How Should Investors Think About the Delta Variant?

00:03 - 00:26

Hi, everybody, and welcome to The Pulse where we cover trends in the economy, markets, and asset allocation for long-term investors. I'm Matt Palazzolo, Senior Investment Strategist at Bernstein and Head of Investment Insights. On today's episode of The Pulse, our Co-head of Investment Strategies, Beata Kirr, will be discussing the latest perspective on the pandemic with Bernstein Research's senior US biopharmaceuticals analyst Ronny Gal.

00:29 - 01:22

Thanks for joining us today and our discussion with our resident coronavirus expert, Ronny Gal. I'm Beata Kirr, Bernstein Co-head of Investment Strategies. And those of you who listen to The Pulse over the last year will recall that Ronny and I sat down quite a few points throughout the year in 2020 to understand the coronavirus, get the latest updates on the medical response, and Ronny made some very prescient predictions. In fact, last fall I was a bit stunned by his optimism about the timeline and efficacy around vaccine development. And specifically Ronny had said that life could get back to normal by mid-2021. And here we are. Like I said, his forecasts were incredibly prescient and we thought it was a great time to sit down yet again and talk about what's new. So Ronny, thank you so much for joining me.

01:22 - 01:25

Thanks for having me again. And thank you very much for the kind words.

01:25 - 01:27

Well, it's great to have this partnership.

01:27 - 01:41

So let's step back for a moment and think about where we are now versus where we've been. How do we compare today to even a few months ago or certainly to the first time we sat down, which was April of twenty?

01:41 - 02:21

Yeah. So obviously we're in a much, much better place now. Deaths right now from COVID are... 3,500 a day in January. There are right now about 150 in early July. Case count per day was 225,000 around the same time in the middle of June. We are have a thousand cases per day. The US population is roughly 50 percent vaccinated and all the data we have suggest the vaccines are about 95 percent effective against the original strain they were designed against. An absolute measure of disease in any way you look at them are quite low where we are today versus versus six months ago. So clearly an amazing level of progress.

02:21 - 02:52

And are those numbers that you shared for the US or for global? Those are the US numbers. So that is remarkable progress. I do remember quite clearly the first time we sat down as you were explaining the curve, as you were explaining what it would take for that curve to meaningfully change. But I also remember last summer you were talking about the fall and the future. And amid your optimism for vaccine progress, you also mentioned something about variants and how it wouldn't quite be over when we thought it would be over.

02:52 - 03:04

So here we are recording at a time where in the headlines the Delta variant is really front and center. So let's talk about this wave. What do you see happening going forward with the Delta variant?

03:05 - 03:30

The signs that we have here are clearly pointing to another wave of the virus. In the UK, it's already have happened.. They have as many infections today as they ever had. Granted the measurement tools that we have are much, much better and fewer infections are missed. But they are essentially with the same number of cases they had at the peak of their historical epidemic. And just today, Goldman Sachs announced that they want everybody to mask up when they go to the office.

03:30 - 04:06

So there are clearly there. If we look at the US, we are seeing a pretty sharp upward trend in the number of cases. We're about 2x where we were merely two weeks ago. And the Delta virus probably now accounts for over half of the cases in the United States. And the way we are looking at this, we are going to go straight up and have a pretty substantial wave of infection that will probably peak around the second half of August to the second half of September. And this will probably end up dominating the news over the next month.

04:07 - 04:27

OK, so let's dig a little bit deeper into the variance. So it's going to be half the cases. It's obviously picking up. The peak is going to occur mid-August. What does that mean? First of all, for all those numbers, we started the show talking about hospitalizations and deaths. Let's talk about the US where half the population is vaccinated. Let's start with that.

04:28 - 05:07

Right. So what we have here is a virus is about twice as infective as the original Wuhan strain, what they call called the R0, which is the measure of infectivity, is about 6.0 versus 3.0 for the Wuhan strain. Luckily for us, the virus is not more virulent. That is a fewer the chances of death if you were not immunized roughly the same. And our vaccines, both the one simple Dorna and the one from Fizer, have a very strong proof that they work against this additional strain and they protect you, the person who were immunized from getting sick and dying at about the same rate as the original strain.

05:08 - 05:33

I think the Israeli numbers, which are the ones we have most of, are about 97 percent protection from the Wuhan strain and 93 percent protection from the new strain. And those numbers are not random. It's not like some people who were immunized are now exposed. It's more like if you have some sort of a predisposing condition or a weak immune system, Then the bar is a little bit lower to get sick, but that's roughly where the numbers are.

05:33 - 05:58

So we are quite solid from that perspective with our immunization. In terms of what it means for infection rates in the United States, we assume about 36 more million Americans will need to be infected for us to reach herd immunity versus where we were before. As an indication, 57million Americans were infected during the last peak in November or March. So we'd be about two thirds of that in terms of the number of infections.

