Like most of you, I have been obsessively following “the virus.”
It is having a devastating impact on human life, hospital systems, governments and economies. The worst is still to come, based on what we know about this new coronavirus and its ability to spread with exponential force.
Here are some thoughts on the difficult choices laying ahead.
Before I start, here’s a little on where I’m coming from. I have the dubious advantages of being at the same time Italian-born and a US-based venture capitalist active in healthcare. This gives me a lens into the government, healthcare and culture of a country that has been decimated, and an insider’s view into the scientific community and its prospects for counterattack (mainly therapeutics in my case). As an investor in public and private markets, math is part of the job, and I have a somehow intuitive feeling about exponential growth rates. Please refer to two previous articles on Timmerman Report, warning of the upcoming disaster on Mar. 10, and then on Mar. 18.
As with most (all?) of you, I am watching the daily avalanche of terrible news and the public / policy responses trying to catch up to the inexorable progression of the virus. Note the use of the words “catch up” here, they will come in handy later.
In the US, we went from 89 confirmed cases on March 1 to ~41,000 as I write on the afternoon of March 23 (source: www.worldometers.info/coronavirus). The US, so far, has lagged far behind other countries’ in testing capacity and administrations, so it is catching up there as well. A patchwork of local, state and federal measures are being implemented across the country to try to limit the spread of the disease and preserve hospital capacity (and healthcare workers’ safety).
The economic fallout (at least the initial one) is also becoming starkly evident. Starting in late February, US stock market indices have to date lost ~$12 Trillion (herein shortened to “T”) in market value, or roughly 25-30% from their pre-crisis peak (I will strive to be roughly accurate versus precisely wrong throughout this article).
More importantly, entire sectors of the economy (employing a huge portion of the US workforce) are veering rapidly towards bankruptcy: the lethal combination of lack of demand and restrictions on movement has made their business no longer viable (in these circumstances). Hotels, restaurants, airlines, gyms, physical therapists, etc etc are making millions of people redundant across the board.
The US lacks (for the time being) social safety nets that are much more prevalent in other countries. That increases the severity and amplitude of these kind of shocks. The US economy generates about~$40T per year in gross domestic product. Of that, ~70% is composed of services and consumers’ consumption. It is painfully obvious to see how broadening, enforcing and / or continuing “shelter at home” policies in the US for a much longer period will cause incalculable economic damage. The chief of the St Louis Fed was quoted recently saying unemployment in the US could reach 30% in Q2 2020, and GDP could go down by ~50%. This is equivalent to what happened to the US economy during the Great Depression of late 1929 and through the 1930s, and it is happening at a much faster pace – a matter of weeks.
In this context, I see / hear / read a number of voices arguing for a “let it rip” strategy: i.e., continue “life as normal,” spreading the contagion without any radical social distancing measures, accepting that there will be a (slight?) increase in the number of casualties but preserving the broad health of the economy. This virus has a mortality rate of close to, and quite possibly, lower than 1%. On Mar. 16, disease modelers at Imperial College London, factoring in the best available estimates at the time, estimated that the novel coronavirus would kill about 2.2 million people in the US alone under what you could call a “let it rip” strategy – one that doesn’t utilize the disruptive social distancing interventions currently being imposed. A day later, Mar. 17, Stanford University epidemiologist John Ioannidis argued that “we are making decisions without reliable data.”
One of the basic arguments underlying the “let it rip” strategy appears to be the Precautionary Principle: “The precautionary principle (or precautionary approach) is a strategy for approaching issues of potential harm when extensive scientific knowledge on the matter is lacking. It emphasizes caution, pausing and review before leaping into new innovations that may prove disastrous.” (Wikipedia).
Spoiler alert: this discussion is based on fundamental flawed assumptions, at many levels. The (strongly worded, high conviction, HIGHLY evidence-supported) response to this “argument” should be: “(expletive removed) no!” If you carefully, cautiously wait for all the data to come in, your actions will come way too late. Also, interestingly enough, I will end up using the same Principle to argue exactly the opposite of the proponents of “let it rip.”
Now please bear with me as I try to discuss in some tedious detail why this is the case.
The Importance of R0 and Some Exponential Growth Rate Basics:
R0 (or R “naught”) is a measure of how many people one person infects. R0 = 0 (if you are by yourself on a desert island) means you will not infect anybody during the course of your infection; R0 = 1, means you will only infect one person. R0 = 3 means (ah, ok, I see that you got it by now).
For the sake of comparison, “normal” seasonal flu is considered to have an R0 of ~1.3-1.4. Coronavirus is considered to have an R0 of ~2.5-3.0. You REALLY want R0 to go below 1 to contain a pandemic. Importantly, in addition to depending on the virus’ infectivity, incubation period etc etc, R0 is ALSO LARGELY DEPENDENT ON PHYSICAL PROXIMITY. Simply put, if you have a highly contagious (possibly asymptomatic) Italian carrier in an Italian bar in Milan, every bar customer (and almost every surface) will be covered with virus by the time it takes to finish an aperitivo (kind of kidding, but kind of not kidding).
