Andrew Sheets: Welcome to Thoughts on the Market. I'm Andrew Sheets, chief cross asset strategist for Morgan Stanley Research.
Matthew Harrison: And I'm Matthew Harrison, equity analyst covering biotechnology.
Andrew Sheets: And on this special edition of the podcast, we’re talking about kids and the coronavirus. It's Thursday, August 19th at 3 p.m. in London.
Matthew Harrison: And it's 10:00 a.m. in New York.
Andrew Sheets: So Matt, as regular listeners probably know, you and I have had many, many conversations on the path of COVID-19 over the last 18 months. But today I want to focus on the impact on children. This is a key question at the top of many people's minds for pretty obvious reasons. But it's also really important for the economic outlook as any delays in school reopening could impact how quickly people return to work. So maybe let's start with the statistics and the numbers that we know. What are you seeing in terms of children's case numbers and what does it tell us that's different or maybe not different between the Delta variant and prior waves?
Matthew Harrison: There have been about 4.4 Million cases in children in the US. That accounts for about 14% of the cumulative cases to date in the U.S. In the recent weeks, you've seen that number above the long-term average, somewhere between 18-22%, though I don't find it particularly surprising because we know a higher proportion of adults are now vaccinated compared to children. And so that obviously will lead to children becoming a higher proportion of the cases.
Andrew Sheets: And what do those statistics say about case severity, which I know is another concern? As you mentioned, young children cannot yet get vaccinated. Vaccines appear to be very effective at reducing some of the more severe risk of COVID-19. But what are we seeing about case severity and also some of maybe the more severe impacts of COVID, which is, I think, where the concern would lie?
Matthew Harrison: Right. So let's start with data around what we know around hospitalizations, as well as some of the more severe outcomes that can occur in children. So, of the cumulative hospitalizations for anybody of any age that has been infected with COVID, somewhere between 1.6-3.5% have been in children. The reason for the range is different states report the data differently. Another way to look at that figure is of the total number of children that have been infected with COVID, somewhere between 0.2-1.9% Of those infections have led to hospitalization. And that compares to a number in adults that is now somewhere in the mid-single-digit percentage. So lower in children. I think one of the other things in terms of the more severe outcomes that can occur in children is a condition called MSIC or multisystem inflammatory condition. This tends to lag COVID by 10 to 14 days, and it is a broad, inflammatory condition that requires treatment in the hospital. The CDC so far has recorded a little over 4400 cases and that's an incidence rate of about 0.1% out of all those children that have been infected with COVID. So overall, the severe outcomes in children are lower than adults.
Andrew Sheets: So, Matt, I know another factor that's complicating the debate around COVID-19 in kids is the fact that vaccines still aren't approved for for younger children. I was hoping you just give us some background on first kind of why is that process taken so much longer than the vaccine approval for adults? And then also kind of where is that process? How soon do you think we could see vaccines approved for kids? And what would that look like?
Matthew Harrison: Yeah, I think this is a topic that's high on people's lists. So the simple reason why vaccines in children are taking longer actually is twofold. So the first reason is the dose of the vaccine needed in children, because children are obviously smaller and typically have more competent immune system than adults the dose could be different. And so, the pharmaceutical companies need to figure out if they can use the same dose as adults or they need to use a different dose in children and they have to test different doses to figure that out. The second reason is there's an ethical obligation, typically, where you have to prove safety and effectiveness in adults before you can test in pediatrics. So, you needed the data from adults before the companies could engage in substantial studies in children. So, once we had that data, the companies started their work. But they've generally started work in two age groups, those 12 and older, those six and older, and those below six. And so, gathering that data is basically what's called they're taking a dose de-escalation approach where they start at the higher dose in older children and they have to work down to a lower dose as they get to younger children.
Our expectation is that data to support an emergency use approval for children six and up will be submitted in the early fall. And so potentially by the September/October timeframe, you could have approval for that group. In the under six group, it's likely going to take longer to generate that data. And so we wouldn't expect that data to be available until the end of the year. And so that would put an approval probably sometime early in 2022.
