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Part 2: COVID-19 Science and Economics

Hugo Scott-Gall: Hello, and welcome to today’s podcast, which is Part 2 of our COVID-19 Science and Economics series. I have with me Camilla Oxhamre Cruse, who is one of our Global Healthcare Analysts. She has a Ph.D. in infectious diseases, which is extremely important right now, I’m sure you’ll agree. Also with me is Olga Bitel. Olga is our Global Equity Strategist. Hello, Olga. Hello, Camilla.

Olga Bitel: Hi. Thank you for having us.

Camilla Oxhamre Cruse: Hello.

Hugo Scott-Gall: Okay, let’s get going and let’s dive straight in. Let’s start with a question to you, Camilla, around serology testing. What is it, what have we learned, and what else do we need to know?

Camilla Oxhamre Cruse: That’s a great question, great way to start the podcast, because it’s a hot topic at the moment. As you know, we have several different kinds of testing. Testing is something that has been debated a lot, so let’s first take a step back and discuss it. What are all these tests, and what are they used for? We have diagnostic tests, obviously. They can either be based on PCR or antibody tests. Then, we have serology tests that are also evaluating the antibodies that the patients develop due to the virus.

A serology test is done to determine the underlying spread of the disease in society. It’s usually done in hindsight after the infection to determine the true spread of the virus and to what extent the population has developed antibodies to the virus. This is a very important part of us understanding the virus, how it has spread through the society, who has indeed been affected, and also, importantly, who is now immune to the virus. It does not, however, tell us how long this immunity will last, and that’s a critical point. Now, these different serology tests are being rolled out and we will start, over the next coming weeks and months, seeing more serology analysis. We’ve already mentioned starting to see some coming out of New York, the serology tests we’ve seen data from.

Hugo Scott-Gall: Yeah, we’re seeing New York; we’re seeing some in Germany as well, I think. You’re the expert here. I know a lot less than you, but from New York’s tests, it’s suggested that as much as 25% of the population of New York City tests positive, having had COVID-19. But if you look out to New York state, it’s much lower. The thing I’m struggling with is, even if it involves 25%, I think predictions are that the majority of a population will eventually get COVID-19. So, if I’m going to start worrying about the second wave, I think there’s a lot to start worrying about there because, if so far it’s only at 25% and herd immunity is up at 70%-80%, this sounds like a second wave is going to be very potent, if not more potent. I know I don’t know as much as you. What am I missing?

Camilla Oxhamre Cruse: Right, let’s dissect this and start talking about what came out of this study and how reliable is this data. The serology test in New York shows that in New York City, approximately 25% of the population has been infected by this virus and have some sort of antibodies against COVID-19. Outside New York City, the frequency’s a little bit different. Overall, in the state, I believe it was around 15%, but in the less populated areas it was as low as 3% to 4%. So, that is one interesting finding to discuss, that we’ve seen that, not only New York, but in other parts of the country and the world, that the virus is particularly prevalent in highly dense populations. The more dense the area, the easier it is for the virus to spread, so that’s one takeaway.

And then, in less populated areas, the spread of the virus is less frequent. This study is the first study that has come out of New York. It’s a rather small study. It’s about, in total, 7,500 cases, or people who have been evaluated. I do think that, if we compare the data to some of the epidemiology models, they are pretty much in line. What’s surprising if we do additional serology testing in New York, that the numbers will be completely off. So, let’s stick with the number 25%, approximately, in New York state. That tells us that 25% of the population in New York City has developed some sort of antibody response to COVID-19. We don’t know, however, how long that immunity will last, if we’re talking about six months, we’re talking about a year, and can we have some sort of partial protection thereafter? There are a lot of questions we still don’t really know.

And then, of course, we’re talking about a potential second wave and how this will protect us, should 25% of the population have a thorough immunity toward the virus. Yes, it will create some resistance toward the virus to spread, but it doesn’t create herd immunity. Herd immunity would eventually eradicate the virus. That is not what we’re talking about. 25% will create resistance, but not herd immunity. I still think that we don’t know enough about how solid this immunity truly is to be able to conclude that 25% of New York City’s population is truly immune to this virus, so more study on the immunity needs to be done to be able to sit down and make that conclusion.

