Was 2020 a turning point year?

Why do I think 2020 may be a rare turning point year?
I still think there’s a decent chance that COVID will fade from memory and we will have learnt little (this would make it like Swine flu). But, I think that chance sits around 30% and moving lower. This is partly due to the length of time COVID will be affecting us and partly due to our response both innovation-wise and public health wise.

On the positive front we have had many science innovations not least on the vaccine and biomedical front:  mRNA technology looks set to prove long-term robust to make many kinds of vaccine. We have a malaria vaccine in late stage testing, Deepmind/AI has made advances in protein folding modelling, and new molecular entity drug approvals (excluding vaccines) was c. 51 this year in the US, which is in line with the last few years in terms of therapeutic innovations. With gene-editing technology and our increasing knowledge and comptuting power, biomedical advances for the next 10-20 years look promising to me.

Environment-wise: We’ve had China, Japan, South Korea commited to carbon net zero. Battery technology has continued to improve. Solar power is the cheapest form of energy in many places. Even Nuclear (mini) and fusion technology has continued to improve. Apple has joined the electric vehicle / driverless car race. 

Governance-wise: We had fiercely contested US elections that have essentially been peaceful and robustly managed given that over 161 million Americans voted. UK and EU managed to agree a Brexit trade deal. 

My guess is that certain people will be inspired by science and innovation as having some answers to our challenges that will make them place more bets here and invent more valuable things that will improve human welfare and the environment. That COVID has triggered an enhanced ability to work out of the office should help bring more productivity and people to work and develop and, hopefully, this should also bring about better welfare.

Many of these improvements are slow-moving - like our overall improvements in human life expectancy and welfare. Many of us both misjudge how far we have come, and perhaps if we understand our progress we misjudge the challenges which are still great.

But we will need both parts. To understand where we have made progress, where we still have challenges and to use the opportunities COVID has given us to do better while trying to defeat its catastrophic impact.

That's not to downplay the awfulness of COVID. That's with us. But how we react is still up to us.

I remain more worried about creative arts practitioners.While over the long-term creative industries have typically bounced back from hard times, I think 2021 will continue to be hard and I see many brilliant creatives having to leave the arts and related work. It’s hard to measure the value of arts and the financial rewards are low for the majority. There is little joy in a future generation of creative work when this generation is so hit.

Mark Carney: Markets, COVID, Climate, Reith lectures

Former central banker (UK/Canada), Mark Carney gives the 2020 Reith lectures. He tackles the purpose of markets, financial system resilience and climate. He has collated much of the current stakeholder, shareholder, free market, “late” capitalism debate and puts it through the lens of the pandemic, bubbles, and climate and from an active and influential player.

I think he’s putting much of the debate in the mainstream and there are critiques both of unregulated markets (not grounded in values) and the need for a just transistion, but also that market forces are very neccessary for wealth generation and to solve the challenges (a critique of those who don’t favour markets at all). In one interpretation that would be arguing for state capacity.

4 hours of lectures (plus some very brief questions from Nobel Lauerates (the likes of Paul Krugman), politicians etc. I don’t have a super simple summary but I would highlight: 

He views markets as a necessary mechanism for wealth creation. But markets are amoral and so needed to be grounded in values, such as social values, and that’s his reading of the full works of, eg, Adam Smith. 

“...Smith’s writings warn of the mistakes of equating money with capital and divorcing economic capital from its social partner….”

His arguments look at unpriced externalities (climate, COVID), human errors (“irrational decisions”) and then…

”…the  drift  from  moral  to  market sentiments.  They  include  the  undercutting  of  the  social  foundations  of  the  market,  the corrosion of values arising from pricing of goods, services and civic virtues, that have been traditionally outside the market, and the flattening of values by forcing decisions to be made according to utilitarian calculations. Let’s take the first of these drifts, the changing nature of markets. Now of course markets don’t exist in a vacuum, the market is a social construct whose effectiveness is determined partly by the rules of the state and partly by the values of society. It requires the right institutions, a supportive culture and the maintenance of social licence. Values of trust, integrity and fairness are critical to effective market functioning, and these values have increasingly been taken for granted. Milton Friedman’s classic  pion  to shareholder value includes the following caveat: A corporate executive’s responsibility is to make as much money as possible, while conforming to the basic rules of society, both those embedded in law and in ethical custom.

And  where  do these  basic  rules  come  from?  Economic  and  political  philosophers from Adam Smith to Friedrich Hayek have long recognised that beliefs are part of the inherited social capital which provides the social framework for the free market. That social capital is the  product  of  both  formal  institutions  and  culture,  including  what  the  Nobel  laureate, Douglass  North,  referred  to  as  incentives  embodied  in  belief  systems.  The  question  is whether  the  expansion  of  the  market,  an  expansion  that  Friedman  helped  unleash,  is changing the underlying social contract on which it has been based. Could the emphasis on the individual over the community or on our selfish traits over our altruistic ones imperil both the market’s effectiveness in determining value and ultimately society’s values? In short, in moving  from  a  market  economy  to  a  market  society,  are  we  consuming  the  social  capital necessary  to  create  economic  and  human  capital?  The  ethical  customs  that  Friedman assumes can change. Indeed, many of those necessary to support market functioning are corroded   when   financial   returns   become  disembodied   from   their   impact   on   other stakeholders.  Friedman  himself  revealingly  acknowledged  the  importance  of  such  moral sentiments when he observed that a company might devote resources to provide amenities to its community, but only in the expectation of attracting employees, and that it could engage in such hypocritical window dressing by calling this social responsibility lest it, and I quote,

