null Characterizing the Unknown
Macro & Market

Characterizing the Unknown

COVID-19 Macro & Market Article
March 2020
Characterizing the Unknown

As the coronavirus (COVID-19) continues to spread worldwide, global health organizations are working diligently to characterize it. Understanding the properties of the disease is critical to determining who is at risk, potential treatment paradigms and the severity and mortality rates.

As the coronavirus (COVID-19) continues to spread worldwide, global health organizations are working diligently to characterize it. Understanding the properties of the disease is critical to determining who is at risk, potential treatment paradigms and the severity and mortality rates.
The barrage of news reports on hospital cases and death tallies can be quite scary. However, the outlook for the virus could very well be more benign than is currently portrayed. Most cases will likely be mild, akin to a common cold or mild flu. Severity and mortality rates can only truly be determined by wide-spread testing, which is ongoing now. As investors, this data point will serve as a key inflection signal in how we assess the impact on our investment universe. First, the central disease agencies must do their vital work to collect important data. Until then, quarantines and other measures intended to slow the spread will be the norm.  

Early Insights

Early data compiled by physicians in China are beginning to provide insight on the virus. On February 28, the New England Journal of Medicine (NEJM) published the first real retrospective analysis of COVID-19 patients.1 It examined a cohort of 1,099 patients with confirmed COVID-19 who received medical care throughout China and was peer reviewed by the NEJM. The authors focused on examining a composite endpoint of admission to an intensive care unit, the use of mechanical ventilation or death. Approximately 6.1% of those confirmed with COVID-19 met the primary endpoint, with 5% admitted to the intensive care unit, 2.3% required mechanical ventilation and 1.4% died. While that 1.4% rate is far higher than the seasonal influenza mortality rate of 0.1%, it must be kept in mind that the approximately 1,100 patients had severe enough symptoms to seek medical attention and included no mild cases where the patient did not seek medical attention. 

To understand what the real mortality rate is, we must test broad swaths of the population to increase the denominator. In other words, when mild patients detected by a viral test are added to the denominator it will push the 1.4% rate much closer to the seasonal influenza rate as their outcomes won’t lead to ICU admittance, ventilator support and/or death. If enough global data is collected on patients testing positive for COVID-19 with broad levels of severity, and the mortality rate is low, public perception may improve with reduced fear of contracting the virus.   

A Path Forward

Biopharma is racing to develop both prophylactic vaccines and treatments for those infected, but it will take time for these therapies to gain Food & Drug Administration (FDA) approval. Once a possible treatment candidate has been identified, it needs to be tested in animals for safety and efficacy, and then in humans. While the FDA will likely accelerate human clinical trials, it is still critical to run a Phase 1 study to determine safety and an efficacious dose. Following these results, the drug candidate will be tried in a much larger Phase 2/3 trial to confirm safety and efficacy. At that point, the entire safety and efficacy package is submitted to the FDA for an approval decision. This process typically takes more than four years, but the timeline will likely be accelerated considerably for COVID-19 candidates.

There are several biopharma companies working on a potential COVID-19 vaccine. For the most part, these companies are using the Spike (S) protein from the COVID-19 viral shell to prompt antibody production in a patient. The antibodies produced would then block the virus from establishing infection. This process can be induced by injecting mRNA or DNA that encode the S protein. Alternatively, the S protein can be encapsulated in a lipid nanoparticle for delivery, or the patient can simply be infused with antibodies produced in a lab. While there are multiple companies exploring these therapies (and new ones nearly every day), all human trials need to be conducted before approval. Furthermore, many of the companies are in the early stages and may not have the manufacturing capacity to produce sufficient amounts for even the US alone. They will likely have to partner and build out additional manufacturing capacity. We believe it will likely take over a year before a vaccine is commercially available. 

While a vaccine may not be available this year, there could potentially be a different treatment option for those that have already been infected. The two main approaches are either broad-based antiviral agents or plasma exchange. One anti-viral agent that was previously tested for the treatment of Ebola and Marburg viruses is now in Phase 3 clinical trials for COVID-19 infections. The agent is a nucleotide analog that essentially causes a decrease in viral RNA production. The trial is analyzing nearly 400 patients that have been hospitalized and diagnosed with COVID-19.  In China, trials are also ongoing to test the transfer of blood plasma (with antibodies generated from the virus) from patients that have successfully recovered from the virus to those that are newly infected. 

While the first round of US transmission is ongoing, we must also prepare for a possible re-emergence next winter. Furthermore, we must keep in mind that, although it has not yet been observed for COVID-19, it is possible for genetic drift to occur in the virus which could make the virus more or less infective or deadly. It is impossible to determine which direction it will go. However, our vaccination strategy will need to shift in alignment with that genetic drift, as we do year-to-year with the flu vaccine. 

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Mellon Investments Corporation (“Mellon”) is a registered investment advisor and subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”). Any statements of opinion constitute only current opinions of Mellon, which are subject to change and which Mellon does not undertake to update. This publication or any portion thereof may not be copied or distributed without prior written approval from the firm. Statements are correct as of the date of the material only. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorized. The information in this publication is for general information only and is not intended to provide specific investment advice or recommendations for any purchase or sale of any specific security. Some information contained herein has been obtained from third party sources that are believed to be reliable, but the information has not been independently verified by Mellon. Mellon makes no representations as to the accuracy or the completeness of such information. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment and past performance is no indication of future performance. The indices referred to herein are used for comparative and informational purposes only and have been selected because they are generally considered to be representative of certain markets. Comparisons to indices as benchmarks have limitations because indices have volatility and other material characteristics that may differ from the portfolio, investment or hedge to which they are compared. The providers of the indices referred to herein are not affiliated with Mellon, do not endorse, sponsor, sell or promote the investment strategies or products mentioned herein and they make no representation regarding the advisability of investing in the products and strategies described herein. Please see for important index licensing information.