Additionally, under normal circumstances, a portion of society is typically skeptical of new vaccines. And given the politicization of this disease, the percent of the population unwilling to be inoculated may be larger than normal. Hypothetically, a COVID-19 vaccine with 50% efficacy (applying a simple average from the chart above) consumed by 50% of the population would immunize only 25% of the population. While this is a simple assumption, it is material, as a 25% immunization rate would be well short of the 70% to 90% minimums often cited by epidemiologists as necessary to achieving herd immunity.
This is why society needs more COVID-19 testing. While these significant challenges — from drug discovery, to manufacturing and distribution, to garnering societal trust — are addressed, identifying those infected and isolating them early can prevent or limit contagion. Although therapeutics may accelerate recovery times and reduce hospitalizations, society may still need a step-function jump in testing.
Testing capacity has grown a lot in the U.S., according to The COVID Tracking Project, the U.S. saw exponential growth in testing during the spring and early summer. While the rate of growth has decelerated recently, the recent seven-day moving average is just under one million tests a day. That still is not enough.
According to a report by Duke University and The Rockefeller Foundation, asymptomatic people transmit approximately 30% to 60% of cases. The report concludes that given current infection rates, the U.S. needs around 200 million tests a month compared with the current trend of about 25 million. Given a reasonable possibility that the United States may be experiencing meaningful community spread of the virus for some time to come, the best approach to resuming “normal” life would be mass testing.
With focus on vaccines, test manufacturers underappreciated
While biotechnology stocks — and perhaps financial markets overall — have discounted high probabilities of successful vaccine discovery, we think investors may be underappreciating the potential opportunity for COVID-19 test manufacturers and services companies.
A handful of the largest life science companies in the U.S. not only develop, manufacture and distribute the global supply of COVID-19 testing supplies but also develop, manufacture and quality-check vaccines and therapeutics. We don’t think it’s a coincidence that the current management of the virus through testing and the future management of the virus through vaccination are enabled by the same kinds of highly innovative companies that support modern scientific advancement.
We believe companies in the global life sciences supply chain could potentially create sustainable profits than those in the highly-competitive vaccine market. While much of their current testing-related sales will be one-time in nature as society manages through the pandemic toward mass vaccination and natural immunity, the investments, innovation and future growth fueled by short-term virus-related revenues may potentially enable these companies to build on their long histories of investing in innovative, sustainable and high-returning endeavors.