What we can say now, and what we can calculate more correctly now, is the mortality rate. We know now that 25% of New York City has been affected. We know how many passed away, approximately how many have passed away from COVID-19, so now we can start calculating better on the true mortality rate. When I do a quick calculation, it seems that mortality rate is in the range of about 0.5% to about 0.7%, so significantly lower than those data that’s coming out if we just calculate on the diagnosed cases.

Hugo Scott-Gall: Sure, but going back to my getting worried about a second wave coming, certainly in Europe and the U.S., in the fall and into the winter in the Northern hemisphere, why shouldn’t I be worried about that? We’ve still got quite low infection rates across populations. Healthcare systems will have learned from the first wave, clearly, but it feels like, if this virus rolls around the world fall and winter, it comes back with a vengeance in fall and winter, and we get a very disruptive second wave, that could lead back to where we are now. We’re in early May and most countries are in lockdown. We’re just talking about a very initial easing of lockdown, so talk me through your thinking around this idea of a second wave that could be as destructive as the first.

Camilla Oxhamre Cruse: I do think that our best guess now should be that the virus will, to some extent, come back this fall. As you said, given the spread of the virus, not only here in the U.S. but also globally, I find it highly unlikely that the virus will completely disappear this summer as SARS, for example, did back in 2003. The way that I think that it will (come back) — a couple of scenarios here that we can discuss. I do think it’s likely that we will see a slowdown of the infection rate during the summer, and then that the activity of the virus will start to increase again some time this fall, probably around October/November, when similar viruses start emerging. We have other seasonal coronaviruses that usually start occurring in October/November, so I do think that we will likely see an increase of activity this fall.

The magnitude of the second wave is, of course, the main question here. What’s very important to highlight here is that, the more we contain the virus now, before and during the summer, the better we can contain the situation during the fall, and the better off we will be in the fall when the activity of the virus starts increasing. In other words, the more we suppress the virus, the easier it will be to contain it this fall, and therefore prevent that it will translate into broad community, and therefore not a major outbreak. And, of course, we can talk about the preparedness of the society, the preparedness of the healthcare system, but if we just talk about the likelihood that we will have another major outbreak, I think that what we do now in order to suppress it very much will be a guideline of to what extent the virus will come back this fall.

Hugo Scott-Gall: You’re saying that the longer lockdowns last now, the more effective they are, and that reduces the impact of the second wave. Before you answer that, I do want to bring in Olga here, just to hear your thoughts — Olga, whether having listened to Camilla and sketching out what the fall and winter could look like in terms of a second wave, how do you think that, with your economist hat on, whether that is something that is expected and baked into most expectations, or whether that would be a negative surprise if what Camilla says is likely? We’ll go to you first, Olga, then go back to you, Camilla, just to answer my question around, the longer the lockdowns go on now, what could reduce the impact of the second wave come winter?

Olga Bitel: Well, Hugo, as you rightly point out, the crucial question here really is whether — and to Camilla’s point on infection rates going back up in the fall, whether the healthcare systems are deemed to be adequate enough to support the extra hospitalizations or the extra burden, so to speak, such that we don’t require additional lockdowns. I don’t think the market is currently expecting lockdowns. As you know, for now, our best case is that we won’t have them. And so, we’ll have a gradual, sequential recovery, starting in mid-May or June, whenever the lockdowns really start to ease in earnest and people are able and willing, crucially, to move around, and to begin to consume, and resume their pre-crisis lifestyles.

In the event that the second wave of epidemic proves to be as destructive as the first and necessitates its moving back up into the front headlines, I think it will negatively impact the recovery, irrespective, almost, of lockdown. Of course, if we have more lockdowns, it will really severely depress activity and arrest the recovery again. But even if we don’t have lockdowns, if infection rates are sufficiently high so as to prevent people from engaging in their daily lives, work, commute, consume, etc. in a meaningful way, then we will have a disruption in the ongoing recovery for sure. So, Camilla’s expectations on how the second wave is likely to evolve based on our models, based on how the data is coming in today and in the summer months, will be critical.