“Harm the foundations of the free market to a dmit that this fraud was all in the pursuit of profit alone.” This is how corrosion happens, and did happen in the ensuing decades…”

And in my reading of his lectures, his current views are very formed from his own experience as a central banker as seen here:

“....The starting point is the right balance between the market and the state, and this has shifted  in  recent  decades  with  markets  gaining  in  stature  and  influence.  The  market  is becoming the organising framework, not only for economies, but also increasingly for broader human relations with its reach extending well into civic and family life. In parallel, the social constraints on unbridled capitalism, religion and the tacit social contract have been steadily eased.  The  Thatcher/Reagan  revolution  fundamentally  shifted  the  dividing  line  between markets  and  governments.  This  change  in  direction  was  long  overdue  and  their  reforms unleashed a new dynamism. With the fall of communism at the end of the 1980s, the spread of  the  market  grew  unchecked.  And  so  by  the  time  I  joined  the  G7  as  the  Deputy  Central Bank  Governor  in  the  early  2000s,  the  conventional  wisdom  of  market  efficiency  reigned supreme. Policymakers like myself had nothing to tell the market, they only had to listen and learn. Put it another way, the market was always right. But as my central bank colleague, and later Italian Minister of Finance, Tommaso Padoa-Schioppa once observed, when we grant an entity infinite wisdom, we enter the realm of faith. Faith can guide life, but blind policy, and such cognitive capture led to the self-cancellation of the policymakers’ judgement as only the market  knows.  And  such  trust  dictated  that  the  only  solutions  proposed  to  market  failures were to add more markets or to reduce regulation further…”

There is much more in the lectures especially the 4th one on Climate. Long time readers won’t find anything that new in the climate lecture but he suggests:

“...The solutions to the climate crisis are intimately tied to our fiscal economic and social wellbeing. We need to leverage these social coalitions that have formed for climate action, but those coalitions won’t and shouldn’t hold if we don’t have a just transition. We can’t achieve environmental sustainability if we sacrifice our economy and with it, peoples’ livelihoods. Similarly, we won’t devise all the necessary solutions or implement them with sufficient speed without market forces.

And let me suggest here’s how you can reinforce these efforts.

First, if you work for a company, find out whether it has a plan to transition to net zero. If so, great, how can it be made better? And if it doesn’t have a plan, why not? Does management think governments and people are bluffing with their net zero targets? Or do they consider the company separate from society?

Secondly, wherever you put your hard-earned savings, in a bank, a pension pot, or in stock market, find out whether it’s been managed towards net zero. And if not, why not? Are the people investing your money missing out on major opportunities or are they taking unnecessary climate risks, or do they think that you just don’t care? If you care about the climate, make your money matter.

And third, ask not what the climate is doing to your country, but what your country can do for the climate. Does your country have a credible net zero plan? Does your government require large companies to disclose the impact of climate on their operations and must those companies have net zero plans? Do shareholders, ultimately you have an automatic vote on these plans? In other words a say on transition. Are banks planning for climate failure and do they know how they can contribute to climate success? “

Worth reading for an insight into what he will likely be arguing for in the coming climate talks in Glasgow.

Links to lectures here.

Speed, advantages and considerations, John Collison interview

A recent interview with Stripe co-founder, John Collison, has plenty of food for thought (link end) especially around what makes successful start-ups, businesses and what we can learn from congleremates, being an outsider to America and technology. One item raised, I’d like to discuss is:

Speed

This is the idea of speed as an under-recognised competitive advantage and a defensible one. Collison applies to business and start-ups but I think it can be applied to make areas of life. In particular, I am thinking of theatre making and personal life decision making.

Jeff Besos has articulated a related idea on what he calls Type 1/Type 2 decision making. A few decisions are heavy weight, very hard to reverse course and require considerable due diligence before making. These decisions are rare and more rare than most believe. (In this framework) Most decisions should be made fast because they are not heavy weight, not hard to reverse and the answers may only come from experimenting with the choice. (This leads to the notion of “Disagree but commit”  another Besos/Amazon idea that you might disagree but that shouldn’t impede the decision being made fast.)

Collison makes a point I believe to be true but is seldom raised.

“Speed” is attractive to a certain type of person. This type of person - and for business this is typically an employee - can have particular creative qualities (and often not fit in well with the bearocratic nature of big companies - and slow moving nature of some).

While Collison talks about start-ups and business I think you can apply this to the arts and theatre making. Some theatre makers like to be speedy, make fast decisions, create work quickly and show it fast and early. Others are slower in approach. This extends to organisations.

The rule of thumb might be that larger organisations are less speedy but Collison makes the point that this is not necessarily so. Collison argues that Facebook and Google/Alphabet can very fast when they commit. Amazon as well.

However, it does seem true to me that many large organisations do lose this quality.  There are intersectional reasons for this: culture, growing risk aversion, complexity, number of humans involved and differing goals.

But for large organisations that can keep this ability and have it infused in their culture, it can be an important advantage. This idea is related to Jeff Besos stating his wish for Amazon to always be a “Day 1” company.

If  we believe it’s not merely size of company, can we highlight other aspects? I mentioned culture (set by the top people and embodied by all people) as important but more complex to set. I think size of team is a controllable item.

Collison also suggests this. He argues that a small team (even a solo person) can often make breakthroughs or create solutions where 300 person teams fail. The academic work on the nature of innovation - incremental or step change - and size of team is mixed but I think Collison has observed a general truth about small teams.

Certain managers in certain large organisations understand this, they assemble small teams typically with people who tend towards the effective and speedy spectrum, and they task them with solving something important.  

That’s not to confuse when a heavy weight decision needs to be made. But, a decision on whether to marry is seldom, a yes/no on a short drink date should probably be made fast and not agonised over.

