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We could know soon whether vaccines work against a scary new coronavirus variant

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Salim Abdool Karim was at a cricket match on December 26, Boxing Day, when he made the mistake of looking at his email. He had received a new report and the news wasn’t good. A heavily mutated coronavirus spotted in South Africa appeared to allow the virus to bind more tightly, and more easily, to human cells.

Karim, an epidemiologist and lead covid-19 adviser to the South African government, knew what the report meant. It could explain a drastic change in covid-19 in his country, where rising case numbers were turning every province red.

“It simply went up, up, up, and up, into the equivalent of an Everest,” Karim says.

The rise in cases in South Africa has been linked to a new, highly mutated form of the covid-19 virus. And it’s just part of a wider pattern being seen around the world. Over the last month, weary researchers racing to understand new variants in Africa, Brazil, and the United Kingdom have pumped out a series of alarming reports on preprint servers, websites, and in official reports, describing a coronavirus that is changing in ways that appear to let it shrug off lockdowns, avoid antibodies, and retake cities, like London or Manaus, that already suffered through big first waves.

Indeed, in a few short weeks the perception among some scientists of the coronavirus has gone from a static, slow-changing virus that’s easily walloped by vaccine technology to something more like a terrorist shapeshifter that could put a decisive end to the pandemic out of sight.

Will vaccines still work?

Most the world’s attention has been on a so-called British variant of the covid virus; it seems to spread faster than the original version and has appeared in dozens of countries, including the US. On Friday, January 22, the UK prime minister, Boris Johnson, said government advisers warned this strain may also be more deadly, killing the infected about 30% more often.

Faster spreading, more deadly, versions of the coronavirus can still be dealt with using masks and social distancing. But the variant in South Africa, called 501Y.V2 and first described by gene sleuths on December 22, not only spreads faster but, alarmingly, also appears to evade antibodies from the blood of people previously infected by covid-19, and, in theory, could also lessen the effect of vaccines, society’s main hope of curbing the global outbreak.

Such lab evidence of “immune escape” makes the variant in South Africa “much more concerning” than the one in the UK, according to Anthony Fauci, director of the US National Institute of Allergy and Infectious Diseases, speaking at his first press conference under the new Biden administration on January 21.  “The real question that people are quite clearly interested in is: What is the impact on the vaccine?” Fauci said.

What Fauci didn’t mention is that we could have a real-world answer to that question as soon as next week thanks to a large vaccine trial that recruited thousands of South Africans between September and December, just as the dangerous variant spread widely.

That vaccine, from Johnson and Johnson, has been widely anticipated because it’s given as single shot and is easily stored, making it easier to get into arms than the super-cooled, two-dose messenger RNA vaccines from Moderna and Pfizer authorized in the US last month.

Now, though, the J&J trial may unexpectedly answer the big question of whether vaccines will protect against the 501Y.V2 variant in South Africa or not. That could be determined if data show the shot is less effective in South Africa than it has been in the US, where part of the trial occurred.

“It will be wonderful if it has equal efficacy against the South Africa strain. If it doesn’t, that is telling us something,” says Lawrence Corey, a virologist at Fred Hutchinson Cancer Research Center in Seattle, who leads the operations center for the COVID-19 Prevention Network, which coordinates vaccine trials financed by the US government.

Corey estimates that 7,000 South Africans joined the trial, and since it took place as the new virus spread, “most of the study in South Africa will be measuring the efficacy against the variant.”

Second waves

The worry is that all major vaccines were constructed using the genetic information that became available on the virus a year ago. And since then, the virus has kept changing. If the vaccines aren’t as effective against new strains, that, in turn, would make it harder to “crush the curve” of cases, hospitalizations, and deaths.   

During scientific presentations broadcast on January 18, Karim described how every province in South Africa saw a dramatic rise in cases during December. “This drastic change that we are seeing is being driven by a virus that certainly looks, biologically, that it can attach to human cells more efficiently,” he says. “Our second wave reached completely new heights, we are now seeing, today, more cases and more deaths than we ever, on any day, saw in the first wave.”

When it was first detected, the South African variant looked worrisome because of the large number of mutations it had gained, 23 in all, and how many of these were in the critical spike protein, which the virus uses to attach to human cells. That strongly suggested the virus was evolving to avoid antibodies. 

Since then, researchers have gathered more alarming clues about 501Y.V2, including from a study that showed that antibodies in blood serum from around 50 people previously infected were frequently unable to block the new variant.

