Biotech Stocks Rally on Hantavirus Fears: Is the Surge Overdone?

Given that we are barely five years removed from the COVID-19 pandemic, it's natural for consumers and investors to have concerns when hearing about the limited hantavirus outbreak and react quickly.

The market has driven biotech stocks, such as Moderna (NASDAQ: MRNA), Novavax, and Inovio significantly higher over the past week.

MRNA data by YCharts

However, the best investors know that reacting to headlines and near-term events is rarely the best strategy, so it's important that investors avoid rash decisions and conduct thorough due diligence before investing in these stocks.

Is the recent surge overdone?

What is the hantavirus, and what is going on with the recent outbreak?

According to the Centers for Disease Control and Prevention (CDC), hantaviruses are a group of viruses worldwide that can cause serious and even fatal illnesses. They are usually spread by rodents, and most hantaviruses are not spread person to person.

Image source: Getty Images.

Earlier this month, several passengers aboard a cruise ship with 147 people reported various symptoms, prompting health officials to test and identify seven cases of hantavirus on the ship, as of this writing. The specific strain has been identified as the Andes virus.

Three of the people on the ship have died, although only two of them are confirmed to have had the virus. Health organizations are currently closely monitoring the situation while quarantining other people who were on the ship.

"At this time, the risk to the American public remains extremely low," the CDC has said.

This is largely because the CDC says that to contract the Andes virus, one must "... have close contact with a sick person. This includes direct physical contact, prolonged time spent in close or enclosed spaces, and exposure to the sick person's body fluids."

Should you buy the hype in biotech stocks after this recent surge?

While leading health organizations say hantavirus will not be another COVID-19 pandemic, investors know that companies that developed vaccines during the pandemic performed incredibly well.

So, when Moderna disclosed that it was working on a hantavirus treatment that's in the beginning stages of development, the stock rocketed higher, likely because it was also one of the winners of the COVID-19 pandemic.

"Hantavirus is a low-incidence, structurally small market, and we view any potential outsized moves as sentiment-driven, not fundamental," a group of Evercore ISI analysts wrote in a research note last Thursday. "At most, it reinforces Moderna's mRNA platform agility, something already well understood post-COVID."

Investors have poured into Inovio because the company received a 2011 grant from the U.S. Department of Defense to develop a device capable of producing DNA vaccines.

According to Barron's, these vaccines were expected to be used against a variety of pathogens, including the Hantaan virus, a strain of hantavirus that can cause Hemorrhagic Fever with Renal Syndrome (HFRS).

Nonetheless, Inovio doesn't yet have a commercial treatment.

Ultimately, all three of these stocks have struggled significantly since peaking in 2021, largely because demand for COVID-19 vaccines has declined, and they have been unable to quickly build out and differentiate their product lines.

So fundamentally, these biotech stocks still face challenges but are experiencing a short-term run driven by speculation. If you feel like you need to own a small position just in case of a doomsday scenario or as a potential hedge, that's fine, but I certainly wouldn't take a big long position in any of these names right now.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moderna. The Motley Fool has a disclosure policy.