Processes in many organisations are not geared to helping speed. Mostly they are geared to minimising risk. And while risk mitigation is a consideration an error of omission is many times a more serious error. 

One example is how Netflix simplified the expense policy for the goals of speed and simplicity.

“…

• Our policy for travel, entertainment, gifts, and other expenses is 5 words long: “act in Netflix’s best interest.”

• Our vacation policy is “take vacation.” We don’t have any rules or forms around how many weeks per year. Frankly, we intermix work and personal time quite a bit, doing email at odd hours, taking off a weekday afternoon, etc. Our leaders make sure they set good examples by taking vacations, often coming back with fresh ideas, and encourage the rest of the team to do the same.

• Our parental leave policy is: “take care of your baby and yourself.” New parents generally take 4-8 months.

…”

A complicated expense policy is mostly there to try and mitigate risk rather than increase the time and productivity of its people.

Small organisations mostly do not bother with an expense policy and rely on trust and common sense.

I find this a telling observation. Small teams and small organisations can rely on trust and knowing. Big organisations lose that ability and rely on “policy”. 

It’s false reassurance. Policy won’t save you, if you don’t have the trust of people.

If you understand yourself enough to know what frustrates you and how much you like speed or not, this can set you up for the type of work and creative environments you should try and find. Perhaps that’s why hubs like around San Francisco are full of people who think like this.

There is so much about life which is due to uncontrollable chance factors or factors which may as well be chance. Again, if you understand or accept that view that about life then that may weigh on how you make decisions and view of risk.

When creating theatre, I think it does say something about the management of people and size of team that can be speedily managed or not.

If you are in the mode of creating a business, you might want to spare some thoughts to the culture you want to be developing and whether speed will be one of your advantages and if speed is part of your advantage, how to keep it.

Links:

Netflix Culture, policies and explantions

Interview with John Collison

The 1997 Amazon letter about decisions

Grow The Pie, Alex Edmans, book review and webinar

Professor Alex Edmans makes the case for a pie-growing mindset. Acknowledging the challenges and trade-offs in pie-splitting, Edmans argues that pie-growing creates the most welfare for the most people.  Core ideas Edmans argues for (along with pie-growing) are: the importance of “omission errors”, the multiplication principles, the importance of materiality judgements and comparative advantage. If I were to pick out two other principles that weave throughout the densely argued book, they would be the ideas of personal agency and a reliance on fact-based evidence over ideology.  (See link for Webinar where Alex and I discuss his book)

Interspersed with lively stories and backed by evidence, it makes for better reading than a dry academic text. However, it is still packed with references to studies and data that makes the book dense reading and above the one-shot idea business books that line airport bookshops.

Omission errors are harder to track, but might be more serious for creating value. Value creation, for Edmans, is not about firm value but about society value. Expressed on an individual level as a fear of failure, it may cause enterprises to avoid innovation development and the likely high failure rate that entails. Edmans further argues that omission errors may be caused by too strong a desire to avoid “commision errors”. An error of commission may be in overpaying a business leader but the larger omission error may be in that business funding an innovation project that the company is uniquely able to research and benefit society as a whole.

The pie-growing mentality with a focus on society then has firm profit as an oblique by-product of society value creation (cf. John Kay, Obliquity). Profit is a side effect of pursuing social value creation. This contrasts with some forms of the “Stakeholder” model or the “Enlightened Shareholder Value” model (ESV). Under ESV, a firm creates long-term value by positive relations with stakeholders (cf. Business Roundtable Statement, 2019) such as customers, suppliers, regulators and employees etc. ESV is an extension of Milton Friedman’s arguments on profit maximisation (cf. Freedom and Capitalism) but argues long-term firm profits are only maximised by good treatment of stakeholders. Under ESV, social value is a by-product of firms seeking to maximise profits.

ESV advocates argue long-term profit is concrete, measurable, focused and objective.

Edmans argues that growing social value may be less concrete but that it’s intrinsic rather than instrumental. Social value creation considers externalities better even at the cost of focus.

Edmans argues intrinsic motivations leads to more long-term profits. This is important where value increasingly arises from intangible value (cf. Haskel and Westlake, Capitalism without Capital). Accounting for externalities better is a way of tackling pollution and climate challenges that simple profit maximization is poor at handling.

I suspect both ESV advocates (eg Michael Jensen) and market libertarians (eg Cliff Asness) will still have concerns over the measurement difficulties of social value and the trade-offs involved. However, many economists agree that GDP is not an entire measure of a nation’s wealth, not accounting for environmental capital (cf. Tyler Cowen’s Stubborn Attachments) and social capital. Better environmental capital accounting would be helpful. Market libertarians argue that there are few examples of market failure (although response to pandemics might be one area, topical as of 2020, climate might be another). They may argue that Pieconomics still leaves unresolved where there are market failures over externalities. State capacity libertarians may argue that such externalities, for instance pandemics or climate, might be better handled by state or non-profit maximising entities (eg ARPA) focused on an aspect of social value (agreed by that society) rather than private firms - although the ideas are not mutually exclusive.

Edmans’ arguments are a counterpoint to the “Degrowth” economists or the Donut (cf Kate Raworth, Donut Economics). Under a degrowth framework, humans need to live within certain planetary boundaries. While both may agree circular growth is sustainable, pie-growth would account for externalities and for intangible growth. (Personally, I find Edmans arguments better backed up than Mazzucato’s book Value of Everything. I find Edmans’ arguments then sitting alongside Colin Mayer’s book, Prosperity.)

