Podcast: Health Care Reacts to the Coronavirus
A vaccine is tough.  Vaccine capacity in this country is geared for certain kinds of manufacturing.  This is not a flu virus, so you're going to have to require a whole new infrastructure. 
​With the markets volatile in the wake of the coronavirus, Teresa McRoberts, portfolio manager of Alger’s Health Sciences strategy,  weighs in on the reaction from the health care sector.

ALEX BERNSTEIN: Hello, I’m Alex Bernstein and you’re listening to The Alger Podcast: Investing in Growth and Change.  It’s been more than a decade since investors have encountered the kind of whipsaw market movements that they’ve been experiencing for the past week.  Uncertainty about the coronavirus has been driving the markets and investors have a lot of questions.  What exactly is the virus?  How will it impact the U.S.?  How effectively will the U.S. government – and health care companies – respond?  To get some insight into these questions, we reached out to Teresa McRoberts, Portfolio Manager for Alger’s Health Sciences strategy.  Teresa’s been following the health care sector for over 36 years now and has been paying very close attention to this event.  

Teresa, thanks so much for joining me this afternoon.  

ALEX: Teresa, what do we really know so far about the coronavirus?

TERESA: We know very little about coronavirus.  We do know that it seems easily transmitted partially because you’re asymptomatic for so long.  Regular flu – you start feeling crappy, so you go home and go to bed, and you only infect your family.  With coronavirus, you feel fine for what looks like a week or two, and so you are spreading your germs in that whole week or two.  So, it may not be that it’s really more easily transmitted.  It’s just that you’re able to live normally, so you can transmit it to more people. 

So, if indeed in China the cases have peaked, it may be because they’ve had mandatory quarantine.  Also, the Chinese government has not been as forthcoming with information as most people in the rest of the world would like.  The CDC, et cetera, has been very frustrated with the lack of information.  

Yes, there have been deaths, but most of the cases are mild and you recover. Last year, the 2018-19 flu season, 35 million people got the flu per the CDC, and 34,000 died.  I just pulled the numbers off the CDC website.  So, I’m just going to remind you that we have flu, routine flu in the U.S.

ALEX: How has the testing been going?

TERESA: I would say that the testing is problematic.  You actually had to be fairly sick to be tested.  But I heard someone from the FDA speak yesterday, and he said that he believed that within weeks to some months, we would have better, more accurate tests.  

That’s the other problem with the test right now.  If you’re very early in having it, you will test negative that you have it, because you just haven’t developed enough antibodies.  So, I think the testing will get resolved.  There’s a lot of people working on this.  That’s an easier thing to sort out, and I think we will have better testing within a month or two, which I think is very important.  The other thing is there is a very long incubation period.  That means a lot of testing.  So, these are things that we know we need to fix.  

The Chinese health care system on a good day, absent coronavirus, it’s a little overwhelmed.  With coronavirus, it is very overwhelmed.  So, I think that in and of themselves, they just don’t have enough hospital beds and whatnot for their population.  You saw they put up a hospital in like a week or two to care for all the people in the province that had it.  So that tells you something about the lack of hospital capacity in China.  

While theoretically we have a lot of empty hospital beds in the U.S., if people are really sick, they will probably need a lot of care.  On the talk I went to yesterday from the FDA, a person said we have told hospitals, you will need to triage patients.  We do not have enough capacity if it’s really widespread to treat patients who need oxygen and fluids and a lot of other things.  But hopefully it won’t get to that.  We’ll have mostly mild cases and will be able to cope.  

ALEX: Can you talk a little bit about some of the treatments they’re considering?  Vaccines, antivirals.

TERESA: A vaccine is tough.  First of all, our vaccine capacity in this country and around the world is geared for certain kinds of manufacturing.  This is not a flu virus, so you’re going to have to manufacture something differently.  You have to require a whole new infrastructure, and that’s really expensive, and it takes a long time.  Right now, flu vaccine takes months to make, but then they make a lot of vials, and they’re pretty cheap.  I don’t know that this will ever be that for a long time.  So while, yes, they’re going to test some vaccine, having a vaccine doesn’t mean we have a vaccine for everybody, and again, it’s a very different virus.  

ALEX: And what about antiviral therapies?

TERESA: There are tons and tons and tons of antivirals that we have for everything from HIV to hepatitis C.  They have been working and testing a lot of those just one-off ad hoc in various patients to see what looks like it will work.  It was announced that Gilead – one of their products is going to be put into trials next month.  But there are many, many antivirals that people think might work.  There’s a list of about ten or 15 of them.  So that may be something that turns out to be nearer term the way it has to be addressed.  

The other thing they’re talking about is prophylactic therapy for patients who are at risk.  Again, older patients, people in nursing homes, people who are immunocompromised because they have cancer and other kinds of diseases, prophylactically giving them some of these antivirals so their body is primed to fight off something.  It’s not a vaccine, but it would help them possibly fight that off.  People are talking about that.  

So, there’s lots of things people are thinking about as potential measures that can help.  Exactly which ones are going to work, we’ll start getting some ideas over the next few months.  I will say that I expect there will be significantly more cases in the U.S.  We’re a large country.  People travel in and out.  The death rate may be higher than regular flu, or it may not be.  We don’t know.  Because a lot of mild patients, we don’t know they have it.  

