Andrew Sheets: Welcome to Thoughts io the Market. I'm Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley Research.
Matthew Harrison: And I'm Matthew Harrison, Equity Research Analyst covering Biotechnology.
Andrew Sheets: And on part 1 of this podcast, we'll be discussing the outlook for the Delta variant and the impact on markets and the economy. It's Thursday, July 29th, at 4:00 p.m. in London.
Matthew Harrison: And it's 11:00 a.m. in New York
Andrew Sheets: So Matt, the last time we spoke, concern over the covid-19 Delta variant was largely centered on areas outside the US, particularly Europe and Asia. But now we're seeing spikes in a number of U.S. states and a lot of conversation over the unvaccinated. Before we get into some of your forecasts and the outlook, you know, maybe just a good way to step back is to think of a scenario where if there weren't vaccinations, how serious does the Delta variant look relative to prior outbreaks? How could you put it in context?
Matthew Harrison: Thanks for the question, Andrew. I think there are two factors which are important to consider. The first is the rate of rise of new cases. It is much steeper with Delta than with previous infection waves. You were able to see that in how quickly new cases evolved in India and its wave, in the UK and its wave. And you're seeing the same thing in the U.S., though that slope is a bit more shallow until you remove the effect of vaccination and then it becomes quite parabolic. The second thing is obviously the total number of cases that you're seeing and here, that's where vaccines are having a more significant impact. So if you were to take a state like Florida, it looks like it's about half its prior peak in terms of total number of cases. But if you remove the impact from vaccines, it's actually at or above the prior peak in total cases. And you see that across other states in the U.S. as well.
Andrew Sheets: So, Matt, you just mentioned that Delta is looking more infectious, it's spreading faster than prior versions of the virus. Is that just the nature of all variants. And, you know, given the history of other viral outbreaks, kind of what tends to be the trend of variance over time, how do they tend to evolve? And are there common patterns in this evolution?
Matthew Harrison: The point I would make is the natural evolutionary trend of a virus is to become more infectious and less virulent. If you put yourself in the head of the virus, what they want to do is the virus obviously wants to survive. And the way it survives is by infecting a lot of individuals and then having those individuals infect a lot of others. And if you're too virulent, then you can't spread very efficiently. And so the virus tends to learn how to do that. I think what's novel with what's happening here with the Delta variant and sars-cov-2 is that typically coronaviruses are quite stable. But because this virus has infected a lot of people globally, it's actually made the move towards a more infectious strain, probably quicker than we have seen with some other viruses in the past.
Andrew Sheets: So more infectious, but maybe less dangerous.
Matthew Harrison: Correct.
Andrew Sheets: So Matt, I asked you a hypothetical trying to compare kind of apples to apples of what Delta would look like if we didn't have vaccinations, but obviously we do, and they appear to be making a very large difference. What do we know about the changing relationship between the number of cases and the number of hospitalizations that vaccines are creating? And what are some of your thoughts about that going forward?
Matthew Harrison: Yeah, so I believe the most recent statistic from the CDC is that 97% of the hospitalizations in the U.S. are in unvaccinated people, and 99.5% of the deaths in the U.S. are from unvaccinated people. So I think that's a pretty stark statistic on the impact of vaccines. Outside the U.S. there's been a lot of what I'll call real world data, where companies have followed cohorts of vaccinated individuals over time. And there you do see a diminution of what I'll call vaccine efficacy against mild to moderate disease. So, for example, there have been recent data published from Pfizer that suggested that after six months, you're looking at sort of, instead of a number in the mid 90% for prevention of symptomatic disease, it's in the mid 80%. But, prevention against hospitalization and severe disease is still in the mid 90% range and obviously, as you talked about, Andrew, that's the key statistic from a public health standpoint.
Andrew Sheets: Well Matt. You know, something we've been talking about in a number of our conversations really over the last year is this idea that, you know, this may be a disease that's endemic. It may just be something that the world has to live with, you know, somewhat like the flu, that it can't be eradicated or it's unrealistic to eradicate it. So Matt, your thoughts around that. And again, maybe going back to some of that data from Pfizer. How important is this distinction between preventing symptomatic cases and preventing the more severe ones?
Matthew Harrison: My view would be that this is going to be an endemic disease. People are going to learn to have to live with it, though, I would hope over time, because coronaviruses tend to mutate a lot less than the flu, that this, you know, over a few year period may start to resemble more like some of the other coronaviruses that make up the vast majority of the common cold than, for example, what we experience with the flu. But that said, I guess there are two other points. So the first is we don't know how long the protection from vaccines last, but I think the good news is that even over the course of 6 to 12 months, the protection against severe disease and hospitalization continues to look quite strong.
Matthew Harrison: The second item is, over the course of the next, let's call it 6 months, but especially as we start to enter the winter season, we should have data from both small molecule drugs, so pills that you could take that may help treat disease when you get it, and then also from newer antibodies, which could also help treat or be given to people that are at high risk. And so I think there's going to be a lot of drugs in sort of the clinicians armamentarium to be able to treat people with disease as well. So even those that may have a breakthrough infection with a vaccine or get disease could be treated and outcomes continue to be improved. And then I think the third point here is, and we've talked about this previously, but there are booster shots in development for vaccines. Data that we have now suggests that even just a third dose of the current vaccines is both safe and quite effective in terms of increasing immunity, even against symptomatic disease. And then we have some specialized boosters that work against all of the variants and in particular Delta, such that you could even have a very strong response against those. So I think there's a lot available. But to your point, prevention against very severe disease does seem to last. And I think something that from a public health standpoint, at least, is the most important factor here.
Andrew Sheets: So while we're on the topic of variance, I think a concern in the back of a lot of people's mind is that eventually we will get a variant that eludes the vaccines and that maybe some of this progress, some of this hope that is in the market, is in the economy, will be for naught as a new variant comes along. But, you know, thinking about the science of that, I was wondering if you could comment on, is there a good precedent for a virus evading a previously effective vaccine? And then, you know, you do a lot of your work with these mRNA vaccines, this is a new technology, and any thoughts you have on how that technology might impact the chances of a variant fully evading these vaccines?
Matthew Harrison: I think what we see from the science is that the mutations that are out there probably represent the broad majority of mutations that exist, and now we're in a situation where it's novel combinations of those mutations which make up these new variants that potentially pose the risk. And typically, we've seen one or two mutations that have combined together to make up a variant. And while there are a range of mutations, there's a subset of them that affect what's called the receptor binding domain of the virus. And so if you change that enough, because that's the target of the vaccine, then potentially, right? You could have an evasion of vaccines.
Matthew Harrison: Having an idea of the potential for that to happen is difficult, but I don't want to rule it out, primarily because we still have high disease spread, which means we still have potential for these new variants to develop. I think the most important thing that I would then say to that is given the speed of the mRNA technology, we have a fallback position. So if we were to see something like that happen, the companies can quite quickly adapt and make a new vaccine against that genetic sequence. So, you know, while if we had that situation it wouldn't be good, I think the companies could get to a point in, let's call it a 3 to 6 month time period, where they could deploy effective vaccines against that new novel strain.
Andrew Sheets: As always, Matt, thanks for taking the time to talk.
Matthew Harrison: Great speaking with you, Andrew.
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