05:58 - 06:25

Now, the good news is that the number of deaths, simply because the sensitive population have largely been immunized, will probably be a lot lower. We estimate about 70 thousand excess deaths in the United States this new Delta wave, which is roughly what you see for a typical influenza season. So this is going to be... it's not going to be fun, it's going to be moderately bad in terms of its impact, but it's not going to be nearly as bad as the first wave in terms of mortality and hospitalization.

06:25 - 06:43

Well, thank you for ending on a high note there. When you were talking about the ninety five percent or ninety three and ninety seven percent efficacy using the Israeli study, is that effective against contracting it at all or is that the affectivity against serious illness or death. Could you just clarify that.

06:43 - 07:20

Yeah. So that is the effectiveness against getting sick and especially seriously ill and not against being effective. As a matter of fact, one of the big concerns around the Web is that even if you were immunized against a carrier biological, what happens is your immune system, after being ramped up to a very high level initially after you immunized, who gets infected essentially cools down and the immunity retreats into the lymph nodes and sits there waiting for a new infection. So when you encounter a particularly infected virus, you potentially can be infected with the virus in your nasal passages for two or three days before your immune system really ramps up and eliminates the virus.

07:21 - 07:55

So the concern here is that people who were immunized, especially who were immunized early, or six months or more ago, could potentially be carriers of the virus and pass it to the unprotected population. So one of the major concern around this particular strain is that it will begin to be essentially a second threat to those who are not immunized or to sensitive population that don't have a strong immune system. For example, if you're going under chemotherapy and your white blood cell count drops sharply, presumably you're unable to mount immunity. And if somebody next to you is infected, you might be able to pass the Delta variant to them.

07:55 - 08:33

So we're clearly going to see more headlines around the Delta variant in the US, every day, like you said. And the real question for us as investors will be, what will the economic and market impact be. And you reference that, for example, I think it was in the UK that Goldman was requiring officers to be masked. And so it is an interesting question. We saw yesterday, Los Angeles County was reinforcing a mask mandate. So what do you think the response could be from governments, local or national, to this increasing wave? Do you think we will be back to the phases that we were in a year ago with these massive national lockdowns?

08:33 - 08:58

I don't think so.. The answer is that as long as this Delta variant can be handled through immunization, then that becomes the logical response. So if you think about locking down whole sets of the population versus saying, look, if you are concerned about the virus, you better get yourself immunized. So the answer will almost certainly be a more aggressive drive to immunize the non-immunized population.

08:58 - 09:45

The second question is, what would organizations, people, cities do in addition to that? So if we're not locking down, is it reasonable to expect the immunized population to put a mask or to maintain a certain level of distancing measures or not to congregate in sporting events or restaurants or subway? And our take is, there probably will be a measure of that. So I think we'll end up maintaining a maximum capacity in indoor places like gyms or restaurants that will be lower than the ones we had before. We will probably be asked to mask in the presence of large groups of people, especially ones that we don't work with every day or see every day. And that will probably continue until the Delta variant is behind us, which is probably close to the end of this calendar year.

09:45 - 10:10

And the logic here is simple. All of us have some sort of an older relative whose immune system might not be up to snuff. We might all know somebody who is have got a compromised immune system because of their own, a strong tumor suppressant or undergoing chemotherapy. So it does offer a level of social measure for all of us to help make sure those people don't get infected, but that this probably does not come to this idea that we'll all go back home and close down.

10:10 - 10:16

I will interpret your response as, if you want to have a party, you should have it in short order with a hundred people.

10:16 - 10:18

I think that's a good idea, probably.

10:18 - 10:49

Let's look at the state experiences. And you have published something recently looking at the correlation between covid incidence and. Vaccination rates, and I don't think your data showed anything really surprising, given the efficacy numbers that you've shown, but I think it feels that we've moved into a different environment. You just referenced this, that it's really more local response than national response because of the differences in population. Do you want to comment on that, about the experiences that you've seen locally?

10:49 - 11:18

Sure. So one of the things that happened in the United States over the last two or three months was that the disease was coming down everywhere. So states that had higher vaccination and lower vaccination because so many people were infected and there was a general retreat of the virus and there was no real separation in the rate of infections between the states. Now that we have a growing strain that is more, in fact, that we are beginning to see a very sharp separation between states where immunization rates are high versus states where the rates are low.

