By Hunter Hammond
August 10, 2021 — Capstone believes a broader, longer-lived wave of COVID-19 cases is likely to develop in the coming months, likely adding mounting pressure on governments to institute mask mandates and businesses to take precautionary steps to reduce transmission. In the US, COVID-19 cases, hospitalizations, and deaths are climbing, increasing 544%, 312%, and 60% since July 1st, respectively (Exhibit 1). Largely driven by the more transmissible Delta variant, which now represents over 90% of cases, states with fewer restrictions and lower vaccination rates are experiencing an exponential increase in cases and reports of hospital overcrowding (over 60% of new cases are located in the South census region). State data suggest that the fully vaccinated remain well protected from severe COVID-19 cases, subsequent hospitalizations, and death. However, the narrative that the US is experiencing a wave largely isolated to the Southeast and solved through vaccination may be wrong, according to Capstone’s outreach and analysis. Ultimately, we believe most states and localities will refrain from 2020-style lockdowns due to political pressure. However, our conversations lead us to believe the wave will prompt the Food and Drug Administration (FDA) to approve booster shots for at least the vulnerable populations, with some reports indicating that the FDA will have a booster strategy by early September.
Exhibit 1: New COVID-19 Cases by Region (7DMA)
The Delta variant is a game changer: The key to herd immunity is reaching a sufficiently low number of susceptible hosts able to maintain transmission. However, recent studies suggest that the peak viral load is similar among both the vaccinated and unvaccinated, and viral load is “a key driver of transmission,” according to the Centers for Disease Control and Prevention (CDC). Moreover, recent studies suggest the neutralizing antibodies in the vaccinated are less potent against the Delta variant. An indication that vaccinated individuals can hold significant amounts of the virus in their nose and mouth is reportedly a reason the CDC updated their mask guidance. If even vaccinated individuals can transmit the virus, reaching a sufficiently low number of susceptible hosts for herd immunity will likely be tough to achieve in many states in the near term.
Ongoing transmission could lead to more potent variants: The primary concern of ongoing transmission is that with more host interactions, the virus could mutate to better evade vaccines, as CDC Director Rochelle Walensky recently noted. Variants of concern, specifically the Lambda variant, may lead to even more transmission and evasion than the Delta variant, raising the risk of future mutations.
Pressure on the healthcare system is a concern: While the vaccinated remain well protected from hospitalization and death, there is still a significant contingency of unvaccinated individuals in the US. The more transmissible Delta variant combined with far fewer restrictions on movement than in 2020 will likely mean that the unvaccinated will become more susceptible to infection, hospitalization, and ultimately death, already evidenced in states like Florida and Louisiana.
Reduced immunity will likely prompt the FDA to recommend boosters: The duration of vaccine-induced immunity among older adults is likely lower than their younger counterparts, and Moderna Inc. (MRNA) recently noted that it expects “neutralizing [antibody] titers will continue to wane and eventually impact vaccine efficacy.” We believe the reduction in effectiveness, combined with the ongoing spread of the more transmissible Delta variant, will prompt the FDA to approve booster doses for at least the vulnerable populations. It will be important to watch whether the FDA requires manufacturers to conduct phase 3 trials of newly formulated boosters or approves the updated shots based on a supplemental filing, as it does for seasonal influenza vaccines.
The US is not the UK or India; expect a longer broader wave peaking in late Fall. The US is unlikely to experience the same trend as the UK and India, where cases rapidly increased before crashing. While it is still not entirely clear why, recent conversations lead us to believe that the decline in cases in those countries was largely driven by widespread immunity generated by infection and vaccination. The UK, with its small landmass, and India, with relatively few restrictions imposed, reached a level necessary to cause a decline in cases. Meanwhile, the US, with its large landmass and varying degrees of restriction, will not experience the same trend. Instead, states like Florida and Texas might see sharp declines in cases in the near term while case counts continue to climb in the Northeast, West, and Midwest. Case data in New York and New Jersey, and wastewater tracking in Massachusetts and parts of Pennsylvania, suggest cases may already be rising in those states. The result will be a national trend that looks far broader and takes longer to reverse. Conversations lead us to believe that the US will reach peak case count sometime in late Fall. We note that seasonal patterns could further induce transmission as temperatures drop and people go inside.
Federal, state, and local governments will likely respond with deference: We believe there is very little political will to reimplement 2020-style lockdowns in almost all states in the nation. Instead, federal, state, and local governments will likely reimplement mask mandates where appropriate, encourage their constituents to get vaccinated, mandate vaccines for some government employees, and defer to businesses in most cases. Businesses will likely respond by delaying returns to the office, implementing testing regimes, and mandating masks and sometimes vaccines in their establishments. This is relatively positive from an economic perspective; however, if population concern over COVID-19 impacts consumer decision-making—especially in higher-risk settings like travel, dining, and theaters—then economic activity in those areas could be negatively impacted. Indeed, public concern and risk perception are already increasing.
FDA to grant full approval of Pfizer’s vaccine: Reports indicate that the FDA will likely grant Pfizer Inc.’s (PFE) COVID-19 vaccine full approval in August or September. Full approval has several impacts. First, full approval, compared to emergency use authorization (EUA), may persuade some Americans to get the shot. Second, once the FDA grants full approval, physicians may prescribe the drug “off-label” meaning pediatricians could prescribe children the vaccine, and other physicians could prescribe boosters to a broader population. Both steps would likely reduce hospitalizations and deaths. However, the circulation of the Delta variant means it will likely have a limited impact on transmission unless newly formulated boosters also receive similar approval.