Edmans moves on from the theory to articulate three principles to use when judging value creation.  These are:

Multiplication: An activity should have social benefits that exceed its private costs

Comparative Advantage: Social benefit should outweigh social costs

Materiality: Activity should benefit material stakeholders (a firm is not all things, to all people)

Edmans then provides evidence on the positive use of share buybacks and incentive schemes within his framework. His conclusions on share buybacks and incentives run counter to the narratives of some commentators who posit (often without evidence) that share buybacks do not enhance value. The arguments are that buybacks are made at the cost of value enhancing projects into, e.g., innovation. Edmans finds the situation much more nuanced. There is a limit to value enhancing projects. Similarly, Edmans has less concern (although not zero concern) on magnitude of pay for management but more concern about whether pay structure is aligned to long-term value creation - or pie growing. The amount management receives in pay is outweighed by the pie grown by all stakeholders in this model.

The last shorter chapters of the book cast the lens of pie-growing onto nations and individuals. Here the idea of personal agency comes through. Individuals have “voice” as well as “exit” as choices (cf. Hirschman’s Exit, Voice, Loyalty) can act upon business via choice and action. This area is less developed but touches on purpose and growth mindset. (Interested readers could see Dweck’s Mindset or Microsoft CEO, Satya Nadella’s Hit Refresh)

Suitable for a thoughtful lay reader as well as covering material useful to business leaders and investors in the field. This book is recommended on some of the latest thinking and evidence on how companies deliver both social value, purpose and profit.

Sources and notes:

Written in personal capacity, I did review an advanced draft of the book for free. Edmans sits on an advisory committee, which I chair. I paid for a Kindle copy and have been gifted a hard copy.

Alex Edmans site.

See Ray Dalio on analysis on pie-splitting and pie-growing. Dalio is concerned about the inequalities associated with pie-growing although Edman’s framework does partly address this.

John Kay’s book, Obliquity looks at why (traditional) share holder value is a by product.

Milton Friedman argues free markets and individual choices maximises welfare by seeking profit maximisation (within the rules of the game). See Capitalism and Freedom.

Albert Hirschman looks at the philosophy of choice and agency amongst other ideas in Voice, Exit and Loyalty.

Haskel and Westlake, Capitalism without Capital examines the rise of the intangible economy.

Kate Raworth argues for re-imagining economic growth and the boundaries humans should live within. Her book is Doughnut Economics.

Colin Mayer examines the responsibility of business and the history of the corporation, and where capitalism might go next in, Prosperity. 

Tyler Cowen articulates State Capacity Libertarianism and lays out some of his philosophy in Stubborn Attachments, including why we undervalue the environment and future generations and inadequacy of GDP.

Michael Liebreich on climate post-COVID

Michael Liebreich on climate post-COVID: "...Epidemics are not the only systemic risks to which we have been oblivious. In the run-up to the Great Financial Crisis we were oblivious to the systemic risks to our financial system posed by extreme levels of leverage and risky, opaque derivatives. And most people are still complacent about the systemic risks to our planetary environment posed by thoughtless economic development. Is it fanciful to hope that that as a result of Covid-19 the world pays a bit more attention to those urging us to respect our planetary boundaries, and a bit less to those pretending they do not exist?

In summary: Covid-19 is causing a massive drop in emissions this quarter, perhaps as much as 20%; after that, emissions will rebound, but remain significantly down until a vaccine enables a full recovery; even after that, they may well remain depressed for some years by an economy again hobbled by a colossal mountain of debt; and in the longer term, the stickiness of some of the new behavior, business models and technologies will certainly accelerate the transition to a low-carbon economy. Out of this terrible period, some good will come..." 4 min op-ed piece for BNEF here.

COVID, Policy: vaccine acceleration proposal, treatment accelration proposal

• $1.3bn - $2bn for a 9% up to 40% chance to save 1.2 million US lives earlier

• $700m, 9%+ chance save 200,000 UK lives 

• Make a significant investment to scale up current vaccine trials

• Chance mass vaccinations once safety data is passed

• Chance mass antibody protections? Accelerate treatment trials.

• Flatten the curves maths uncertain, vaccine and treatments good bets in any scenario.

• Treatment/trial protocols should be set up now and accerelated after positive safety before full phase 3 trials

Please also see end disclaimer and draft open letter on this idea.

Is it not possible to have a vaccine into the field in 6 to 12 months, rather than 18 to 24 months?

I think it should be with some money ($1bn to $2bn), will power (some companies will have to work hard) and a change/boost from regulators (typically they’ve not allowed drugs on to the market until definitive efficacy is shown, though have in certain cases eg cancer, as they are risk averse) . I don’t even think incentives need to be changed much in this case, although a re-think here would help for the future.

My proposal:

-start mass scale up of leading vaccines now

-if safety trial is positive (April we might know but there should be some data already available)

-then proceed to vaccinate the 60m elderly in USA

If safety trial has passed this has in the range of a 20% to 40% chance of working (my estimate). Note, BIO suggests 24% success for a phase II vaccine and 16% for a phase I vaccine. 

Best case scenario: 1.2m+ lives saved

Base case scenario: no change, $1.2bn spent but manufacturing technology and other assets built 

There is no worse scenario if safety has passed except for tail events and resources used.  I guess small chance that somehow this messes up a future vaccine,, but seems unlikely.

Getting 60m vaccinations is tricky but they can also get the flu shot at the same time which should prevent flu deaths in any case. 

Details:

Moderna  has already submitted a vaccine candidate using its mRNA technology. It’s currently being tested in safety trials. There are several other vaccine candidates, (cf. Inovio, Sanofi, J&J, GSK) but the speed is too slow - and it might not need to be this slow.