Now, let’s assume the coronavirus average infection cycle is ~4 days (meaning one person infects an R0 nr of people every 4 days). This is where problems start with exponential growth rates. What happens with 10 cycles following the initial infection(s) caused by that person: 10 incremental infection cycles (~1.5 months): normal seasonal flu (R0: 1.4): ~29 people infected. Coronavirus (R0: 3.0): ~59,000 people infected. That means one asymptomatic person, in this coronavirus season, leads to the infection of another FIFTY NINE THOUSAND (I thought that deserved all caps).
Professor Hugh Montgomery, Director of the University College London Center Institute for Human Health and Performance explains this really well (and with a better British accent that I could ever muster) in an interview with Channel 4 here.
The Problem is Hospital Capacity:
Basically, the important argument behind the “let it rip” approach is that a 1% fatality rate is a price (steep, but worth paying I guess?) for maintaining a functioning economy and not lose ~$1T / month in US GDP. We also do not know enough about the virus mortality rate, natural immunity etc etc so we should not “rush to judgment.”
I am not going to dignify the “natural / herd immunity” argument (there is no natural / herd immunity against the virus: it is a NEW VIRUS that no human on this planet has been exposed to before). What we know today about it is dwarfed by what we still need to learn.
First fallacy: consumption / economic activity will continue as “normal” should we lift restrictions on movements. I am really not sure how to address that one, unless it relies on the assumption that people are completely ignorant of the fact that there is a pandemic going on, and they’ll instantly snap back to life as normal once social distancing restrictions are lifted. Are you really going to take that trip to Milan for Easter now? Scheduling your wedding with all grandparents attending (knowing 1 in 4 of them will likely die if they get infected)? Assuming you could even board a plane, that is. (Full disclosure: my wife and I HAD a wonderful holiday trip planned to Milan to see my family there for Easter. Obviously, we cancelled).
Second, MASSIVE fallacy: the assumptions behind the 1% mortality rate. This might possibly end up being the “undisturbed” mortality rate, when it is all said and done: meaning, this SHOULD be the mortality rate IF you can obtain proper medical care (hospital bed, sufficient supply of oxygen / drugs if needed, caring and competent nurses and doctors).
Now is probably a good time to make the obvious argument that lean, efficient hospital systems (we are in a capitalist society after all) are not structured to be resilient and provide, additional capacity in a pinch.It is actually extremely expensive for a hospital to have spare capacity in terms of critical care beds, ventilators, nurses, doctors, drugs etc. So, they do not do it. Even countries perceived to be more like “social democracies” than the US do not have nearly enough spare capacity to tackle such a surge in cases. Italy has a very good hospital system. China, notwithstanding popular perception, has an excellent healthcare system, no lack of critical care equipment, and they moved 40,000 doctors into Wuhan’s hospitals to make sure they could cope. They also shut down the city when they had 500 officially diagnosed cases. Still, Italy and Wuhan had mortality rates skyrocket as soon as hospitals were saturated. Any incremental patient who needs oxygen (and cannot be properly tended to) will die. Mortality also greatly increases as hospital infrastructure degrades: you cannot fast track the training and education of new doctors and nurses in a few days. Healthcare workers are toiling under wartime conditions, getting infected themselves and dying. Which further compounds the lack of hospital capacity.
In addition, if hospitals get saturated / overwhelmed: every heart attack can become fatal if ambulances cannot reach you / hospitals cannot administer proper care. The US has ~1.5M heart attacks a year, causing ~500,000 deaths when proper care can be administered. The US has roughly 1.9M new cancer cases per year (source: https://www.cdc.gov/cancer/dcpc/research/articles/cancer_2020.htm). These patients are usually immunocompromised after getting chemotherapy or radiation treatment, which makes them very much at risk from opportunistic infections like this coronavirus. In addition they need urgent, critical treatment to achieve remission. In 2018, 34.2 million Americans (10.5% of the population), had diabetes (source: www.diabetes.org/resources/statistics/statistics-about-diabetes). Apparently, diabetics coronavirus patients have a much higher mortality rate. We don’t really understand why that is yet. The list goes on.
One (scary, but I believe accurate) way to look at this in the US is to check out the website www.covidactnow.org: it simulates by when different US states’ hospitals will be overwhelmed by the number of confirmed cases of infection, depending on how we slow down the virus by using different types of social distancing measures to reduce R0 as much as possible.
As you can see, for a number of places, in particular NY, it is too late already. The number of cases will continue to mount over the next two – three weeks. This is why New York Gov. Andrew Cuomo (I cannot help but appreciate another fellow Italian’s decisive response) has asked for federal assistance, and is trying his best to increase hospital capacity in the city. May the fates be always in his favor as well.
