Pandemic, page-28

Let me say first that I am late-60s, suffering from an interstitial lung disease (a form of progressive fibrosis) and being treated with immune-suppressants. So it gives me no personal comfort to say any of what follows because I am right in the cross-hairs. But it seems from the experience so far that the impact of this virus will be to selectively thin the ranks of the old and sick, like me, and spare the young. That is very relevant for the outlook for the economy and the value of shares.

It is important because when this passes, as it will, that selective impact seems likely to make the recovery period a very, very good time to be around.

The UK estimates that the best case scenario is for 20 per cent of the population to get infected but the fear is it might be as much as 80 per cent. Chancellor Merkel, who was a research scientist before entering politics, estimates 70 per cent. NSW authorities are saying “20 per cent in the first wave”.

In Australian terms, 20 per cent suggests a minimum of 5 million cases. Of these, 80 per cent are expected to have mild disease. But that means 1 million people with severe illness, heavily skewed towards the old. And that's the best case scenario. The worst case might be 4 million with severe disease.

The present death rate will be no real guide to what we see in the coming months because when that number of people hit the system there will obviously not be ICU beds or ventilators or medical staff or anything like the level of care that infected people have enjoyed so far. In China they have had about 100,000 cases but they have 50 times our population. Proportionately, that is like Australia having 2000 cases and 400 with severe disease. So the present death rates are based on a level of care that certainly will not be available when the numbers of infected people get larger.

Now many things change when one dies but relevantly the Government stops paying your pension. It stops giving you subsidised hearing aids and expensive medicines. You cease to be eligible for echocardiograms and colonoscopies. Also, your property, real and personal, passes to your heirs.

So, we will emerge from this with much reduced welfare and health care costs and consequently a much healthier budgetary environment. Also, there will be a lot of “deceased estate” property on the market, which means prices will probably decline and governments and central banks can pursue expansionary policies without worrying about triggering further real estate bubbles. And it means the younger (on average) population remaining will enjoy a wealth effect from this inter-generational transfer of assets that is likely to prompt them to spend. There will probably be a baby boom. I wouldn’t want to be holding any shares in aged care providers but early childhood care should go gangbusters.

As far as we are concerned, the chronic heart failure candidates are precisely the people who are most likely to succumb, so that suggests the addressable market for that treatment may well contract, but the paediatric graft versus host disease aspect is much less likely to be affected and the chronic lower back pain market should be relatively intact as well. And there will be more money around to pay for what we are offering. Sounds good to me. The trick is to find some way of sticking around to see it.

The wild card is the potential for Mesoblast to contribute to the treatment of the seriously ill. If we can, that might make my musings above inaccurate but would obviously be a huge plus in every way.