The Taiwan Banker

In any other year, it would have been a feel-good story. No sooner had a new pharmaceutical technology been perfected, aiming to transform drug development, than a 100-year pandemic arrived. With the world economy on the line, two pioneering companies got the opportunity to demonstrate the new process, becoming household names in the process. A 2018 paper in Nature Reviews Drug Discovery presciently entitled “mRNA vaccines – a new era in vaccinology” made note of these vaccines’ “high potency, capacity for rapid development and potential for low-cost manufacture and safe administration.” Using this approach, researchers can work directly with the underlying DNA ‘coding’ of a pathogen, instead of its protein expression, enabling the entire process to be much more flexible – a key capability against a dynamic threat. The first two applications approved for human use are also the first two COVID-19 vaccines from Pfizer and Moderna, approved in the US respectively on December 11 and 18. The market reaction to these announcements was positive, but not overwhelming. An unprecedented level of expectation is now being placed on vaccines. They must not only inoculate the world against a mutating virus, but do so in record time in a complex geopolitical environment. In the short term, the rollout is taking somewhat longer than first communicated. At the same time, new variants of the virus have emerged from the UK, South Africa, California, and elsewhere, each of which are more contagious than the original “wild type,” turning frustrations about slow delivery into a more serious threat to the overall success of the campaign. The most that can be said for sure at present is that the recovery will be a gradual, drawn-out, and uneven process. Inertia The US originally planned to give out 20 million vaccine first-doses by the end of 2020, but had a very slow and delayed ramp-up period. The early stage was characterized by excessive inventories which couldn’t be delivered, for various reasons. Vaccine administration requires an entire infrastructure, which doesn’t appear overnight. Vaccine manufacturing takes several months to come online, and it’s very different from a typical assembly line process, being dominated by quality control from the very first stages. The US is now vaccinating people at a rate of about 1.5 million per day, but with a population of 328 million, it won’t complete the process until the second half of 2021. Ideally, it will be able to increase its daily rate as new vaccines come online, such as the recently approved Johnson & Johnson single-dose variety. The hiccups in the US are however nothing compared to those in the European Union, where only 3% of the population has received their initial vaccine as of early February. The EU engaged in protracted negotiations with manufacturers in 2020, resulting in an agreement with AstraZenica for USD 2.13 per dose signed in late August, as opposed to the UK’s deal for USD 4.07 in May. Possibly as a result of this price pressure, in January, AstraZenica disclosed unforeseen problems in its Belgian factory. The EU’s reaction threatened to create a broader trade tiff in the wake of Brexit finalization over the new year. Europe is not the only region affected by vaccine politics – access for poorer countries will also become an increasingly important issue. Under Biden, the US has joined COVAX, a multilateral initiative for global vaccine access, but it still prioritizes its own access, as any country would do. This approach poses problems for the overall pandemic response. If a large reservoir of the disease persists in any part of the world, it’s not just bad for the inhabitants there, but could also give the virus itself an ideal training ground to prepare for further rounds of the pandemic. Mutants In January, news of several new functional mutations emerged – first in the UK, followed in short order by Brazil, South Africa, and California. The reason for the sudden influx of these reports from all over the world may have to do with increased monitoring, but is most simply the consequence of previous failures of containment. The world averaged half a million new cases almost continuously from November through the end of January, driven in part by cold weather in the Northern hemisphere, making those months the most intense period of the pandemic yet. Each of the mutations helps the virus spread more easily, which is how they are identified statistically within the larger population. Some of them also have other dangerous properties as well. Separate from the spread rate, the UK variant may have a higher fatality rate per case as well. Even worse, there is some evidence that the South African variant in particular can resist the vaccines, and some of the mutations are recombining genes among themselves as well. It will of course be possible to produce vaccines for these new varieties as well. Here again, the mRNA technology will be of great help – BioNTech claims a technical ability to produce a new version of its vaccine produced jointly with Moderna within six weeks, subject to regulatory hurdles. At the same time, the older technologies will