There is time and money needed to scale up manufacturing in case of success.  This could be accelerated for $500m, if started now. That investment could be used to negotiate, say, a $15 price for the vaccine. CDC pays $18 for a flu vaccine. 

So ball park for US that would be a $1.4bn investment. 

While the UK has only 12m elderly, maybe it could go halves with the US.  Still the same calculation for UK is about $700m.

Note, CEPI (Coalition for Epidemic Preparedness Innovations) has suggested $2bn for for up to 3 candidates to go forward finally past phase 3 (starting with 8 or so in phase I). So, about $1bn for one drug seems doable, at speed. Now the mostly traditional system, will have a good probability of success but it will be slow. So I’m suggesting a $1bn, 6% chance bet on one or 2 candidates now, for a chance for a vaccine in 6 months - that’s 12 to 18 months before the likely CEPI process. (We also know with some recent fast success in cancers. cf. Roche, Merck PD-1s, Novartis’ Gleevec some of this is possible at speed)

I’m also suggesting we allow drugs once they pass safety (or have passed safety), to be allowed into the field (this would cover Regeneron’s possible treatment, it would cover Chloroquine, baricitnib and ruxolitinib - these have already passed safety in other indications; it would be resmedivir as well)

Source: Regeneron (Cowen Conference, March 3)

Also, note there might be antibody treatments - this would be Regeneron’s approach. It won’t have antibodies ready until summer, but once ready, after a short safety trial, it might be worth going to dose the elderly. So say doeses ready in August, safety trial Sep - get it ready now - and start dosing in October. This could be expensive but only in the order of $2bn to $8bn depending on price. Now, in October we won’t know efficacy, but if safety is basically clear, then again we have a 20 - 40% chance of success albeit at a higher cost (as antibodies are more expensive).

Vaccine probablity of success

Vaccines have a 6% percent of success once in pre-clinical trials (base line stat) and around 16% when in phase I.  Investors use a range of 1% to 16% chance of success typically for Phase I drugs.  Risk is often bucketed for (a) safety (b) efficacy and c) regulatory.

There are plus/minus reasons to vary the risk of a COVID vaccine.  Regulatory risk is lower than average. Reasonable people can argue for safety/efficacy risk. The mRNA technology is new, but we do have the virus genome. We know how to make flu vaccines very successfully, so it’s proabably a matter of time and investment rather than completely new invention/innovation needed.

In any event, this is a >0 success rate, and a ball park 9% is reasonable for a novel phase I vaccine.

Vaccine and treatment idea details

Manufacturing in advance.  This needs to start now as scale will be needed.

Trial for efficacy now. Ask for volunteer elderly, maybe healthcare worked and start the phase 2/3 test immediately in April/May. This is if you simply can’t push through vaccines when not yet tested.

If you scale up the money, you can run it on all 8 or so most viable vaccines, $8bn should be enough to take through an accelerated phase 2/3 + manufacturing if there is regulatory and company willing.

There are 80 or so drug treatment candidates identified by WHO. (see sources end)

We should start with drugs already approved and get them ready for trial in the field.

This would include chloroquine (already being used by China) and baricitinib (as identified by AI processes), China is running trials using ruxolitinib. These are treatments rather than preventative but still useful in curing patients and getting them out of ICU.

The practical maths of flattening the curve

The UK needs to keep ICU cases down to approx 1000 (range up to 2000).  This means peak diagnosed confirmed cases at 20,000. (Range 10K to 40k).  The measures required to do this in the UK given current doubling times are have quetionablt in feasibilty Some modelas have. UK reaching 20,000 cases between 21 to 90 days. And an ICU case may stay in ICU for 3 weeks+ depending on death or recovery.  So keeping capacity at the ICU level is going to hard. We may be able to produce cheap ventilation and free up capacity, but it might be tricky.

That’s why accelerating a vaccine and treatments are a good bet, as they might help get in before the peak or help people out of ICU.

Tough maths of elderly deaths

Let’s look at some other brutal maths. 1 year or 2 year infection rate estimates might range from 20% to 70% of the population. Swine flu had a 20% infection rate and 150K to 575K people died (CDC data). Swine flu also circulates every year now since 2009.

A 20% infection rate seems very plausible. The case fatality rate (this is for when you are assigned as a case and so doesn’t include non-symptom or mild cases that don’t get reporting) is very hard to know.

These are the brutal maths for the UK and Italy.

Italy has about 60m people and >22% are over 65 —> over 12m elderly.

If 20% are diagnosed —> 2.4m and at 4% CFR —> 96,000 deaths. It’s easy to see how this might range up to 200,000+ easily with double diagnosis/CFR.

In the UK, it’s about 18% of 67m —> this is also 12m elderly. The maths is the same, if 20% are diagnosed —> 2.4m and at 4% CFR —> 96,000 deaths.

Politics of this bet

In UK, US many conservative / Republican voters are elderly >65. There are more of these Rep voter >65 (and this reverses for under 30s).

So in particular for Trump and Johnson, this would be a political calculus to consider if they wish.

Alternatively, some have argued that losing “unproductive” >65s might make for a more productive economy with lower social cost burden. Eeek.

The Future:

Pandemics are very likely (over 90% chance) to occur (again) over the next 50 years and likely over 100 years+ time frames. This pandemic was predicted by pandemic experts.

