In the second installment of our video series on the scientific and investment implications of COVID-19, Biotech Analyst Agustin Mohedas provides insights on how biotech and pharmaceutical companies are responding to the crisis, and why continued systematic testing for the virus is crucial to the eventual reopening and recovery of the U.S. economy.

Key Takeaways

  • Early implementation of social distancing measures helped China and South Korea flatten the curve of COVID-19 relatively quickly. The pandemic trajectory in Europe and the U.S. is not comparable to Asia because both regions were slower to begin efforts to curtail the spread of the virus.
  • While diagnostic companies have ramped up production of various testing methods, they remain limited by an overburdened health care system and the lack of personal protective equipment required to gather samples.
  • Although the economic impact of social distancing is devastating, we believe reopening the economy prematurely without adequate testing procedures in place could cause a wider spread of the pandemic, leading to extended lockdowns and deeper long-term economic damage.

Michael McNurney: Hi, my name is Michael McNurney. I am joined today by Agustin Mohedas in the second of our series on the COVID-19 crisis. During this series, we are looking at the disease itself, but also the economic and market implications of the disease. A lot has happened since we filmed our last segment. And Agustin, I guess where I want to start with you is, just by reading the headlines, it seems like we have turned a corner on the disease, but I am not actually sure I agree with that. In Asia, definitely, we are seeing signs of progress and Europe has flattened the curve somewhat, but there is still close to a million cases there and I think roughly a quarter of those were diagnosed in the last seven days. In the U.S., we seem to be behind both Asia and Europe. What can we learn from Asia and what does it tell us about the trajectory of the disease here in the U.S. and in Europe?

Agustin Mohedas: Yeah, thanks Mike for that introduction. The COVID-19 epidemic really started in Asia, and a lot of the countries there – China and South Korea in particular – were very quick to implement social-distancing measures. And they really flattened the curve early on in their epidemics, so their epidemic trajectories are going to look a lot different than what is happening in Europe and now in the United States, as well. And so, I don’t think we can really use South Korea or the China outbreaks as models going forward for what might happen in the U.S., but certainly we can look towards Europe to see how this might evolve here in the United States.

Now Europe is at over 700,000 cases and they are seeing the daily new case growth of around 3%. And so, their social distancing measures have, in fact, slowed down the epidemic and they are over the hump, seeing, you know, adding new cases every day, but a lower number each day. We are right now at about 25,000 new cases per day and a total of 600,000 cases, and we are still bouncing between 25,000 and 35,000 new cases per day.1 And we are about a week behind Europe. And so, over the next week or so, we should see our daily new cases start to trend downwards significantly, and conservatively by the end of May, certainly by the end of April and conservatively by the end of May, we will be adding a lot fewer cases per day, potentially allowing for easing of social restrictions on a state-by-state basis.

McNurney: Okay, well, with that in mind we talked a little bit about Scott Gottlieb and the American Enterprise Institute’s four-phase roadmap to recovery, if you will. Phase 1, if I am not mistaken, requires extreme social distancing. It also requires the flattening of the curve in terms of the number of infections, like we just talked about. You said the U.S. may be able to move onto Phase 2 by June, maybe the end of May it sounds like. We are already seeing that in Asia. The U.S. and portions of Europe are already talking about moving on to this theoretical Stage 2, if you read the headlines. So, are we too soon in opening the economy and are we maybe skipping a few steps of this roadmap to recovery?