“When you test the blood from people in the first wave [we find] in nearly half the cases there is no recognition of the new variant,” Penny Moore, a researcher at the University of the Witwatersrand in Johannesburg, said during the same broadcast.

That’s concerning, but vaccinations may elicit a broader, more powerful immunity than a passing infection, so it’s impossible to say they won’t still work. And Moore said that blood from some patients, especially those who’d become very sick, were still able to neutralize the variant, at least in lab tests. “That is important when we think of vaccine, some vaccines elicit very high level of antibodies and others do not,” she said.

j&j vaccine dose
A technician at the Rocky Mountain Regional VA Medical Center in Aurora, Colo., prepares a dose of the Johnson & Johnson covid-19 vaccine for a clinical trial on December 15, 2020.
MICHAEL CIAGLO/GETTY IMAGES

Another signal in favor of vaccines is that, so far, there is no clear evidence that the new strain is more likely to re-infect people who’ve had covid-19 before. If natural immunity does in fact hold up, then immunity gained from a vaccine likely would as well. “Are we seeing a systematic increase in reinfection? The data don’t allow us to say,” Karim says. Reinfection could still be prevented, he says, because the body “has two immune mechanisms, B cells that make antibodies, and T cells that go around gobbling things up and killing them.”

Researchers say that laboratory tests alone can’t prove whether vaccines will work against the new variants, and why they hope results from actual ongoing trials of vaccines in South Africa, the UK, and elsewhere may soon give better answers. “We are expecting an answer pretty soon,” Karim says. “But we want to see the actual data, and it is not yet available.”

Convergent evolution

Scientists are looking at two major possibilities where these variants are coming from. One hypothesis is the virus is evolving inside immune-compromised people, where it can persist for months while learning to dodge the immune system. Another idea is that variations are arising in cities like London, which suffered big infection waves early in 2020. Millions were infected, but if their antibodies waned over the year, then their bodies could be selecting for virus variants able to resist what remains of their immune response.

Some scientists now think that evolved variants are probably cropping up everywhere, not just in Britain and South Africa, but just haven’t been detected yet. “We expect as people increase genomic surveillance, multiple variants will be discovered, especially in places that have had a lot of cases for a long time,” says Tulio de Oliveira, who studies viral genomes at the University of Washington. “Unless we can suppress transmission to almost zero, the virus will keep outsmarting us.”

Scientists say they are fairly sure the variants in South Africa and the UK spread faster, causing about 50% more follow-on infections than the original strain from China. Part of the evidence is how fast the UK variant, called B.1.1.7, has taken hold elsewhere, outcompeting older versions. It already accounts for nearly half of cases in Israel, which is facing a peak in infections despite a big vaccination campaign. The 501Y.V2 variant, meanwhile, has already been seen in at least 10 countries.

Some of these variants share mutations, including one called N501Y, the one that lets it bind more tightly with human cells. To scientists, the copycat mutations arising in different continents means the virus is undergoing “convergent evolution.” That is, different variants of the virus are hitting upon the same strategies to escape the pressure of antibodies in the blood of those infected or vaccinated.

Waiting for answers

The big Johnson and Johnson study launched in September and finished enrolling 45,000 participants on December 17, according to the company, which says it will learn if the vaccine is effective by the end of January. If the results are positive, it could apply for authorization soon after.

Academic and government scientists, along with Johnson and Johnson, decided on an international approach for that vaccine and trialed the shot in Africa, Brazil, and other parts of Latin America, as well as the US. Now that move looks prescient. Their study launched exactly when the new variant was taking hold in South Africa. And it soon took over: more than 80% of cases in South Africa are now being caused by the variant.

“We wanted it to be globally relevant,” says Corey. “We hadn’t appreciated that strain variation would occur so quickly, but it’s allowing us to get an early read on what is happening and that is very fortunate.” A spokesperson for Johnson and Johnson said the company could not comment on the trial results until they become public. The company did not confirm how many South African volunteers were part of the study.

Researchers have started to plan how they could alter, or update, the vaccine shots to deal with new strains. The two messenger RNA vaccines can be reprogrammed fairly easily, according to the companies making them. That’s likely also the case with the Johnson and Johnson vaccine, which employs a harmless type of cold virus, to which a section of coronavirus is added.