This is because:

-humans are increasingly interconnected at speed

-the way we treat/breed animals is not changing any time soon

-wet markets and similar not likely to change soon (though I think in eg China there will be a crack down)

-current viruses/germs eg influenza, pneumonias have been around for 1000s years

-virus/germs will constantly mutate

-containment will slow, likely never stop, transmission

What to do about future pandemics

-cultural learnings eg greetings

-innovation

We can slow transmission and in small cases potentially even stop by a change in cultural norms. We know the behaviours - washing hands, hygiene, don’t shake hands, cough into elbow  - but compliance can be greatly improved. This is inexpensive. Still, it is unlikely to stop all future pandemics. It’s worth recommending more strongly. Sanitation has already given use huge gains here and can gives us further gains.

That leaves us with treating pandemics and vaccinating once pandemics start. This is a question of innovation.

Incentivising Innovation

The market arguably has inefficiencies with dealing with i) rare diseases and ii) developing world diseases and iii) diseases that have not occurred, but we can predict are likely to occur.

This is due to those markets being risky and/or commercially small and/or commercially small risk-adjusted (a market might be worth $2bn but at 1% chance of success, $20m risk-adjusted would be of small value).

Policy solutions that have (at least partially) worked have been  a) granting longer/extra intellectual protection for rare diseases and b) agreed forward purchasing contracts for developing world diseases.

(a) Has helped areas such as rare genetic diseases, and multiple sclerosis (and other classified rare diseases) in the developed world (mostly) and 

b) has helped in malaria and certain other developing world diseases (where commercial markets are smaller) - forward buying by the Gates Foundation amongst others.

Such mechanisms have mostly failed in I) developing new antibiotics against resistant strains, II) certain other developing world diseases,  III) pandemics.

One negative factor in this is state appropriation of (mostly) private innovation. Rich countries eg US have been guilty of this as much as poor countries. The US essentially disregarded protection (or threatened to break the patents) on anthrax treatments in seeking to stockpile such medications cheaply. [https://www.wsj.com/articles/SB1003966074330899280 ]

This causes a large disincentive to work on vital areas, if profit-seeking entities will lose out on their R&D development costs for such treatments.

I would propose (as others have done in various guises)

-partial speed up of regulatory response for areas of unmet medical need

-international “state capacity” in antiviral, antibiotic, mRNA, pandemic research

-forward purchase fund for pandemic vaccines and medications

Partial speed up of regulatory response for areas of unmet medical need

The gold standard in medical research are randomised controlled trials (RCTs). They are costly and slow, but typically generate the most robust results.

For low commercial value areas, RCTs (and previously trials needed before RCT) are too costly for entities to perform give the risk. 

But, mostly health regulators will need RCTs before approval of a drug to be able to know the risk/benefit of a medication vs standard of care.

This has led some thinkers (eg Peter Thiel) to argue that regulators need to change or relax standards to allow quicker and more innovation on to the market. The challenge is that this may let onto the market ineffective treatments that cost lives or damage the credibility of the system.

One compromise would be to let medications on to the market where - in a controlled fashion - when there is enough evidence of safety/efficacy but no RCT. A full approval would be contingent on  future RCTs being performed in a reasonable time frame else the drug would be with drawn from the market. The drug would also be withdrawn if the RCT fails.

If medications for areas of high unmet need - for instant pandemics or other diseases with limited treatment options - would be released this way, the net benefit would be positive.

Industry would pay for such a faster service, and this could cut drug development time in half.

International/national “state capacity”

Faster regulation alone would not help unless there were medications to test.  Given the long and uncertain cycles for viral pandemics, it’s beyond the risk tolerance for many private entities. There are further complications because mutations might mean the plan A vaccine proves to be relatively ineffective and has to be made again under plan B.

However, I believe this is an area where even libertarians or perhaps “state capacity” libertarians might concede a non-private institution or set of institutions might be useful.

Essentially, I would be arguing for a form of Health ARPA where a part of the HARPA is focused on pandemic anteviral research, and antibiotic research and possibly other areas of unmet medical need. This is a sibling idea to the NIH but more targeted at likely pandemics.

If such an organisation had capacity to response quickly to evolving pandemics, then it should be able to share royalties with any other parties needed to scale medications to commercialisation, if it needed private partners to help scale quickly.

There should be positive spillover (cf NIH) in the years when no pandemics occur.

Forward purchase fund for pandemic vaccines and medications

Now (A) We have an organisation that can respond quickly with a new medication, and (B) a regulatory process which can speed through medications for high unmet need (eg pandemic) but how will we pay and keep incentives especially if we need multi-stakeholders to develop the medication.

This is where a forward purchasing fund or contract comes  into play. This fund acts as a guarantee that a certain amount will be paid for the innovation in a swift manner. This is where CEPI already sits and comes in and the Gates Foundation (along with Mastercard and others) have made a sister CEPI for COVID specifically. I do note the US govt has approved funding quickly on COVID, but still better to have it already in place.

But, stronger and wider funding for CEPI (and I expect this will happen) would be a good development.

Conclusion

Given pandemics will re-occur, we should look to set up capacity to deal with pandemics, regulation that can be swift and responsive and a fund to guarantee a fair price for innovation and set incentives accordingly

Post Script: It turns out Bill Gates haas also written on this topic and he many similar ideas and sources (and talks more about infrastructure build) examples of certain pandemic preparation here. https://www.nejm.org/doi/full/10.1056/NEJMp2003762

Other Sources:

On some COVID maths https://www.thendobetter.com/investing/2020/3/13/covid-brutal-maths-and-counter-factuals

On political age split: https://www.people-press.org/2016/09/13/2-party-affiliation-among-voters-1992-2016/

Moderna in trials: https://investors.modernatx.com/news-releases/news-release-details/moderna-ships-mrna-vaccine-against-novel-coronavirus-mrna-1273

On the CEPI funding call https://cepi.net/news_cepi/2-billion-required-to-develop-a-vaccine-against-the-covid-19-virus-2/

On Regeneron’s approach: https://newsroom.regeneron.com/static-files/2b0c3227-defd-4b84-814a-8519c89e103f

ON WHO list of treatment candidates:

https://www.who.int/blueprint/priority-diseases/key-action/Table_of_therapeutics_Appendix_17022020.pdf?ua=1

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Disclaimer and open letter:

Can you confirm the UK will be investing in COVID therapy research and will run trials this year, as according to the clinical trials database no trials are running?

