As fall arrives, potential demand for COVID vaccines is becoming a big question mark -- and how it plays out could have a big impact for companies like Novavax (NVAX 3.54%) and Moderna (MRNA 1.69%). These vaccine makers depend heavily on revenue from their COVID-19 vaccines simply because they don't have anything else to fall back on right now.
The challenge these companies face is that even with a new variant, BA.2.86, demand may not be terribly strong for their vaccines, which could spell trouble for their stocks. Let's see how this might play out for investors.
New variant: Not as concerning as once feared
Early reports of COVID variant BA.2.86 were alarming to health officials, as they feared that there could be another omicron-like outbreak of COVID in the fall and the early part of 2024. Hospitalizations have been rising; however, the rate is still not nearly as high as it was in previous years.
US Coronavirus Cases Currently Hospitalized data by YCharts
Multiple studies have suggested that BA.2.86, also called Pirola, shouldn't be a huge concern. Dr. Bill Hanage, an epidemiologist at Harvard University, says, "This is not the second coming of Omicron. If it were, it is safe to say we would know by now." Dr. Eric Topol is a cardiologist and executive at Scripps Research and says that a booster should suffice. "In the months ahead, it could be that BA.2.86 picks up some more mutations and behaves differently, but right now, things are looking pretty good from the standpoint of the booster."
Even demand for boosters could be underwhelming if the public doesn't see a big reason to be concerned about the new variant. While hospitalizations are rising, they may not be at levels that result in people rushing out to get vaccinated. In the August edition of "What Worries the World?" from IPSOS, a market research firm, COVID-19 was near the bottom of the list as issues relating to inflation, poverty, violence, and unemployment are much more pressing concerns these days.
New shots are coming, but will businesses buy them?
Updated COVID shots, which are aimed at targeting the XBB.1.5 omicron subvariant -- and researchers say should suffice for the BA.2.86 version -- are expected to become available later this month. But this time around, the government is not going to be footing the bill for the shots. It will depend on a person's health insurance coverage whether or not they will need to pay out of pocket.
That leads to another headwind for demand: prices. COVID-19 vaccine makers are going to be asking a lot more for their doses. Reports indicate that shots from Pfizer and Moderna will cost between $110 to $130 per dose, which is a steep increase from the roughly $30 per dose the government was previously paying.
At a higher price, that can help COVID-19 vaccine makers make up for a drop in demand. But the problem is that for the companies that might consider paying for the shots, it may be more difficult to justify providing coverage, especially if there isn't a huge uptick in hospitalizations.
Novavax and Moderna could be in a tough spot
Neither Novavax nor Moderna has been doing terribly well in recent quarters, and profitability is a big question mark around these businesses. Although Novavax posted a profit last quarter, it's not something investors should count on continuing. Its top and bottom lines could continue to struggle in the quarters ahead.
NVAX Revenue (Quarterly) data by YCharts
Should you avoid COVID stocks?
Moderna and Novavax are counting on strong demand for their COVID shots. And if it proves to be underwhelming, investors should expect sell-offs. The situation is concerning enough that earlier this year, Novavax said that it might not even survive given the uncertainty around future demand.
While Pfizer's business is diverse, and acquisitions can help it continue to grow, Novavax and Moderna are riskier investments due to the unpredictability around COVID demand. Investors are better off avoiding these healthcare stocks as their businesses aren't diverse and robust, and there could be significant volatility ahead for both of them.