To deal with variants, Corey says, it’s also possible the doses could be increased or boosted later on with “strain-specific” follow-up shots. Another idea is to aim vaccines at different parts of the virus that are slower to evolve than its spike protein, but such vaccines would take longer to develop and test.

Researchers in South Africa emphasized they can’t yet say that existing vaccines won’t work against the variant in their country, and several said they would definitely take a vaccine if it was offered. What they do believe is that the world has underestimated the virus, which is continuing to adapt and evolve.

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Daily Crunch: A huge fintech exit as the week ends

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To get a roundup of TechCrunch’s biggest and most important stories delivered to your inbox every day at 3 p.m. PDT, subscribe here.

Our thanks to everyone who wrote in this week about the format changes to the newsletter! Feedback largely sorted into two themes: Some people really like the more narrative format, and some folks really want a more link-list styled missive. What follows is an attempt to balance both perspectives.

Starting today we’ll bold company names, so that you can more quickly pick out startups, add more bulleted points to sections, and, per a different piece of feedback, include more regular descriptors of companies that are not household names.

That said, we’re not going to abandon chatting with you every day, as TechCrunch is nothing if not full of things to say. So here’s a blend of what the new, updated Daily Crunch team had in mind, and your notes. A big thanks to everyone who wrote in!

Alex @alex on Twitter

A mega-exit for American fintech

The news that public fintech company Bill.com will buy Divvy, a Utah-based startup that helps small and midsized businesses manage their spend, was perhaps the biggest startup story of the week. Breaking late Thursday, the $2.5 billion transaction was long expected. Divvy had raised more than $400 million from PayPal Ventures, New Enterprise Associates, Insight Partners and Pelion Venture Partners.

TechCrunch covered the impending sale, rumors of which sprung up before Bill.com reported its Q1 earnings. To see the company drop the news at the same time as its earnings was not a surprise. For the burgeoning corporate payment space (more here on startups in the space like Ramp, Airbase and Brex).

I got to noodle on the financial results that Bill.com detailed regarding Divvy — they are pretty key metrics to help us value the startups that are competing to go public or find a similarly feathered corporate nest. In short, the corporate spend startup cohort is doing great. It’s even spawning new startups like Latin American-focused Clara, which raised $3.5 million earlier this year.

Broadly, the fintech market had a huge Q1 and is blasting its way toward a record venture capital year, like AI startups and the rest of the VC world.

Startups and venture capital

5 investors discuss the future of RPA after UiPath’s IPO

Much ink (erm, pixels) has been spilled about robotic process automation (RPA) recently, particularly in the wake of UiPath’s IPO last month.

But while some of the individuals Ron interviewed about the future of RPA believe the technology is in its “early infancy,” the pandemic increased attention toward things we can let robots handle for us. And it’s hard to argue that repetitive tasks like billing and spreadsheeting and paper-pushing should not be outsourced to robots.

“RPA allows companies to automate a group of highly mundane tasks and have a machine do the work instead of a human,” Ron writes. “Think of finding an invoice amount in an email, placing the figure in a spreadsheet and sending a Slack message to accounts payable. You could have humans do that, or you could do it more quickly and efficiently with a machine. We’re talking mind-numbing work that is well suited to automation.”

Although RPA is the fastest-growing category in enterprise software, the market remains surprisingly small. Ron spoke to five investors about where the sector is headed, where there are opportunities and the biggest threats to the RPA startup ecosystem.

(Extra Crunch is our membership program, which helps founders and startup teams get ahead. You can sign up here.)

The tech giants

It was a quieter day from the tech giants, who made plenty of news earlier in the week. The good news is that their relative calm means we can take a look at news from other Big Tech companies, those that don’t quite crack the $1 trillion market cap threshold yet:

Community

Some of us are mourning the shutdown of Nuzzel, so we asked … would you pay for it (and why)? Let us know what you think!

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Tesla refutes Elon Musk’s timeline on ‘full self-driving’

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What Tesla CEO Elon Musk says publicly about the company’s progress on a fully autonomous driving system doesn’t match up with “engineering reality,” according to a memo that summarizes a meeting between California regulators and employees at the automaker.

The memo, which transparency site Plainsite obtained via a Freedom of Information Act request and subsequently released, shows that Musk has inflated the capabilities of the Autopilot advanced driver assistance system in Tesla vehicles, as well the company’s ability to deliver fully autonomous features by the end of the year. 