Hugo Scott-Gall: Camilla, based on the lockdown — the longer the lockdowns are now, the less impact there could be in the fall and winter, is that right? Is that logical?

Camilla Oxhamre Cruse: I was going to say that the road back is quite crucial, and how we now go back to a pre-COVID society, I think that’s extremely crucial. I would emphasize that a slow, gradual, very controlled ease of the lockdown is extremely important so that we can contain, should there be smaller outbreaks, so-called hotspots, that we can identify them early, that we can contain them early, and therefore avoid spread in the community, and therefore contain the virus outbreak. I think that’s extremely crucial.

Testing is very important here, that we continue to test people to identify any potential smaller outbreaks and to contain them early. And then, also, we can talk about other measures to contain the spread of the virus. Should we introduce broader surveillance, temperature checks? In highly dense populations, should we use facial masks to contain the spread of the virus? Those are the questions that we need to address now, particularly in areas that are highly dense populations, because now we have the opportunity to really — before the summer and during the summer, to contain the spread so that we are better off going into the fall, so that we more easily can contain the virus this fall.

That is also to Olga’s point that when fall arrives, we will be, as a society, much better prepared. The hospital system will be better prepared. We now know how much equipment, what kind of equipment we need, and particularly, who is the most vulnerable in the society, so that we can better prepare and protect those that are the most vulnerable. We are, as a society, significantly better prepared for a second wave. If we now, when we are moving on to the next phase, easing of the lockdown, if we do that gradually and very controlled, I think that we will be in pretty good shape going into the fall.

Hugo Scott-Gall: In a connected system, though, you’re only as strong as the weakest link.

Camilla Oxhamre Cruse: Yes, of course. In the U.S., the demographic is a bit different because, of course, we cannot place the border to prevent people from other states to enter into Illinois, so from a travel perspective, that needs to be very considered. But I do think that if we really, truly roll out broad testing and facilitate that people can get themselves tested easily, we can identify any hotspots easily and therefore contain the situation. First of all, we further need to bring down the activity of the virus. And then, we can move on to the next phase, and that would be to have broad testing to identify outbreaks easily and contain those before they develop into a broad community spread.

Hugo Scott-Gall: Okay, let’s talk a bit more about the virus itself. Is it mutating? How does it compare to other viruses in terms of its lifespan and its behavior and characteristics?

Camilla Oxhamre Cruse: As with other coronaviruses — we compare with the seasonal coronaviruses, and also SARS and MERS. Coronaviruses tend not to be mutating as frequently as, for example, influenza viruses, which is good, particularly from a vaccine development perspective. This is also what we have seen with COVID-19. It is, of course, mutating. All viruses mutate, but it’s not mutating at a significantly high rate, and it has not significantly changed in its pathogenicity and characteristics as compared to what we saw early on in the outbreak in Wuhan. And that’s good, particularly for vaccine development.

I think that the general idea is, once we have a vaccine available, it could probably be a functional vaccine for two to four years. It’s not, as compared to the influenza vaccine, that we need to develop new vaccines every year. This would probably not be the case for the COVID-19.

Hugo Scott-Gall: When it comes to finding a vaccine, does that make you more optimistic, less optimistic? Certainly, the timeline that people are talking about is much faster. It must be a world record for speed. Those characteristics of the virus would make you share that optimism in terms of timeline and speed?

Camilla Oxhamre Cruse: Yeah, I think that there is a lot of activity going on from a scientific development perspective. There’s a lot of activity going on now developing vaccines, so I believe they are close to — we have more than 80 different vaccine candidates in development now in different stages, obviously. The target is also to use different approaches for developing vaccines. We have vaccines that they are developing more using a classic or traditional vaccine platform, we’re using also novel technologies, vector technologies, now mRNA vaccines…a lot of different approaches, which is good because we don’t really know what will be, at the end of the day, the most effective and which one we can scale up the most quickly.

