company needs more than just a COVID-19 vaccine to make it a good investment since any jump in vaccine or booster-related revenue could be temporary.
The company is working on vaccines for Zika, respiratory syncytial virus (RSV), and cytomegalovirus. However, it could be years before those generate any significant revenue. And in the case of RSV, several big competitors out there, including Pfizer, are also working on vaccines. Moderna is projecting its revenue will get back to $15 billion by 2027, but I think that target is simply too optimistic at this point.
Moderna's market capitalization is nearly $50 billion now, but there's too much risk to its prospects to say that it's worth that much -- or that it should be worth more than stable, diversified healthcare businesses such as McKesson, AmerisourceBergen, or Cardinal Health. Given the uncertainty, Moderna isn't a stock worth buying, even if COVID-19 cases rise in the weeks ahead.