Mohedas: Yeah, no, those are good points, Mike. So basically, Scott Gottlieb’s plan and several other plans for reopening the economy that are out there, almost all of them include a robust test, trace and isolate mechanism. The state of California just came out with a six-point plan, and point number one was about testing, isolating and tracing and isolating. And so, before we can really move on to Phase 2, or partial reopening of the economy, we have to have a robust mechanism in place for testing broad swaths of the population to identify active cases and then isolate those people. And so that is the difference between population-based intervention – that is what we are doing right now, everyone is at home – and case-based intervention, where we isolate only the people that are infected and their contacts. And that might be a lot of people, but it is certainly a lot less people that we are isolating today and it is a much smaller impact on the overall economy. But in order to get to that point, we need to be adding a lot fewer cases per day than we are today. And I am thinking by the end of April, mid-May, we may get close to that point, and we have to have the capacity to do a lot more tests than we are currently doing. Right now, we are averaging about 140,000 tests per day across all 50 states and we probably need to get closer to 500,000 tests per day.1 Now that has been increasing slowly and as that continues to increase, we will have a much more kind of robust system of testing in place that will allow us to move to that next step. And I know people are really anxious to move over to that next step, but it is important to wait until the right time and that everything is in place before doing so.

McNurney: So, I want to get back to that idea of it is important to wait for the right time. But Abbott Labs announced that they are sending out approximately a million tests this week, four million by, I think, the end of April in aggregate. It appears that Abbott is the leader in terms of testing, but is it enough? And how well have the biotech and pharma companies responded to this crisis?

Mohedas: Yeah, so actually the diagnostic companies have done a pretty great job ramping up production of various different tests and reagents that are necessary to run those tests. You have different diagnostic tests, PCR-based tests, that can test for active infection, so they test for RNA in a sample. And then you have IGG or IGM-based tests that can test if you have antibodies against the virus, that can test if you were ever infected in the past. So, there is a difference between testing for active infection and testing for previous infection. So, the ramping of those tests have gone really well, however, they are still limited by the ability of health care workers to actually gather the sample. Now gathering the sample includes, it involves a nasal swab that is an aerosolizing procedure. That means a lot of virus RNA or infectious virus particles are released during that procedure. So, a health care worker has to be completely protected against that virus and so they have to wear PPE [personal protective equipment], and right now we are still limited on the PPE front and just the amount of providers that are out there to be able to do the testing.

So as the number of new daily cases goes down and our health care system is less overburdened, we will be able to do more testing of asymptomatic or potentially symptomatic patients. And so, with the health care system less burdened and the testing ramping up with the diagnostic companies, both of those things should come together, so by the end of this month hopefully we are at a place where we have the capacity to do more testing in a more systematic and rigorous manner.

McNurney: Agustin, one of the things that you talked about is the potential ramifications if we were to skip some of those steps in terms of managing the disease in Europe and the United States. Can you tell us what those implications are, both from the standpoint of the disease, but also the economic and potential market implications?

Mohedas: So if we were to reopen the economy prematurely without the appropriate testing procedures in place, without the number of new cases being at a very low number in order for us to be able to handle and isolate those people that test positive, if we were to reopen prematurely, the potential ramifications are quite serious. And the biggest issue would be that the epidemic could potentially start to spread in a much broader way, or the infectivity of the virus would increase as social distancing were reduced, and we potentially could just reignite the pandemic here in the United States, which would just be ultimately … which would ultimately lead to us having to do another shelter-in-place order as soon as the summer or maybe in the fall.

And so it is really important, as hard as it is and as economically devastating as it is, it is really important to continue the hard work we are doing now of social distancing, so that when we do reopen the economy, we are prepared and we can do so in a smart way. And so I think more pain now is ultimately going to be a net economic positive later, and there is actually data showing that in 1918, cities that had social distancing procedures in place during the Spanish Influenza Pandemic had actually a better economic outcome than those that didn’t. And so I think economically it would be devastating to kind of do things prematurely, because it will just lead to us having to do social distancing more down the road and potentially for even longer down the road, which will be even more damaging. So I think it is really important to be very serious and deliberate in our reopening of the economy and do so in a manner that is a stepwise manner, so that we are not taking too many risks too early.

McNurney: Agustin, thank you very much for joining us today. Your insights have been extremely valuable. As always, Janus Henderson will continue to use our fundamental research in order to look at the trajectory of this disease, but also the financial implications of the disease. If you have any questions, please feel free to reach out to your local Janus Henderson representative. Thank you for your time.



1 Source: Janus Henderson Investors,, April 2020

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