11:18 - 11:53

Places like Vermont, Massachusetts, Connecticut, generally the Northeast have a very high rate of vaccination among adults, above 75 percent for those over 18. And we are seeing the number of reported daily cases per million coming on to 20. Then in states with the vaccinations, rates are low below 50 percent of the adult population, places like Louisiana, Wyoming, Mississippi, Alabama, a lot of the south, we are seeing infections rates in the rate of 80 to one hundred and twenty or even more infections per day. So we are seeing a very funny stop there for a moment.

11:53 - 12:05

just for context, when we first sat down in April of 2020, can you just remind our listeners what was the run rate of number of infections per day when the US locked down? How much bigger was that than what it is today?

12:06 - 12:33

So the problem is that we had a much weaker measurement system than we use today, but the rate of infections per day back then was about 10x where it is today. So we are still in a pretty good position everywhere. But the trend lines is very sharply against us and we are beginning to see the separation between the states based on vaccination, when the states that have a high vaccination rates stay reasonably low and the states that are not are coming back up pretty sharply.

12:34 - 13:31

And then, when we think about it in terms of the economy and the impact on markets, we do think the markets are really paying attention, obviously. But to this discussion about, 'this is still 10 times better than it was a year ago,' the initial market response was so strong, given the magnitude of uncertainty, given how fast it was spreading globally, given that unclear path of response, it does feel to us as investors that we're in a different place today because of this localized ability to respond. So we remain optimistic, actually, about the equity market response to the change that we're seeing now,, and the variants, mostly because of what you've spoken about earlier, about the efficacy rates and the localization of the response. But I'm curious if you could comment on various global responses and what you're seeing in terms of differences amongst countries and the response and the ability to respond given different vaccines that were used?

13:31 - 14:16

Yeah, I think the most interesting phenomena is the differences between what you're seeing in places like the U.K. or locally in the US and in general in Western Europe versus what you see in some what I would call island nations. So the UK and the US are beginning to introduce gradual measures. The thinking is largely how do we manage the epidemic and protect the sensitive populations without causing a whole whole ground lockdown? On the other hand, the island nations, places like Taiwan or Australia or I would even throw Israel in that respect, given it's mostly closed borders, the notion is can we stop the infection from ever coming in? So they're moving to a much sharper measures, shutting down airports or limiting international travel records, discussing that possibility.

14:16 - 14:40

And then I'll largely stems from from the New Zealand experience that was able to essentially avoid the epidemic by closing the original wave of the epidemic, by essentially closing their borders very, very early in before the infection got in Denmark within the local population. So there's a temptation on the island nation to go that route as opposed to saying, look, how do we just protect the sensitive population? And that makes sense.

14:41 - 15:02

There's also a clear difference between the rates of immunization, although I would argue that initially the US had immunization is beginning to fade as other Western countries, which have much more centralized healthcare system, are able to penetrate deeper into the population quickly and immunize a larger percentage versus the United States.

15:02 - 15:19

Well, let's go back to the US, where there's been this growing conversation around the potential for booster shots and frankly, some confusion about it in terms of what the CDC is saying versus what Pfizer is saying. Can you help us make sense of what's going on? What's your perspective? Are we going to need these? When are we going to need these? What makes sense?

15:20 - 15:53

So, as I mentioned earlier, your immune system after the initial wave doesn't quite go dormant, but essentially retreat back to the lymph nodes and the Spleen is not present there in the nose and potentially could carry the disease for two or three days, and what Pfizer have come out and argued is that what you want to make sure is that the large percentage of population, although they might be still protected from getting sick, should be boosted to make sure that they can carry the virus and thus able to better stop the broader infection of the population.

15:53 - 16:25

So this is kinda like, get immunized not because it's good for you, but it's good for public health. That view has not been accepted by the CDC, the CDC said, which is that kind of a professional standard setting body have argued that you should only need to be boosted if you have a risk of getting sick again. So the objective of the immunization is not to provide public health benefit, but protect you as a vigil. And if you are being protected from disease for a long duration of time through your initial two injections, why should you get a third?

16:25 - 17:13

So that's the difference of opinion today that I'm willing to change those right now. Pfizer, and I'm guessing Moderna would do the same thing,,,, are running [...] trials to try to demonstrate some public health benefit or at least some benefit to the people who were immunized initially as a result of the booster shot. And at this point, what's pretty clear is that if you have a weaker immunity, if you're very elderly and frail, or if you are taking some sort of immunosuppressant drugs like the one used for very similar auto-immune conditions, you probably will get a booster shot. But the rest of us who have a competent immune system probably are not going to get one. So a targeted population. Yeah, a targeted population. Let's see where things stand in a month or two. I mean, the views among the public health officials might change if the Delta wave gets to be very, very high. Let's see where that goes.

