What to expect as the virus continues

-- | 08/04/2020

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As the coronavirus continues to spread and impact both the health of humanity and the economy, our healthcare strategist, Karen Andersen, sat down with director of personal finance Christine Benz to share her analysis of the impacts and government response. More states have issued stay-at-home orders, and more than 100,000 tests are being performed every day in efforts to reduce the number of cases as well as restrictions. A recent paper by Andersen and equity analyst Preston Caldwell highlights several treatments in clinical trials for an effective treatment for the virus.  

While the waves of the virus and social distancing measures are projected to continue into the second half of the year, the economic impact is not expected to be long term. Maintaining social distancing measures to contain the virus is the main priority--along with the ability to use various apps to track the locations of people who have contracted the virus. Technology is imperative during the quarantine as businesses work remotely and research on the virus continues. On that same note, limitations are present: the shortage of ventilators and beds in the ICU. Companies are trying to respond quickly to increase capacity, but it is likely that the virus may overlap them. The worst wave is expected to hit in April. Improvement at the beginning of May can be expected if social distancing orders are obeyed, possible treatments continue to be tested, and the capacities of hospitals increase. 

Please stay tuned for important disclosure information at the conclusion of this video.

Christine Benz: Karen Andersen, who's a strategist in equity and credit research was with us three weeks ago. She's back today and she's going to kick things off for us by providing an updated view on where we stand in terms of stopping the spread of the virus as well as the economic implications. So Karen will discuss developments that she and the team are seeing in terms of testing and vaccinations, therapies, as well as some of the equipment shortages that we've seen in the healthcare arena.

Karen, please take it away.

Karen Andersen: Thanks Christine. Now that we have more information on how a coronavirus is spreading in different countries and more information on how governments are responding, my equity research colleague Preston Caldwell and I have updated our March 9 analysis. So our new report was published Tuesday, and it really tries to dive a little deeper into how this virus is affecting our health and our economy. So as far as health, we've refined our U.S. scenarios to get a month-by-month forecast of how the infection could spread and how widely the social distancing measures will be spread across the states. 

Just first, maybe a few updates on what we're doing to slow the spread of the virus right now. Almost half of Americans were under stay-at-home orders as at the end of March. And I believe that that dramatically increased in the past two days, as we've seen several more states issuing these kinds of orders. Our access to diagnostics is improving rapidly. So we now have more than a hundred thousand tests being performed each day in the U.S. so that brought us from March, I think, up to a million tests total. Both of these facts lead us to believe that our current efforts are allowing us to begin to reduce the number of cases possibly by early May and begin to slowly lift restrictions this summer, June and July. We do think we'll have confirmation of at least one effective treatment during the summer, which should give us more confidence even if we start to see some outbreaks again as we lift these restrictions, we won't see a replay of the shortages that we're currently seeing with ventilators in New York. 

Maybe just a little bit more on the treatment. So, the FDA actually just did sign off on March 28th on emergency use of two versions of an antimalarial drug to treat coronavirus. These drugs appear to act as antivirals in this case, and they have supportive data in some small studies so far. So hydroxychloroquine is being used widely in hospitals to help healthcare workers stay healthy and to treat patients as part of clinical trials or with this emergency approval. But there are also several other treatments that are now in clinical trials that we've updated in our new report. So Gilead's remdesivir remains the leading hope for an effective treatment, with data expected later this month from controlled studies in China, data from a handful of patients in different countries for remdesivir so far has been encouraging, but it's not definitive. So we're waiting for these studies that have a control arm to give us more indication. We model a 70% probability of approval for that drug. 

Two arthritis therapies are now also in clinical trials. These could help very sick patients with lung inflammation recover more quickly or avoid a ventilator, which is very important if we're facing these kinds of shortages. These therapies are widely available, and they could be quickly repurposed for coronavirus. And they only would require one dose that is being used in trials versus arthritis patients who typically require a dose every couple of weeks. Then in the long run, the pipeline is starting to shape up with the potential also for more-targeted drugs that are specifically designed against coronavirus by the end of the year and then vaccines in early 2021. I think JNJ was one of the latest firms that talked about accelerating their vaccine timelines, and they've guided now to an early 2021 time frame. That would be really roughly a one-year development time for a vaccine, and that would be at the faster end of that 12 to 18 months that a lot of companies have cited for coming up with a vaccine.