Andrew Sheets: Switching gears a little bit, I'd like to turn next to this issue of going back to school. It's that time of year again or it's about to be that time of year again. What have we learned over the last 18 months about transmission in schools? I realize it's not an enormous amount of data, but we now have some data. Given that some schools have been open. Do schools look like a higher transmission environment or actually maybe a lower transmission environment that people would expect?
Matthew Harrison: I think what we've learned is that schools can be safely opened. There are a variety of studies that looked at different precautions that schools are taking. And those that have taken greater precautions tend to have lower rates of transmission. And so I think what that demonstrates is with appropriate precautions, schools can be open safely. But I guess what I would just note is there's an extremely variable types of precautions that are taken sort of around the U.S. and so that can lead to a variety of outcomes.
Andrew Sheets: And kind of speaking of those mitigation measures. There are various things that schools can do, handwashing, wearing masks, opening windows, trying to space people out. Is there any indication from the data we have around the relative effectiveness of those various measures that schools can employ?
Matthew Harrison: I think broadly what you've seen is those that sort of employ the broad grouping of those items that you talked about have lower transmission rates than those that don't. And there have been comparisons of school districts in various states compared to school districts in other states that have demonstrated that. Though these are observational studies and not randomized controlled studies.
Andrew Sheets: The CDC, has said in the past week that fewer than a third of 12- to 15-year-olds in the U.S. have been fully vaccinated. But overall, we're hearing reports of vaccination rates in the U.S. that have been showing signs of improvement, maybe because of awareness of the Delta variant and the severity of it. What's your latest take on the progress of vaccinations with teenagers and also on some of these trends more broadly over the last couple of weeks?
Matthew Harrison: Right. So, the data from the CDC is those that have received two doses is 33% in the 12-15 year old group, 43% in 16-17, and 46% in 18-24. That compares with those over 60 that are a bit north of 80%. At least what I've seen in the data is that that rate has not accelerated dramatically. Now, granted, we've only had a few weeks. You've seen, broadly speaking, across the U.S. a jump from about a half a million daily doses, up to about 700,000 daily doses. And you have seen the rates in adolescents start to climb slightly again. But I wouldn't say there has been a significant inflection.
Andrew Sheets: And Matt, my final question would be on vaccine approval more broadly. What's the latest on vaccine approval moving from emergency use to more full fledged normal approval of the vaccines from the FDA?
Matthew Harrison: So what we know is the companies have filed the mRNA companies have filed for full approval through a normal BLA process. There have been a handful of media articles that have suggested that the FDA is trying to expedite those full approvals. And at least the last headlines I saw was that the hope was that that could come as early as late August or September. And I think based upon what we know about the approval packages, that seems possible. But we don't know any more than what has been discussed in the media.
Matthew Harrison: So, Andrew, you know, we've obviously been talking about children because of the impact that school reopening can have on worker productivity as well as returning to the workplace. And so I wonder about how important that is as you think about economic forecasts and your outlook on the market?
Andrew Sheets: Well, thanks a lot, Matt. So this is a really critical question. I would say maybe the most important economic variable globally right now, I don't think that's an overstatement, is the levels of U.S. employment. So not the unemployment rate, but the total number of people working in the U.S. relative to history, because that number is still a lot lower than where it was pre pandemic.
September and October are these really critical months for labor market data. It's going to tell us a lot about how much these various different theories of employment and why it's still lower are actually right. And so, our base case is that school reopening generally goes well, that schools are generally able to reopen, that that helps bring more people into the labor market. And that's an important reason why we think the Fed is going to move ahead with removing some of its policy accommodation. But that's a big risk. If schools are not able to reopen successfully, it has implications all the way up to the Federal Reserve that has implications for bond markets, and that has implications globally. So this issue of, you know, COVID in children, COVID in schools, it's not just kind of a personal issue or a down the street issue. It's really, I think, one of the more critical questions affecting global markets and the economy.
Andrew Sheets: As always, Matt, thanks for taking the time to talk.
Matthew Harrison: Great to be here. Andrew.
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