Can you explain why, we should not significantly enhance UK treatment development protocols and potentially gain effective treatments or prophylactics this year, given certain biopharma companies are already testing treatments?

My thinking and letter  on this is below.

Dear Patrick Vallance + UK team,

A safe vaccine or treatment with up to 40% chance of efficacy (maybe more) could be ready within 12 months. You’ve stated a vaccine is highly unlikely this year. This might be true under a traditional timeline, but if we invested under novel protocols we might significantly beat this.

(We met when you were at GSK and I know you have detailed knowledge of the traditional pathways, but I’m asking that you think about evoking an accelerated pathway).

Moderna has a vaccine in phase I safety trials (running as of March 2020). (There are others too.)

Regeneron has an antibody based programme that will have treatment available for trials in late summer.

If these trails show safety - there could be reasonable evaluation by May for the Moderna vaccine  - then perhaps it is worth evaluating the risk of scaling up manufacturing and performing dosing in the elderly population? (Say, 20% - 40% chance of efficacy, this may be a good risk adjusted investment.) I think a £500m to £1bn investment could achieve this.

If this is not acceptable,  then at least running an accelerated phase I/II/III trial here in the UK? I feel sure you would find the necessary volunteers.

This way, we may be able to accelerate a successful vaccine by up to 12 months from historic timelines. Or the antibody treatment could be available early 2021 or in 2020 under compassionate use. Is this not worth a chance?

We have evidence that several drugs might be effective treatments:

remdesivir (trials in China)

The anti-Il-6, Tocilizumab  to treat cytokine release syndrome, a COVID-19 complication (China approved)

Chloroquine (China approved)

Baricitinib, Ruxolitinib (Rux is trialing in China already)

and many more.

Can you confirm the UK will be investing in this research and will run trials?

Now is the time to try fast and large scale innovation for a treatment and vaccine, and I feel sure that the UK could help lead the way here.

I wish you and your team every success.

Benjamin Yeoh

Notes and Sources:

Ben Yeoh is a healthcare investor with 18 years experience but is not a virologist or infectious disease expert. This is written in a personal capacity. This is an open letter to challenge traditional thinking based on biotech conversations that suggest accelerated timelines for treatments are possible. Ben believes government advisors should investigate this line of action. This is a personal view with no organisational endorsement. The view is made in good faith and should be investigated by those with expert knowledge. I suggest these ideas for public health reasons and there is no endorsement or not of any company mentioned for investment purposes.

On Moderna’s approach:

https://investors.modernatx.com/news-releases/news-release-details/moderna-ships-mrna-vaccine-against-novel-coronavirus-mrna-1273

On Regeneron’s approach: https://newsroom.regeneron.com/static-files/2b0c3227-defd-4b84-814a-8519c89e103f

See slide 22.

Identification of baricitinib (and ruxolitinib) as treatments:

https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30304-4/fulltext

WHO database of drug treatments referencing ruxolitinib already in trials:

https://www.who.int/blueprint/priority-diseases/key-action/Table_of_therapeutics_Appendix_17022020.pdf?ua=1

Details on Tocilizumab being approved in the 7th updated diagnosis and treatment plan for COVID-19 issued by China National Health Commission (NHC) on March 3, 2020 and the drug being in clinical trial.

https://www.gene.com/covid19

Speculative ways of thinking about treatment + vaccine: https://www.thendobetter.com/investing/2020/3/14/covid-policy-vaccine-acceleration-proposal

Further details:

Vaccine probability of success

Vaccines have a 6% percent of success once in pre-clinical trials (base line stat) and around 16% when in phase I.  Investors use a range of 1% to 16% chance of success typically for Phase I drugs. Risk is often bucketed for (a) safety (b) efficacy and c) regulatory.

There are plus/minus reasons to vary the risk of a COVID vaccine.  Regulatory risk is lower than average. Reasonable people can argue for safety/efficacy risk. The mRNA technology is new, but we do have the virus genome. We know how to make flu vaccines very successfully, so it’s probably a matter of time and investment rather than completely new invention/innovation needed.

In any event, this is a >0 success rate, and a ball park 9% is reasonable for a novel phase I vaccine.

Vaccine and treatment idea details

Manufacturing in advance.  This needs to start now as scale will be needed.

Trial for efficacy now. Ask for volunteer elderly, maybe healthcare worked and start the phase 2/3 test immediately in April/May. This is if you simply can’t push through vaccines when not yet tested.

If you scale up the money, you can run it on all 8 or so most viable vaccines, $8bn should be enough to take through an accelerated phase 2/3 + manufacturing if there is regulatory and company willing.

There are 80 or so drug treatment candidates identified by WHO. (see sources end)

We should start with drugs already approved and get them ready for trial in the field.

This would include chloroquine (already being used by China) and baricitinib (as identified by AI processes), China is running trials using ruxolitinib. These are treatments rather than preventative but still useful in curing patients and getting them out of ICU.

Costs

Moderna  has already submitted a vaccine candidate using its mRNA technology. It’s currently being tested in safety trials. There are several other vaccine candidates, (cf. Inovio, Sanofi, J&J, GSK) but the speed is too slow - and it might not need to be this slow.

