COVID update

By Sarun Charumilind, Matt Craven, Jessica Lamb, Adam Sabow, and Matt Wilson, Mckinsey

The past five weeks have brought an array of conflicting news on the COVID-19 pandemic, affecting our estimates about when the coronavirus pandemic will end resulting in this COVID update. Margaret Keenan, a British nonagenarian, made history on December 8 by becoming the first person to receive the Pfizer-BioNTech vaccine for SARS-CoV-2 outside a clinical trial. 

Since then, several other vaccines have been authorized for use around the world. Sufficient doses are likely to be available to vaccinate high-risk populations in the United States in the first half of 2021. In parallel, however, more-infectious strains of the virus have been detected in South Africa, the United Kingdom, and elsewhere and have spread to an increasing number of countries. And the initial rollout of vaccines has been slower than hoped in many places.

While the United States could still achieve herd immunity in the third or fourth quarter of 2021 (in line with the peak probability in our previous estimates), the emergence of more-infectious variants of SARS-CoV-2 increases the risk that this milestone will not be achieved until later.

More-infectious viruses require that a higher percentage of people be simultaneously immune to reach herd immunity. While a more infectious variant likely means more people are acquiring natural immunity through infection (despite ongoing efforts to minimize new cases), the net impact of more-infectious strains is likely to be that a higher portion of the population needs to be vaccinated, which may take more time.

We still believe that the United States can transition toward normalcy during the second quarter of 2021, but the same risks also threaten this timeline. A transition toward normalcy would be driven by a combination of seasonality aiding a decline in cases and early vaccine doses helping reduce mortality by protecting those at greatest risk of serious illness.

As COVID-19’s impact on health wanes, we are likely to see greater normalization of social and economic life. Data on the availability of vaccine doses in the United States increase confidence that this is possible, but the slow start to the vaccine rollout reinforces that success is by no means guaranteed.

This article describes “most likely” timelines for when the coronavirus pandemic will end. It is now harder to imagine the United States or United Kingdom transitioning to normalcy before second quarter 2021 or reaching herd immunity before third quarter 2021.

But a number of other factors could delay the timelines beyond those described, including unexpected safety issues emerging with early vaccines, significant manufacturing or supply-chain delays, continued slow adoption, further mutation, or a shorter-than-anticipated duration of vaccine-conferred immunity. Herd immunity will also require vaccines to be effective in reducing transmission of SARS-CoV-2, not just in protecting vaccinated individuals from getting sick. This is likely, but has not yet been proven at scale.

Herd immunity: More-infectious strains raise the bar

Herd immunity to a pathogen is achieved when a sufficient portion of a population is simultaneously immune to prevent sustained transmission. The threshold to achieve it is governed by a number of factors, including the transmissibility of the disease. More-infectious strains of SARS-CoV-2 therefore raise the bar on herd immunity.

The virus has been mutating since it was identified a year ago. The concerning development in recent weeks has been the confirmation of new strains in South Africa, the United Kingdom, and elsewhere that combine multiple mutations and have different profiles. While data are still emerging, initial estimates suggest that the transmissibility rate of the UK strain is 40 to 80 percent higher than that of the original SARS-CoV-2 strain, and that transmission rates could be higher among children too. 

There is no evidence of higher case fatality with either new strain, but there are fears that new strains may affect how antibodies bind to the virus and may reduce the efficacy of vaccines or antibody treatments developed over the past few months. More data are likely to emerge on this in the weeks ahead.

If these strains become dominant, they may cause a material delay in reaching herd immunity. While many people are acquiring natural immunity through infection, variants with enhanced transmissibility, if they predominate among all strains, could increase the proportion of people who need to be simultaneously immune to achieve herd immunity by ten to 20 percentage points, and increase vaccine coverage levels needed to 65 to 80 percent of the population (or 78 to 95 percent of those over 12 years old).

Vaccinating more people is a nonlinear challenge. Consumer surveys suggest that a portion of the population is cautious about vaccination. Increasing coverage from 70 to 80 percent is therefore harder than increasing from 60 to 70 percent. Because more-transmissible variants raise herd-immunity thresholds, there will also be less tolerance for low vaccine effectiveness.

For example, with a variant that is 40 to 80 percent more transmissible, vaccine efficacy of 90 percent would require 83 to 100 percent of those over 12 to be vaccinated; efficacy of anything less than 75 percent would make herd immunity likely unachievable through vaccination of only those over 12.

While the variant of concern appears to be most widespread in the United Kingdom, it has been detected in over 30 countries, many of which (including the United States) have limited capacity for genetic sequencing. As a result, we may be significantly underestimating its spread. The strain is likely to continue spreading in the coming months, propelled by its reproductive advantage over the original. This appears to have occurred in southern England over the past few months. If new strains predominate, they could lead to a longer timeline to herd immunity.

