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What does the end of a pandemic look like?

We are moving from Covid-19 being a pandemic into it being endemic. Dr Jenna Denyes, Senior Healthcare Analyst, takes a look at how we can identify whether we have reached the end of the pandemic and what we can expect from here.

26 May 2022

The past two years have been challenging for everyone. We have all had to face unprecedented challenges in our personal and professional lives. We have learned to adapt to different ways of working. We have learned to maximise the benefits of technology for building and maintaining connections. We have had hard conversations with ourselves, our families and our societies about risk, about personal responsibility, and about the economic or human cost of our decisions. We have rallied behind healthcare workers and we have struggled to make headway with challenging and rapidly evolving information. We are all looking ahead to a rapidly approaching end of the pandemic, of the public health emergency, and we are all wondering what that is going to look like.

Things we should not expect

In many ways, it is much easier to point out some of the things we should not expect from the end of a pandemic. We should not expect the spread of the virus, new infections, hospitalisations and deaths to stop even if they stop being reported daily. People will continue to get sick, and some will die from the virus even as it is no longer an emergency situation. We should not expect the situation to be the same in each community, city, or even country let alone globally. Access to vaccines has varied dramatically depending on scepticism, incorrect information and inequal distribution. Coronaviruses do not promote a sterilising immune response with infection; this means no matter where we are getting our immunity from, either someone else’s sneeze or a vial, our immune system simply does not provide protection from future infection. This means our population level immunity will always be a dynamic mosaic where any number of people are becoming more susceptible to infection. As a result, immunity varies wildly which can result in dramatic consequences such as the record high mortality rates in Hong Kong among unvaccinated patients in 2022.

Each country will have to make its own risk calculation as it balances the benefits of public perception over the risk to the healthcare system. This will not be the last variant, and indeed, there could be new variants of concern in the future as well. With the varying degrees of immunity, and the ability to cross infect different species, the SARS-CoV-2 virus is continually evolving and there is no guarantee the evolution will continue to trend towards mild infection. Vaccines have provided the majority of protective immunity, and with enough evolution, new variants would be able to evade the immune system and reduce the benefit of those vaccines. A surge in cases, with a rise in prevalence of a new variant which is unprotected, and we could once again face circumstances where we need to adjust our behaviour through, for example, wearing masks, to prevent the number of sick people from overwhelming the healthcare system, or from disrupting critical economic and civil infrastructure while absent from work.

Does this mean the next two years will look the same as the last two years and even as the emergency situation passes things will remain the same? Absolutely not! At GAM we remain confident the great toilet paper shortages are a thing of the past. There have been some specific, concrete developments over the past two years and they will not go away even when the virus continues to evolve. The critical thing to consider is that while the virus is still circulating in the population, it is no longer an emergency situation for a large portion of the population. We have easy methods to reduce spread, vaccines to provide immunity, and treatments to reduce mortality; all of these factors combined are what have brought the emergency situation to an end.

Treatments will continue to improve

We have developed, tested and distributed a variety of safe and effective vaccines. We will continue to improve them over time, and similar to other regular vaccination programmes, varying proportions of the population will continue to use them on a regular basis. We have treatments which have reduced mortality even further, though they place a high burden of care for administration and to further reduce the consequences of an outbreak on the healthcare system, treatments similar to the recent oral therapies are desperately needed. A number of different monitoring systems have been developed and implemented in waste water facilities, for example, which will allow regulatory agencies to track and monitor the evolution of SARS-CoV-2 and hopefully provide an early warning should the viral load start growing rapidly.

What are some of the other concrete things we have seen demonstrated in the healthcare arena over the past two years? Our emphasis on ‘just-in-time’ production and distribution of virtually all goods and services is remarkably fragile. We do not have a surge capacity built into our healthcare systems because no one wanted to accept the cost of maintaining it, and, without that capacity, the whole system is at risk of collapsing from unexpected events such as the rise of a highly contagious pathogen, even one with as low a mortality rate as SARS-CoV-2. We have also learned, perhaps somewhat late in the game, that human resources such as highly trained nurses, technicians and doctors will always be the limiter in those systems and these capacities can not be expanded as rapidly as we can expand the production of hand sanitizer. We have learned there are few clear answers when it comes to deciding what social sacrifice is reasonable to protect the lives of those around us. Which pre-existing conditions really matter, what age cut off are we okay with accepting high mortality rates? We do not have an answer for those questions, and we probably never will, but still need to make decisions around medical access and funding. We have also seen that if you take funding considerations out of the risk calculations, pharmaceutical and biotech companies can make dramatic leaps and bounds in developing vaccines or drugs.

Recovery needs to occur both from an operational and a valuation perspective

Operational recovery should be fairly straightforward but not immediate. Will see doctors and hospitals working through backlogs of missed and delayed procedures and diagnoses. This will be a positive for the sector, but also reflects a continued high demand on it. Challenges to this include patients having progressed in the meantime and now requiring more challenging / demanding interventions, and a shortage in the workforce. There was a labour shortage before the pandemic and it has been dramatically worsened by deaths, disability, burnout and departures from the fields. A return to procedures and diagnoses presents opportunities for devices, tools and healthcare providers, although at the same time challenges will likely provide headwinds for managed care, healthcare providers and insurance companies.

On the other side, the phasing out of the emergency situation should be an unqualified positive for pharmaceutical and biotech companies running clinical trials, seeking regulatory approval and launching new drugs, and therefore overall sentiment. This will allow for normalisation in clinical trial data collection visits as well as initiations, reviews and inspections of manufacturing facilities and regulatory interactions in general. Drug launches have been severely impacted by the drop off in patient visits, restrictions to accessing doctors and a general lack of availability of doctors for discussions.

Looking at stock performance we have to examine a few additional factors. While the above operational factors have an influence on performance, the overall macroeconomic situation is above all the largest headwind for the stock market as a whole in our view. It is not completely negative for the healthcare space, however, and large-cap pharma / biotech in particular are generally viewed as a defensive play in an inflationary environment. We have already seen the start of this play out over what was a very bumpy start to the year. Inflation, coupled with a challenging capital market and risk off situation, has hit small and mid-cap biotech the hardest, and we expect the recovery in this space to be slow.

What is the takeaway message here? SARS-CoV-2 is just another pathogen; we have adapted and identified ways to continue living alongside this new virus the same as we have done countless times before in the face of new pathogens and the same as we will continue to do in the future. We will continue to see cyclical, likely seasonal rises in infections and we will carry on living our lives in the face of this risk.

GAM is an independent, global provider of asset management services operating in three principal fields: investment management, wealth management and third-party fund management services. Across all areas of our business we are committed to the pursuit of highly differentiated strategies, having long recognised that results beyond the ordinary are best achieved by thinking beyond the obvious.

Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. There is no guarantee that forecasts will be achieved. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Assets and allocations are subject to change. Past performance is no indicator for the current or future development.

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