The way I'm looking at this is that we will have waves of the virus and additional social distancing waves in the second half of the year, but not at the level of what we're doing right now, given the future availability of treatments. In addition, we'll have waves of new treatments after that, starting with repurposed drugs, Gilead's drug, targeted antibodies, and then ultimately a vaccine in 2021. 

Just very briefly turning to the economic impact. Our conclusions here are fairly similar to our previous report. We did increase the GDP impact we model for 2020, and we do now assume a 2.4% contraction in GDP in our base case. But we think the scope of the shutdown to disrupt the U.S. economy long-term is likely overrated. About 70% of GDP is actually from businesses that are mostly exempt from orders, and half of the businesses that aren't exempt can continue with remote operations. Also the fiscal stimulus should prevent a collapse on demand of the U.S. economy. That's our really our latest take on overall health and economic impact, Christine.

Benz: Karen, question for you: In terms of vaccines and therapies, let's talk about your sort of bear case if things don't unfold as you expect them to in the second half of the year. 

Andersen: In a bear-case scenario, we do assume that there would be no effective treatment. And we also assume that we would be struggling a bit more to try to contain it even with this kind of first pass of social distancing measures. The other fact is that if we are struggling and there are no treatments, there's really only so long that we can try to hold on to this really aggressive shutdown of the country. I think that that probably would be limited to a few months as opposed to a year shutdown of the entire country. 

I do think that one thing that's important to remember, though, in this kind of scenario is the kind of tools that have been used in certain countries in Asia to prevent and control outbreaks. I'm thinking of countries like South Korea and Singapore. So what they do is they actually very aggressively trace contacts of those who become infected and then quarantine those who may have been exposed. And so now, just recently there's really been kind of an explosion in technology to help with this. And so there are various apps that can be used to track locations and then really determine who was close enough to someone who became infected that they need to self-quarantine. So this sort of information is really critical. Especially if we're in a situation where we've already contained the virus, and we're trying to emerge from a lockdown, and we don't have any kind of effective treatment. 

A big question here, though, is whether Americans are willing to accept the kind of privacy rights' violation issues that would come with this. I think one solution, though, could be to make these apps voluntary. And so if the situation remains really dire, I would hope that we would see a lot of folks volunteering to allow their maybe anonymized location data to be shared. So I think that even if we're really struggling with some of the social distancing measures, and even if we're not sure which treatment is best, I think there's probably a lot we can start to do, a progress we can make with technology, assuming Americans can get on board with this and start using their phones as something to help us fight the disease.

Benz: Karen, question for you about these ventilator shortages, which you briefly mentioned. Can you discuss your thoughts about how that will unfold in the coming months if these shortages aren't just limited to New York but other cities as well?

Andersen: Yeah, sure, Christine. New York, as of the data that we had on Tuesday, that was about 40% of U.S. cases and I think about 20% of all U.S. cases were in New York City alone. Having so many cases centered in one region or one city is frightening. There are so many limitations on what the healthcare system can handle from the number of ventilators, to even the number of healthcare workers trained to monitor patients on ventilators, to the number of ICU beds that these patients might need. We're seeing ventilator manufacturers trying to quickly increase capacity. Most of these companies are looking at something on the order of doubling their capacity. But this isn't really likely to come fast enough for this worst of the wave that's hitting us in April. But in our base- and bull-case scenarios, both of those scenarios, we think a ramped-up production of ventilators, potential new treatments, and better containment could all help improve the situation beginning in May.

There are also a lot of creative ways that supply could be boosted faster. The FDA has already taken some steps here. They're allowing sleep apnea positive airway machines to be used in severe coronavirus patients. They're also using tube splitters, so that allows patients to share ventilators. Then also we've seen industries volunteer to make simplified ventilators that I wouldn't have really considered like auto industry or Dyson, the expert in vacuums. April will likely be very tough. But there are several ways that we can improve supply and reduce demand by having treatments beyond April.

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