What investors need to know about Omicron

Just as the global economy was in full reopening mode, Omicron arrived.

First identified in Botswana, the Omicron variant spread to South Africa where scientists quickly raised the alarm on the 25th November. Initial investigations suggest the variant had been circulating for at least a few weeks.  

A week later Omicron has been confirmed in 21 other countries, with the first case recently identified in the US. Borders have started closing and social restrictions are being implemented in various countries around the world.  

With c. 60% of the global population fully vaccinated, the question is where to from here?  

In this Q&A, Dr. Nick Cameron, the healthcare sector head at leading Australian-based global equities fund manager Antipodes, answers some of the key question about the emergence of the new COVID-19 variant.

Dr Cameron has a PhD in molecular biology and prior to becoming a fund manager, worked on the development of a gene therapy for Parkinson’s disease, genetic engineering and viral factor research.

Q. How does the Omicron variant differ from prior variants and is it more transmissible? 

The Omicron variant contains more than 30 mutations in the Spike protein – the key protein responsible for the virus to enter/infect cells. While some mutations are known from previous variants the combination of these seen in Omicron plus its many novel mutations is what has scientists concerned. We have yet to encounter a variant with this number of mutations (known and new) in the critical areas of the Spike protein; the fear is that such mutations may render current vaccines less effective.  

Data from the Gauteng province in South Africa (home to Johannesburg and Pretoria), where COVID-19 infections are spiking, suggests that the virus may have a transmission advantage – to what degree is too early to assess. Here, Omicron infections have largely been in younger unvaccinated people which generally have milder illness. At this stage, hospitalisations in the province appear muted and most admitted patients are unvaccinated – the vaccination rate in Gauteng is low with c. 40% fully vaccinated. Overall muted hospitalisations growth so far is encouraging, but far from definitive.  

Borders between South Africa and many other countries have been open for some time, so it’s not surprising Omicron cases continue to be reported around the world – but it remains unclear whether it is more or less transmissible relative to Delta/other variants. 

Q. Will existing vaccines provide protection against Omicron given the number of mutations?

We would not be surprised to see a marked reduction in the efficacy of current vaccines given the large number of mutations occurring in such critical areas of the Spike protein, but how this is reflected in the real world is difficult to predict. We should have more clarity in the next two weeks from laboratory studies.  

Current vaccines have “trained” the immune system to look for a specific pattern on the Spike protein and that pattern has changed considerably. On the positive side there are many parts of the Omicron Spike protein that haven’t really changed, and the immune system (T-cells and neutralising antibodies) in the vaccinated and in those that have recovered from prior infection (“natural immunity”) should “remember” these unchanged parts to provide some protection. Importantly, longer lasting T-cell immunity may be sufficient to protect against more severe disease and death, especially for individuals that have both recovered from SARS-CoV-2 infection and been vaccinated.  On the data we have seen so far we’re yet to see evidence to suggest the severity of Omicron will be materially different.

Countries with high rates of vaccination and community infection from prior waves will likely be best protected e.g. US, UK, Europe and even in some emerging markets like India where Delta variant infection rates were very high.  

mRNA vaccine makers have already commenced development of new booster vaccine candidates which are specific to the Omicron variant – we could see preliminary lab results in early 2022 and an Omicron-specific booster potentially becoming available in 100 days (subject to positive data and approvals) according to Pfizer and BioNTech. Moderna is in a similar position. 

Q.  In the meantime, what can we expect next – back to lockdowns? 

Even if lab studies show reduced efficacy of current vaccines against Omicron this may not necessarily translate to reduced protection from severe disease in the real world. It could take a few months to collect enough data to determine whether the Omicron variant is a threat to overloading health systems and whether current vaccines and natural levels of immunity continue to provide protection against severe disease.  

In the meantime, we expect Governments to push for higher vaccination rates and prioritise booster shots, especially for the at-risk population.  

Merck and Pfizer’s new oral antiviral drugs are highly likely to remain effective against the Omicron variant. If taken within the first five days of showing COVID symptoms, these drugs can significantly reduce the risk of hospitalisation and death. This medication is an important breakthrough though initially it’s likely to be reserved for the at-risk. Pfizer expects to produce c. 80m treatment courses in 2022, with another 20m from Merck.  

It will be key to closely monitor hospitalisation trends as the measure to assess the threat posed by Omicron, risk of lockdowns, and the potential for another wave of infections as the Northern Hemisphere winter kicks in. 

Related: Japan prepares for Omicron “worst possible” situation