Of these 80-something different vaccine candidates that are in development, approximately, a handful are now in clinical states. You’ve probably heard of Oxford University. They have one vaccine candidate, and they have been very optimistic in their outlook, saying that they could potentially have the candidate approved as early as September. Moderna, a U.S. company, said that they can approach Phase 2 in early summer, Phase 3 later this summer, and potentially have a vaccine candidate approved also before year end. Pfizer and BioNTech are also aiming to have a vaccine candidate approved this fall, saying that they could scale up production to have millions of doses available already in 2020, and 100 million doses in 2021. Johnson & Johnson, a big pharmaceutical company, as you know, could potentially have one vaccine candidate approved early 2021.

So, we have several good candidates in development that could potentially get approved before year end. Of course, the more candidates we have that get approval, the quicker we can ramp up manufacturing because, as you know, manufacturing is a huge bottleneck here. But one of the key aspects when it comes to the vaccine for COVID-19 that I would like to highlight now as data will start coming out on these vaccine candidates, the key is not, at this stage, to develop the perfect vaccine for COVID-19, at least not immediately. The idea is to develop a vaccine that, obviously, needs to be safe, very safe.

But from an efficacy perspective, we don’t need to hit a home run at the moment. We need to have a vaccine that offers sufficient protection to prevent a good percentage of the population from getting infected, but most importantly, it needs to protect people from developing severe symptoms should they get infected by the virus. Therefore, I don’t think the hurdle of developing a vaccine here is that high. I think that, as long as the vaccine is safe and reasonably effective, they will be good candidates for what we need at the moment, and then we can work on perfection in later generations.

Hugo Scott-Gall: Something that was fairly gloomy early on, talking about the second wave — this all sounds quite good, but actually, we are going to get a vaccine that is maybe not, as you say, perfect, but is sufficiently — what’s the right word? Strong, has sufficient efficacy that it actually really does slow the spread, which would mean that once you’ve got one or two of these vaccines available so that enough people, certainly the most mobile people in the world who are likely spreaders, can be vaccinated. Then isn’t that the all-clear? Doesn’t that mean we’re all okay?

I’m interested in your view on that, then I want to bring Olga in to talk about, actually, if that is right, that maybe in the first half of 2021, we feel this is now behind us because we’re either vaccinated, or a sufficient number of people are vaccinated, that actually the spread of this is very, very unlikely. You go first, Camilla, then it’s time for Olga on the economic consequences of that.

Camilla Oxhamre Cruse: Right. That’s a good point, and I do agree that I’m quite optimistic about the vaccine development. I’m quite optimistic that we will have, potentially, several candidates approved before year end, that we can ramp up manufacturing relatively quickly, so that we can start vaccinating those that are the most exposed, i.e. healthcare workers, frontline workers, and also those high-risk populations. Once we have vaccinated those, I think that we are still in a relatively good spot from a societal perspective.

But I do also want to highlight about where we started off on the second wave; that yes, even if we do get a second wave, we as a society are so much better prepared. The healthcare system is much better prepared to deal with a potential second wave, and we also have not only a vaccine, but we have several drug candidates that are in development in different phases that also would help to alleviate some of the pressure. So, I do think that, the further we go and the more we know about the virus, the better off we are should it come back this fall. I’m still relatively optimistic that we will handle a potential second wave significantly better than the first one.

Olga Bitel: Camilla, it sounds like you’re saying that the initial recovery, post- the lockdowns that we’re currently in, as they begin to relax in May and June, even if the initial recovery is somewhat underwhelming as we head into fall, we’re potentially amenable to further disruptions from the next stage of this, of the infection rate going up, our healthcare system better prepared, possibly a plurality of vaccines. So, the biggest impediment to our ongoing recovery, from the medical perspective, would be the fast manufacturing ramp-up of these different vaccines.

Does this argue, then, for a global effort in coming up with the numbers we’re talking about? You recently highlighted a million in 2020, 100 million by 2021. These are really small numbers relative to the vast quantities that we need. Even if we move just for the frontline healthcare workers in developed markets, but also in emerging economies, we’re talking about probably close to multiple hundreds of millions of vaccines, not to mention vaccinating broader swaths of populations, in which case we’re talking about billions. Who has the capacity to manufacture these quantities, and how might this work in practice?