There is time and money needed to scale up manufacturing in case of success.  This could be accelerated for $500m, if started now. That investment could be used to negotiate, say, a $15 price for the vaccine. USCDC pays $18 for a flu vaccine. 

While the UK has only 12m elderly, maybe it could go halves with the US.  Still an approx $1bn to $2bn investment per likely treatment candidate is viable and would potentially accelerate treatment into 2020.

Note, CEPI (Coalition for Epidemic Preparedness Innovations)  has suggested $2bn for for up to 3 candidates to go forward finally past phase 3 (starting with 8 or so in phase I). So, about $1bn for one drug seems doable, at speed. Now the mostly traditional system, will have a good probability of success but it will be slow. So I’m suggesting a $1bn, 6% chance bet on one or 2 candidates now, for a chance for a vaccine in 6 months - that’s 12 to 18 months before the likely CEPI process. (We also know with some recent fast success in cancers. cf. Roche, Merck PD-1s, Novartis’ Gleevec some of this is possible at speed)

I’m also suggesting we allow drugs once they pass safety (or have passed safety), to be allowed into the field (this would cover Regeneron’s possible treatment, it would cover Chloroquine, baricitnib and ruxolitinib - these have already passed safety in other indications; it would be resmedivir as well)

Also, note there might be antibody treatments - this would be Regeneron’s approach. It won’t have antibodies ready until summer, but once ready, after a short safety trial, it might be worth going to dose the elderly. So say doses ready in August, safety trial Sep - get it ready now - and start dosing in October.  This could be expensive but only in the order of $2bn to $8bn depending on price. Now, in October we won’t know efficacy, but if safety is basically clear, then again we have a 20 - 40% chance of success albeit at a higher cost (as antibodies are more expensive).

Why important to flatten COVID curve for healthcare capacity, England

→ 1,000 critical care beds (England)

→ 20,000 cases (simultaneously) wd overwhelm system

→ important to flatten curve

→ 319 cases if double every 3 days = 20K+ in 21 days.

→ important to flatten curve

I am not a virologist, but this is an example math for why some argue to flatten the curve is important. In Dec 2019, in England, there were 4,048 adult critical care beds available and 3,048 occupied. (There were 309 paediatric intensive care beds available and 246 occupied.)

This is out of approx 130,000 to 140,000 hospital beds in England.  These beds have approx 90% occupancy end of 2019.

The five main specialist centres in England are: the Royal Free and St Thomas', in London, and sites in Liverpool, Sheffield and Newcastle. Between them, they can care for 100-150 patients at any one time. There are 25 other sites but without factoring in isolation, ventilation requirements and the like, plus other occupied beds we are looking at capacity around 1,000 critical care, up to 2,000 if you want to push out other critical care.

In China out of a study of 44,000 cases 14% were severe and 5% critical. The severe patients might not all need an ICU bed (though likely would need a bed) but the 5% critical cases (approx) likely do.

This suggests if England hits 20,000 cases at a point in time then that’s a critical overload situation with 1,000 needing care.

England has about 319 cases as of 9 March with a doubling day of approx 3 (this will not be stable, we must hope! - but it has been 3 for a few days now) but that means in 3 days time cases would be 638.  But it also means that in between 21 to 24 days (7 to 8 double day periods), we would hit 20,000 to 40,000 cases. That’s what would a plausible exponential growth model could suggest, if we had no containment - and Italy might hit that number if containment fails in late March or April.

As of 9 March the world ex-China (28K) is at around 5 doubling days driven by Italy (7,375) and Iran.

How strict our containment/slowing must be without grinding our economies to a halt is for societies to decide. But perhaps Italy is a case study of how it can get, from a doctor in Italy.

As Italy with also in the range of 1000-2000 ICU beds free (they are looking for more everywhere) are approaching a tipping point.

Source: World Meter

Source: World Meter

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Data:

https://www.england.nhs.uk/statistics/statistical-work-areas/critical-care-capacity/critical-care-bed-capacity-and-urgent-operations-cancelled-2019-20-data/

https://www.kingsfund.org.uk/projects/nhs-in-a-nutshell/hospital-beds

https://www.england.nhs.uk/statistics/statistical-work-areas/bed-availability-and-occupancy/

http://www.salute.gov.it/portale/temi/p2_4.jsp?lingua=italiano&tema=Piani,%20finanziamenti%20e%20monitoraggio%20del%20SSN&area=statisticheSSN

Inequality as side effect, grow the pie

I was discussing with friends over the last few weeks about inequality. I have leftist and rightist friends (I myself think of myself as apolitical and syncretic, more simultaneously left/right over many items) but the description of it matters.

The latest work by Piketty - I’ve read the slides not the whole book - outlines much of the data. Many of the thoughtful thinkers look at inequality as a “side effect” or “bug” (feature?) of “grow the pie” wealth creating mechanisms.

This brings up interesting metaphors. If you are critical of growth, you evoke cancers and tumours as the damage out of control growth can bring. But if you think inequality is unintentional - then phrases like side effects seem better. 

Side effects are useful to think about as it suggests you don’t want to damage the primary driver - wealth creation. But, you do want to mitigate the side effects where possible.

Two items on this topic, I’ve recently read. One is a Paul Graham essay, which clearly argues for the wealth creation aspect of capitalism and another the soon to be launched book of Alex Edmans, Grow The Pie, which is more nuanced but does also primarily argue that growing the pie, is win-win. Particularly important for left thinkers to understand this view.

Paul Graham Inequality Essay

Alex Edmans: Grow the Pie book.

Piketty Slides (2019): Brahmin left vs Merchant Right

My Blog on looking at longitudinal inequality, not as bad as I might have thought but still down.