also work; an official from China’s CDC claims that Sinovac and Sinopharm have the ability to do the same in about two months. It’s important to understand, however, that the mutations interact with the issue of efficacy in non-linear ways, which may be a particular issue for the Chinese approaches. The simple formula for the herd immunity threshold is 1 – 1/R0, where R0 is the basic reproduction number, or the average number of people each case goes on to subsequently infect, disregarding the effects of immunity or other precautions. In the case of COVID-19, R0 is usually considered to be between 2 and 3. Suppose then it doubles. It’s easy to see that the threshold of herd immunity then rises significantly. This should generally not be a problem for vaccines with efficacy of 95%, as with the first two American vaccines. More worryingly, though, the Chinese vaccines also have shown lower efficacy figures to begin with. The Sinopharm vaccine is 80% effective; Sinovac’s CoronaVac was found to have only 50% efficacy by a study in Brazil, after 78% was previously announced, causing confusion. Efficacy in preventing the disease is not the same as transmissibility, which is harder to measure, but the two are thought to correlate. Clearly, if China is to have any hope of reaching herd immunity against mutant strains, it will have to not only update its vaccines, but also make them more effective. This holds especially true given Beijing has sowed distrust of foreign vaccines on social media– a message that will resonate domestically. Although China has used non-pharmaceutical controls with success thus far, its previous approach appears to be leading it into a trap in the medium term. Vaccine hesitancy may prevent full inoculation in Western countries, but this is inherently a self-limiting problem. The parties bearing the most risk from vaccination decisions are still individuals themselves. Some who express hesitancy may in fact be waiting for further progress in the vaccination campaign before committing themselves. A chronic pandemic A failure to reach herd immunity is not the same as unabated failure. For one thing, recall that R0 refers to transmissibility in an unprepared population; even simple precautions like masks can create a kind of herd immunity that simply dissipates if people stop wearing masks. Optimistically, even temporary measures like these can reduce transmission to the point that the virus has less opportunity to mutate, buying time for further medical developments. On the other hand, many precautions with greater economic impact will probably also continue for the foreseeable future. Travel will remain more difficult than it was, particularly with China and other underdeveloped and under-vaccinated countries. If new and worrisome mutations continue to emerge, this could even affect vaccinated individuals, causing sustained problems for airlines and tourism. Real estate patterns may recover, but not to where they were in 2019. Shopping malls, oversupplied in the US to begin with, are going bankrupt and in some cases being converted into things like e-commerce fulfillment centers. In office real estate, investors are still waiting to see the full impact of the work from home model. Residential real estate prices, supported by stimulus policies, have not declined, but underlying shifts are becoming visible. Residents of major supply-constrained hubs are moving to second-tier cities, holding onto an urban living environment but still reconsidering their life choices to a certain extent. Reflecting these concerns, On January 28, Laurence Boone, Chief Economist of the OECD, said, “we are particularly concerned about delayed vaccine deployment and new virus variants leading to prolonged use of containment measures and weakness in the economy.” Having previously outlined baseline, upside, and downside scenarios for the global economy, Boone now worries that the downside one is becoming more credible. During 2020, economists emphasized that there was no trade-off between economic activity and human health. The countries that did well against the pandemic also saw the best growth rates. Vaccines may not deliver eradication, nor even herd immunity for the time being, but their most important development might be to re-introduce that trade-off. Individuals will once again be able to control their own risk levels. Countries as well may chart very different paths based on their own capabilities and vulnerabilities. The pandemic will enter a post-crisis era, following its acute stage, but the disease will still be waiting in the wings for anyone who misjudges this delicate balance. In the longer term, viruses tend to become both less lethal and more transmissible, allowing them to coexist with immune systems while maximizing possible opportunities for further evolution. If any of the current mutations do in fact have case higher fatality rates, it would be the less expected outcome. If global eradication turns out to be impossible, the disease should eventually become less of an issue, as in previous pandemics. The main questions are how long this process will take, and how much damage will be done in the meantime.