So, there are a lot of things that we still don’t know.  The economic impact.  When you’re quarantined and you can’t go to work, it certainly lowers economic activity.  

ALEX: One thing I found surprising is how high the recovery rate seems to be.  

TERESA: Yes.  One of the Chinese physicians wrote an article and talked about the usual course of the disease.  Remember, this is only a few weeks in.  He said that within the second week, you either sort of peaked and sort of getting better, or you went downhill really fast and the people who went downhill fast, they were the ones that were the most likely to die.  So, I think that again most people thus far aren’t going to die from this. 

ALEX: For the companies that you specifically follow, I assume they’re being much more aggressive now than they were a few months ago? 

TERESA: No one was working on a coronavirus anything a few months ago because we didn’t know about it.  There are a few companies still left focusing on vaccines.  

But when you’re doing the flu vaccine – the product changes every single year – and you don’t have a lot of time to experiment because you have to get it out by August so that it can be out in a chain by September, October before flu season starts.  If coronavirus doesn’t mutate, then I believe it’ll be easier to make something, but if it mutates every year a little bit, we’re going to go through the same thing again.  So anyway, it’s not easy to know exactly what’s going to happen.  

It would be really nice if we were lucky and an existing antiviral that we had was at least helpful for 50 or 60% of the patients.  Something to treat the symptoms of coronavirus and help you get over it in days instead of weeks.  

ALEX: And what about the markets?  Do you think they’re overreacting?  

TERESA: I think that in and of itself is a valid thing to be concerned about.  I do expect that we’re going to have some possibly widespread areas where we have concern about this in the U.S.  I remember when we had bird flu in ’09, and the schools in New York shut down for a few weeks, so I wouldn’t be surprised to see that.  But I don’t perceive any real change in the way people are behaving in the U.S.   We came into this in a market that had done very well.  Valuations were fairly stretched in general for the market, and people were anticipating decent economic growth.  The markets were fairly complacent.  

So suddenly we have a combination of this flu, which came out of nowhere, and then you worry, well, it’s going to come here, and that makes people concerned on top of the fact that politically the presidential race has probably shifted a little bit in ways that many professional investors find somewhat disconcerting, and the market was at a high level.  So, it’s a very quick correction.  

Do we need a corona czar?  I think we need people who understand epidemiology, who understand public health, and we still have some of those.  

ALEX: Have you made any portfolio changes as a result of the virus? 

TERESA: No, not really. 

ALEX: Do you think any of your companies are particularly better positioned for this kind of an event?

TERESA: So, I would say this.  When the virus comes, you are not going to want to go anywhere near a hospital or a doctor’s office unless you are deathly ill.  You are not going to want to go and have your elective knee done.  Your elective hip implanted, your elective heart procedure.  You’re not going to want to go to the dentist, because you could put it off for a couple of months.  You’re not going to want to go anywhere near a doctor’s office because there are going to be sick people there.  

I have a company who does telephonic medicine, so instead of seeing a doctor, you schedule a 15-minute phone visit with the doctor and talk to them about whatever it is.  It’s very possible that coronavirus will tip people who think, “Oh, yes, it’s kind of interesting.  Maybe I’ll do it sometime,” and they’ll say, “I don’t want to sit in a room full of sick people.  I’d rather do this visit on the phone.”  

But hopefully many, many things can be treated by not just by phone but it’s a video consult, and so they can see you.  They can look at you.  You could show them your rash.  You can show them your pinkeye.  You can tell them you have a fever, and they can look at you and say whatever, and they can prescribe medicine for you.  Some of the big managed care companies have just added it as a benefit this year for many people, but it’s new, so people don’t automatically say, “Oh, yes.  I want to go do my visit with the doctor on the phone,” but when they start thinking about if we get coronavirus here, and they’ll start thinking, “Maybe I’ll try this out.”  And this may really help spur the uptake of that.  

ALEX: Any final thoughts? 

TERESA: Yes.  There is so much stuff that we don’t know, and there is no agreement from the key opinion leaders and the epidemiologists and the virologists.  No one agrees.  So, anything I say could very well be obsolete tomorrow.  And the information that we’ve gotten out of China has been very sparse and very hard to get.  People are much happier with the information sharing from Hong Kong and Taiwan and some of the other countries.  They’ve been much more forthcoming to try to help people understand what’s going on. 

I mean it would be nice if they could find a vaccine.  For years people didn’t get vaccines.  Only the sick, and then healthy people started dying.  So, it really didn’t take off until insurers started covering vaccines easily and readily.  There’s lots of things they can do.  We’ll just hope they’re successful.  Eventually all of them are.

ALEX: Teresa, thanks so much for your insights, today.

TERESA: Thanks, Alex.

ALEX: And thank you for listening.  You can find more information on Teresa and the Alger Health Sciences strategy as well as additional coverage of the market reaction to the coronavirus on alger.com. 

Click here for more information on the Alger Health Sciences Strategy.

The views expressed are the views of Fred Alger Management, LLC (“FAM”) and Alger Management Ltd. (together with their affiliated entities “Alger”) as of March 2020. Alger has used sources of information which it believes to be reliable; however, this publication is not intended to be and does not constitute investment advice. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security, or any funds managed by Alger.

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