17:14 - 17:39

Look, I'm a mom of two. We've talked about our kids and the experience of COVID over the last year. I'm curious, it looks like schools will be fully open in the fall. Any comments on kids and the likelihood of vaccines actually transitioning over to that population? I've seen some recent press about potentially they're not going to get vaccinated. And I'm curious your thoughts if you've done any work on this under-12 population and what you think will happen there?

17:39 - 18:31

Yeah, so the testing of the vaccine is taking place and the notion is where they actually provide enough benefit without some significant side effects that will justify the organization in that group. The issue is your immune system is much more we have to get, which is the side effect that happened right after the injections that all of us, I mean, I felt are simply much more pronounced in children of their immune system responds much harder. And if they're not subjects or they're the odds of being infected are much lower, then why are we immunizing them? And as a matter of fact, even if you get the infection, the side effects are so low, the effect of the disease are so low. Shouldn't we make sure they all get infected when they're young and the disease doesn't do much, then wait for them to get older and be immunized and get the infection when they're older and potentially suffer more significant side effects.

18:31 - 19:16

I remember when I was a child, there was like smallpox virus, when your parents made sure you got infected with smallpox as a kid to make sure you don't get it more violently as an adult. And we would joke internally that it might be time to do COVID parties for children. So the short answer about your kids is, the risks your children from getting infected with having significant morbidity from COVID is very low. If the risk would justifies it with the vaccines, and they are lowering the dose for children, so forth, then your kids will get the infections. If they don't, well, it might not be so bad if they actually get the COVID virus at a younger age. If a new virulent strain emerges that actually hurts kids, then obviously all bets are off and their responses by families and countries will obviously be much, much sharper. But we are not seeing much of that right now.

19:16 - 19:24

Should I ask you for an overunder on whether the vaccine will come out for under 12 year olds? It sounds like this is a fast emerging. It could go either way.

19:24 - 19:44

It's probably an over. It's over 50; over 50-50, mostly because I think what they'll do is say, well, some parents will still want to immunize their children. Some kids are more susceptible than others because they've got comorbid conditions.. So let's make it available. Now, would it be recommended for all the kids? That's a different matter right now. I'm not so sure that will be the case.

19:44 - 20:15

Well, it sounds like we're going to have to meet again and talk about that when we get that data and think what the implications are for schools. I'll just close out by asking you the question of, looking at the amazing progress and innovation that was made over the course of the last year in terms of the speed of this vaccine development and the mechanisms that these vaccines use on the mRNA front, what do you think about the future? What do you think the medical and scientific community has learned from this and what are the consequences of that?

20:15 - 20:55

Yeah, so there's an enormous amount of effort heading that way. So the first question is, where else in the vaccine world can we throw this messenger RNA vaccines with good results? And the almost immediate answer is, you start with influenza. With influenza right now we are guessing what the strain will be six months out and then you manufacture a lot of vaccines in order to do that. With the messenger RNA vaccinations, because they're so much easier to make, you don't have to make that guess. You wait until a month, month and a half before the strain hits the United States and then you manufacture the correct strain. So our chances of putting seasonal influenza behind us are quite good. Right now, it's what seems about 30 percent. Gone. No more flu.

20:55 - 21:27

Yeah, basically. I mean, it will go up from 30 percent effective vaccine to 80 percent effective vaccine. That essentially means that the flu will be something that will go the way of the rotary phone. Some of us remember it. Some of us never ran into it. The second order attacks will be on activation of the immune system to do other things. So most of the efforts there is on immuno-oncology, that is, can you use the this vaccine to somehow, instead of presenting an external virus-like object, but present a tumor-like object and harness the immune system against that?

21:27 - 21:33

There's a big effort now taking place. We probably a year and a half away from the first set of data that will look at that.

21:33 - 21:55

The third effort, which is a couple of medical breakthroughs away, is this idea of giving therapeutic proteins to the patients using this. So instead of you having to immunize, to get any injections every month of Humira for your rheumatoid arthritis, can we just give you the gene for Humira and you'll make it yourself for six or nine months. Problem is, we still can't control the amounts very well.

21:55 - 22:22

Well, it's great to end on this high note of what innovation, as you said a year ago, the global focus on solving one problem led to incredible innovation and an incredible speed, obviously at the loss of other research that suffered in that period. But it's great to see that this development of mRNA vaccines has really positive consequences for other areas as well. To Ronny, thank you so much for sitting down with me again. It was great to catch up.

22:22 - 22:35

Anything else you want to add and get out there for our listeners, just hoping we'll all be all that covid wave the next wave and we might see another one. And then I kind of hoping this will be our last conversation with some bad news ahead of us.

22:36 - 22:40

I hope so, too. I hope so, too, for everybody sake. Thanks again, Ronny.

22:40 - 22:40

Thank you for having me.

22:43 - 22:44

Thanks for listening.

22:44 - 23:09

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