ArkMalibu Weekly Update: Assessing the Impact of COVID-19

As promised last week, below are our thoughts on how companies are reacting to the virus, the economic sudden stop and the opportunities that arise for some.

Many have to focus on urgent operational matters. For some, they are focusing on important strategic opportunities that enhance their prospects post-virus.

We expect the news headlines to be difficult in the next several weeks even as many positive breakthroughs take place.

In May, the positive news about our future will likely outweigh the current negative situation.

  • On 3/25, the U.S. Senate passed the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act). It passed the House on 3/27 and is expected to be signed into law by the White House – an important step towards stabilization of the capital markets.
  • We opened the week on 3/23 with U.S. equity markets reaching lows not seen since the 2007-2008 financial crisis
  • Markets closed on Thursday with the best 3-day stretch of growth in almost a century with the Dow Jones, NASDAQ, and S&P 500 posting returns of 21%, 14%, and 18%, respectively
  • Markets have traded down today (3/27) on news that EU member countries have yet to reach an agreement on how to address COVID-19
  • In the short-term, we expect M&A markets to remain constrained by capital market and economic uncertainty – 85 deals closed in the U.S. & Canada over the past 7 days
  • We expect M&A activity to snap back in the second half of this year as the active containment measures deployed in the U.S. begin to show meaningful impact on the infection curve and the full effect of the CARES Act is realized

Good News We’ve Been Reading

All Hands on Deck

  • The 3M Company has doubled its global output of N95 masks and this week is sending 500,000 respirators to hot spots in the U.S.
  • Corporations including Apple, Facebook, Tesla and Goldman Sachs are donating millions of medical masks
  • Average daily job postings on LinkedIn increased 35% across healthcare industry in March compared to January

Gaining Efficiency in Testing, Treatment, Telemedicine

  • Drive-through Covid-19 testing centers rose within days and moved through hundreds of patients per day in concentrated areas
    • Considering development of license-plate screening or facial-recognition software to minimize interaction with health-care workers.
    • Results currently take days, but future aim for text messages within hours

Race to Vaccine

  • COVID-19 is not mutating quickly, suggesting vaccine would offer lasting protection
    • Scientists studying 1,000+ different samples of the virus; seeing roughly four to ten genetic differences between the original strains
    • Vaccine would be similar to that for measles or chickenpox, in which immunity would be conferred for long periods of time

Turning Point Predictions

  • Michael Levitt, recipient of 2013 Nobel Prize in Chemistry, predicts US will see earlier turning point than predicted by public health officials in fight against COVID-19
    • Levitt correctly calculated that China would get through the worst part of its outbreak faster than anticipated with less cases

Clarifying Mortality Rate

  • Fear initially based on high estimate that 2 – 4% of people with confirmed Covid-19 have died, according to World Health Organization and others
  • Epidemic seed on January 1st implies that by March 9th about six million people in the U.S. would have been infected
    • If surmise of six million cases is accurate, mortality rate is 0.01%
    • This is one-tenth of the flu mortality rate of 0.1%

Market Predictions

  • Economy expected to “bounce back substantially in the third and fourth quarter—not by enough to dig it out of the hole dug in the first and second quarters, but putting it on the road to recovery”

Be safe and we will see you all on the other side of this.

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