Finally, please read Tomas Pueyo’s insightful blog post on this as well. Conclusions are similar to what you will find herein and in my Timmerman Report from Mar. 10.
Bottom line: “let it rip” is not sustainable. The economic and (more importantly) social cost of the disease is going to be even higher than if we undergo a 3-4 weeks shut down. Assuming even modest degradation of the US healthcare infrastructure, the death toll could rise to much more than 1% of US population (about 329 million people currently, according to the US Census Bureau).
But: We Cannot Have Radical Social Distancing for 18 Months!
True, it is not sustainable to have the global economy on lockdown for 18 months. Most important, people cannot comply with such isolation measures (especially those pesky, frolicking fools celebrating Spring Break in Palm Beach). Absolutely agree on that.
OK, here then are some thoughts (feel free to pass them along your favorite policymakers): in temporal sequence from now:
1. We (the US) need NOW a nationwide, ideally even globally-coordinated, “pause” of 3-4 weeks at a minimum, with as little movement of people as possible, across the entire US. I mean a shut down like Italy, enforced by police etc to make sure these frolicking teen fools in Palm Beach (see above) do not continue spreading the virus; no travel unless absolutely necessary. Note: from the moment you impose and enforce such a lock down, then it takes ~2 weeks for cases and deaths to reach a peak. They will continue going up in the meantime. New York City now is like Milan and could become very soon like Bergamo otherwise. ALSO NOTE: two weeks after you impose such a lockdown, things improve. Italy has now turned the corner: in the last two days, the number of new confirmed cases and most importantly, number of fatalities, is decreasing. The lockdown in Italy started on Mar. 9, exactly two weeks ago.
2. There needs to be absolutely clear and effective communication from the federal government. They need to enlist any traditional media sources and social media (Twitter, Facebook) with a simple, clearly communicated message: Social distancing / stay at home will work to reduce the infection rate; BUT it needs 2-3 weeks to show some results and it NEEDS TO BE ENFORCED. Our social structure and citizen relationship to authority is very different from Asian countries: but this means even more clear communication is absolutely necessary. We need to enroll every citizen in the effort. Make sure supply chains / logistics distribution / food and essential medical equipment manufacturing / energy production / broadband infrastructure can take the strain. All these activities can enroll people otherwise made redundant by the industries most affected.
3. In the meantime, during that pause period:
- Increase massively testing capacity and manufacturing (I mean, massively: the only way to resume some semblance of normal economic activity after the lock down, and only IF we have put R0 below 1 by then, is by having RAPID tests available on a massive scale). Including providing serological tests to make sure immune people can roam around freely (and ideally be enlisted in the healthcare / manufacturing effort).So, drive-thru tests, at home easy-to-use tests, phone booth tests, all within a few minutes ideally; and not administered in hospitals where infections can otherwise cluster.
- Increase hospital capacity and resilience: identify and staff separate physical hospital structures and caregivers for cancer patients; increase ICU and critical care capacity (ventilator manufacturing, etc ). Every city with an international airport needs to be prepared for surges in cases; train more nurses, doctors, to prepare for the onslaught; use / adapt hotel structures in big cities for isolating people tested positive (including asymptomatics); divert car manufacturing to more ambulances; increase manufacturing for oxygen, painkillers for intubated patients, etc.
- Have separate structures (hotels? island resorts?) for at-risk demographics: elderly, people with co-morbidities (diabetes).They need to be completely isolated for ~10-12 weeks, at least until prophylactic treatments are available (Japan has been using this strategy very successfully).This will reduce death rates and preserve hospital capacity; these structures can be staffed by (for example) airline staff who has recovered from the virus already.
- Massive increase in R&D spending: vaccine / antibody manufacturing capacity. We must start GMP manufacturing of all drugs that potentially look likely to work in pre-clinical models so we do not lose time for scaling up manufacturing. Diagnostics need R&D support, as well (Korea and China have portable CT scans, for example). There’s no time to lose. Every month of a lockdown the US loses >$1 trillion of GDP.
4. The other stuff (how to make sure workers maintain healthcare insurance), can still survive if tens of millions of people are unemployed starting next week etc. This is way above my pay grade but also super important to make sure we can come out the other side.
We will come out of this. But, the next 6-8 weeks are critical in preserving our hospital infrastructure. The virus spreads way faster than you think. If we delay implementing these measures even a couple days more, the consequences are disastrous. The math is inescapable.
To leave you on a lighter note, and a perhaps more entertaining take on how efficient technocracies should make decisions (versus the dilemmas facing politicians), this video clip from the old British show “Yes, Minister” is priceless. Moral: I hope we can stop listening to other “opinions” and start listening to the science.
Follow Otello Stampacchia on Twitter: @OtelloVC
This article expresses the personal views and perspectives of the author. The views and perspectives expressed here do not necessarily represent the views or perspectives of Omega Fund Management, LLC or any officer, director, partner, member, manager or employee of Omega Fund Management, LLC or any of its affiliated entities.