Camilla Oxhamre Cruse: That’s a very good question. I believe that the more vaccine candidates, the more companies and, particularly, the larger pharmaceutical companies that truly have more capacity are involved, the better off we will be. I’m optimistic that we already now have a handful of candidates in clinical trials. Different companies are involved, and this will truly be a global effort to bring up the manufacturing capacity, first quickly, obviously, and also to the level that we need to vaccinate the broad society.

But I think that this will be probably more of a rolling development. We will identify who will need the first doses the most, and I would say the healthcare workers are probably the ones that will be vaccinated first. They are the ones that are the most exposed and are obviously critical for the society to function well. And thereafter, we will move on to the high-risk population, the elderly population, those with underlying comorbidities, and the rest of us simply will have to wait. But should we be infected, the likelihood of us coming down with severe outcomes or be in any need of hospital care is fairly unlikely. From all the data we’ve seen, the vast majority of those that come down with severe symptoms of COVID-19 are the elderly population and those with certain underlying comorbidities. We know that now, so the more we now about the pathogenicity of the virus, the more easily we can identify patients or people that are at higher risk, and they will be vaccinated first.

Olga Bitel: It sounds, based on what you’re saying, that we are going to have a recovery that is more of a fits and starts in 2020. And then, as we move out further into 2021, and really get a handle on this pandemic from a medical perspective through vaccines, treatments, extra hospital beds, etc., we will then have a stronger chance at a more robust and sustainable recovery. Would that be an accurate way to think about translating what you’re saying on the medical front to how I’m thinking about economic development? Because this is really the critical variable here, our ability to conquer this and put this behind us.

Camilla Oxhamre Cruse: Yes, I agree. I do think, from the hospital perspective, we have learned a lot. We know now how to quickly mobilize hospitals and the equipment that we need to secure the hospital, because that’s a critical function in society. We need to protect the hospitals so that they do not get overrun. I do think that, given what we know from the first wave, we are better off protecting our hospital system should a second wave emerge. If we also have a better testing capacity and facilities for the broader population to test themselves, potentially you can go down to your closest Walgreen’s or CVS to get yourself tested. That would also be very helpful and impactful, as I mentioned earlier. Then we could identify these outbreaks quicker and contain the outbreak so that it doesn’t translate into a wider spread.

So, those are critical functions to handle the next wave. If we do that well, I think that the society will be in a — I don’t think that the impact on the broader society will be as impactful as it has been during the first wave. And then, towards the end of 2020 and the beginning of 2021, we can start talking about a vaccine and who will be vaccinated. I think that that’s where we have the big change in the sense that then we can start really talking about suppressing the virus to the extent that it’s not going to be a problem from a societal perspective.

Hugo Scott-Gall: One thing that’s interesting, Camilla, is that there are quite a few arguments being made for deglobalization, yet the combined effort to find a vaccine and to find ways of treating this disease is very globalizing. It seems to be very joined up at the top of the science world. Is that something that you can see? You’re partly in that world. Can you see that? That’s question one. Question two is, when you have very immediate problems to solve, they can often be very innovative times. Will there be some spillover benefits from the huge amount of dollars being poured into solving this? Will we actually solve some other problems along the way as well, even if it’s not by design?

Camilla Oxhamre Cruse: Certainly, the scientific community is, by default, and has always been, very collaborative, and it will continue to be so. I think that this will probably even strengthen the global effort to find better therapeutic treatments, to find a vaccine. Within the healthcare system, the deglobalization is more about that we won’t spread the manufacturing on the wider scale and, therefore, be less dependent on certain regions — more to re-risk the situation. I don’t think that it’s a truly deglobalization effort. It’s more to hedge yourself. Should there be any problems, we don’t want to have a significant part of our therapeutic manufacturing coming from a certain part of the world. So, it’s more about hedging yourself more than a true deglobalization, per se.

And yes, I agree. Desperate times, desperate measures, it can result in very creative solutions. I don’t think that this crisis is, in that perspective, any different than any other crisis. We will find ways around to do things. It may be bumpy initially, but I do think that we will always find new ways of doing things or solving problems. Telemedicine is, for example, one thing that’s quite fascinating during this crisis. Now we have the technology in place to leverage telemedicine from a completely different scale than we have done historically, because it’s a little bit of a habit.