Vaccine rollout: A slow start, but there is still time to improve

The speed of COVID-19 vaccine development has been an unqualified success. The approval, in at least one country, of vaccines made by Pfizer and BioNTech, Moderna, Oxford and AstraZeneca, Sinopharm, Serum Institute, Bharat Biotech, Gamaleya, and others within a year of viral sequencing smashed all records for development timelines. But rollout is off to a slow start.

While countries such as Israel have shown what is possible, the United States has fallen behind its targets. It is still early days, and there is time to accelerate, but there is little margin for error if the United States is to achieve herd immunity in third quarter 2021. In addition, not all regions are adhering closely to manufacturer dosing protocols — for example, delaying second doses or giving a first dose from one manufacturer followed by a second from another — and the impact of that is unclear.

These approaches could reduce mortality in the short term by broadening access, but they could also delay herd immunity if, for example, a delayed second dose reduces efficacy. It’s also possible that once most people in the highest-risk groups have received vaccinations, the pace of vaccination will slow if lower-risk groups do not embrace the opportunity.

We believe that herd immunity in the United States is still most likely in third or fourth quarter 2021, but that the chance of delay until first quarter 2022 or beyond has increased. There is relatively little chance of achieving herd immunity before then.

Even later herd immunity remains possible if other challenges arise, especially vaccine safety concerns or ambivalence to vaccination following a transition toward normalcy. This potential delay represents a call to action for policy makers, both in terms of the pace of the vaccine rollout and how new strains are managed.

Increasing recognition of medium-term endemicity

While many parts of the world are expected to reach herd immunity against COVID-19, there is increasing consensus that globally, SARS-CoV-2 is likely to remain endemic in the medium term. David Heymann, the chairman of the World Health Organization’s Strategic and Technical Advisory Group for Infectious Hazards, noted in December that endemicity may be the “destiny” of this virus. 

This might make COVID-19 analogous to measles — a disease that causes intermittent, limited outbreaks in countries with well-developed vaccination programs but significant ongoing disease in parts of the world where access to vaccines is more limited. It is also possible that COVID-19 will be seasonal, with predictable annual peaks in parts of the world where it is endemic.

Transition toward normalcy

A transition toward normalcy will occur when COVID-19 mortality falls and the disease is de-exceptionalized in society. COVID-19 will not disappear during this transition, but will become a more normal part of the baseline disease burden in society (like flu, for example), rather than a special threat requiring exceptional societal response.

During this transition, controlling the spread of SARS-CoV-2 will still require public-health measures (such as continued COVID-19 testing and mask use in many settings), but mortality will fall significantly, allowing greater normalization of business and social activities.

This will be driven by a combination of early vaccine rollout (which, being directed first at those at greatest risk, should reduce deaths faster than cases), seasonality, increasing natural immunity, and stronger public-health response.

Increasing clarity on the availability of vaccine doses during the first half of 2021 in the United States improves the odds of an early transition toward normalcy. Pfizer and Moderna are expected to deliver sufficient vaccine doses to vaccinate all high-risk Americans during the first half of the year.

This does not account for other vaccines that are likely to become available, including those approved in other markets (for example, Oxford-AstraZeneca) or others that are likely to report clinical trial data in the first quarter of 2021 (including Johnson & Johnson and Novavax). Older people are generally more willing to be vaccinated than the general population. However, slow initial rollout of the vaccines and the spread of more infectious variants increase the risk that significant mortality continues in the second quarter, blunting a transition to normalcy.

Taking these variables into account, we still believe that a transition toward normalcy is likely during the second quarter for the United States, but that downside risks have increased. If early vaccine doses reach a significant percentage of high-risk elderly individuals by the end of quarter one, the combination of protecting these groups and the arrival of spring in the northern hemisphere should improve the situation compared with where the United States is now.

Depending on vaccination progress over the summer (whether the United States is on the earlier or later end of the herd immunity window), there may be a smaller fall wave of disease in third to fourth quarter 2021.

While the potential for a transition toward normalcy in just a few months is encouraging, many signs suggest that the next six to eight weeks will be difficult. Case and death numbers are at or near all-time highs in many locations, new variants may accelerate short-term transmission, and vaccine rollout has not yet proceeded far enough to protect much of the population. Strong public-health measures will remain critical to saving lives during this period.

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Lawton Retirement Plan Consultants, LLC (LRPC) is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to employer retirement plan sponsors. The firm specializes in sustainable investment strategies for retirement plans that incorporate Socially Responsible Investment (SRI) factors and Environmental, Social and Governance (ESG) elements. LRPC currently has contracts in place to provide consulting services on more than a half billion dollars in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

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