I’m used to going to see my doctor, and I don’t necessarily break that habit unless I have to. But now, we have to break some of our patterns, and we have to think beyond, and how can we do things differently? So, maybe a lot of people have realized that telemedicine is quite convenient. I can talk to my doctor and we can agree on how to move forward, which is a much more efficient way than me going to see my doctor. I can just call him or her instead. So yes, there will be different changes to our behaviors as a result of this, I’m absolutely sure.

Hugo Scott-Gall: Sure, sure. I just want to go back to Olga and ask around this trajectory of recovery, complexion of recovery. If we were to get some kind of second wave in the fall or winter, how much damage would that do to animal spirits? If you own a small business, you are strapped for cash, you were forced to shut down, you re-open but under very different conditions and you might have to close again. Is this going to really snuff out the entrepreneurial spirit and do a lot of damage to what Keynes called “animal spirits”?

Olga Bitel: Hugo, that’s really the key question for us as we’re trying to work out what these medical advances mean for economic recovery. I don’t think it’s so much about snuffing out animal spirits as it is about turning supply disruption into supply destruction. If businesses have to postpone making money for a couple of weeks, or even a couple of months, and then the fiscal support is there, the monetary support is there to help bridge that gap, that’s one thing. But if businesses begin to reopen in the summer as we expect, and then just as they’re about to start repairing their economics, their balance sheets are having to deal with another disruption, another hit to their revenues, another hit to their cash flows, I think that will tip many into bankruptcies.

And so, then we will start to think about genuine and prolonged supply destruction, right? This may not happen in the larger companies, in the listed company space, but certainly in the smaller businesses to the extent that, even this disruption that we’ve had, the lockdowns of the last month and a half to two months or so, will already have a profound effect on many small businesses. But just to contextualize this, restaurants, bars, these kinds of businesses altogether in the U.S. account for about 2½% of GDP.

So, while they make a huge contribution to our daily life and will impact, closure of many High Street storefronts will really impact how we perceive the recovery, what our choices for consumption are, etc. The headline numbers in terms of the progression of the recovery will feel somewhat disconnected because the recovery, in terms of the actual numbers, will feel stronger. Bigger companies, especially on the supply side, but even in broader areas and more high-value added activities, will actually prove to be more resilient. But this potential second wave of disruption is very, very real and will materially worsen the impact on a lot of businesses, and we’re very cognizant of that as we’re thinking about this into the second half of 2020 and the first half of 2021.

Hugo Scott-Gall: I guess if you’re a government or even a central bank, you also have to be very cognizant of this. And so, when it comes to thinking around timing of withdrawal of stimulus and aid, that will be a factor as well. That would probably argue for a degree of, better to be late than to be early, particularly when you’ve got this risk in the final months of this year.

Olga Bitel: Exactly right. In fact, what we’ve seen in terms of the initial government responses where they’ve been more proactive, especially in northern European countries, for example, we’ve seen the financing bridge for small businesses being extended through June. We may very well in the adverse event of another set of lockdowns, or substantial disruption even in the absence of lockdowns. But with substantial disruption in economic activity should the infection rates prove to be destabilizing in the fall, we could see, potentially, another short-term bridge announced.

The key point here is that the governments all around the world, to the extent that they’re able, are focused on making sure that the supply disruption does not morph into destruction, that we do not destroy our productive capacity and our economic capacity. And so, if and when we conquer — or rather, when — we put this virus and this epidemic behind us, whether through vaccines, extensive testing, a combination of things, etc., we can then have a pretty vigorous recovery. In which case, we would then need to think about withdrawing fiscal support and monetary support. But right now it’s premature, I would argue, especially based on Camilla’s thoughts on the likely resurfacing of this in the second half of this year.

Hugo Scott-Gall: Great. I think that is a good place to stop. I want to thank you both again for joining me. This is the second installment of our series on COVID-19. In a way, I hope it’s our last, but I suspect it won’t be. But I hope everyone has enjoyed listening to it. Thank you both. Thank you very much.