Tesla vehicles come standard with a driver assistance system branded as Autopilot. For an additional $10,000, owners can buy “full self-driving,” or FSD — a feature that Musk promises will one day deliver full autonomous driving capabilities. FSD, which has steadily increased in price and capability, has been available as an option for years. However, Tesla vehicles are not self-driving. FSD includes the parking feature Summon as well as Navigate on Autopilot, an active guidance system that navigates a car from a highway on-ramp to off-ramp, including interchanges and making lane changes. Once drivers enter a destination into the navigation system, they can enable “Navigate on Autopilot” for that trip.

Tesla vehicles are far from reaching that level of autonomy, a fact confirmed by statements made by the company’s director of Autopilot software CJ Moore to California regulators, the memo shows.

“Elon’s tweet does not match engineering reality per CJ,” according to the memo summarizing the conversation between regulators with the California Department of Motor Vehicles’ autonomous vehicles branch and four Tesla employees, including Moore.

The memo, which was written by California DMV’s Miguel Acosta, states that Moore described Autopilot — and the new features being tested — as a Level 2 system. That description matters in the world of automated driving.

There are five levels of automation under standards created by SAE International. Level 2 means two primary functions — like adaptive cruise and lane keeping — are automated and still have a human driver in the loop at all times. Level 2 is an advanced driver assistance system, and has become increasingly available in new vehicles, including those produced by Tesla, GM, Volvo and Mercedes. Tesla’s Autopilot and its more capable FSD were considered the most advanced systems available to consumers. However, other automakers have started to catch up.

Level 4 means the vehicle can handle all aspects of driving in certain conditions without human intervention and is what companies like Argo AI, Aurora, Cruise, Motional, Waymo and Zoox are working on. Level 5, which is widely viewed as a distant goal, would handle all driving in all environments and conditions.

Here is an important bit via Acosta’s summarization:

DMV asked CJ to address from an engineering perspective, Elon’s messaging about L5 capability by the end of the year. Elon’s tweet does not match engineering reality per CJ. Tesla is at Level 2 currently. The ratio of driver interaction would need to be in the magnitude of 1 or 2 million miles per driver interaction to move into higher levels of automation. Tesla indicated that Elon is extrapolating on the rates of improvement when speaking about L5 capabilities. Tesla couldn’t say if the rate of improvement would make it to L5 by end of calendar year.

Portions of this commentary were redacted. However, Plainsite was able to copy and paste the redacted part, which shows up as white space on a PDF, into another document.

The comments in the memo are contrary to what Musk has said repeatedly in the public sphere.

Musk is frequently asked on Twitter and in quarterly earnings calls for progress reports on FSD, including questions about when it will be rolled out via software updates to owners who have purchased the option. In a January earnings call, Musk said he was “highly confident the car will be able to drive itself with reliability in excess of a human this year.” In April 2021, during the company’s first quarter earnings call, Musk said “it’s really quite, quite tricky. But I am highly confident that we will get this done.”

The memo released this week provided other insights into Tesla’s push to test and eventually unlock greater levels of autonomy, including the number of vehicles testing a beta version of “Navigate on Autopilot on City Streets,” a feature that is meant to handle driving in urban areas and not just highways. Regulators also asked the Tesla employees if and how participants were being trained to test this feature, and how the sales team ensures that messaging about the vehicle capabilities and limitations are communicated.

As of the March meeting, there were 824 vehicles in a pilot program testing a beta version of “city streets.”  About 750 of those vehicles were being driven by employees and 71 by non-employees. Pilot participants are located across 37 states, with the majority of participants in California. As of March 2021, pilot participants have driven more than 153,000 miles using the City Streets feature, the memo states. The memo noted that Tesla planned to expand this pool of participants to approximately 1,600 later that month.

Tesla told the DMV that it is working on developing a video for the participants and that the next group of participants will include referrals from existing participants. “The new participants will be vetted by Tesla by looking at insurance telematics based on the VINs registered to that participant,” according to the memo.

Tesla also told the DMV that it is able to track when there are failures or when the feature is deactivated. Moore described these as “disengagements,” a term also used by companies testing and developing autonomous vehicle technology. The primary difference worth noting here is that these companies only use employees who are trained safety drivers, not the public.

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Betting on upcoming startup markets

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Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. Want it in your inbox every Saturday? Sign up here.

Ready? Let’s talk money, startups and spicy IPO rumors.

Betting on upcoming startup markets

This week M25, a venture capital concern focused on investing in the Midwest of the United States, announced a new fund worth $31.8 million. As the firm noted in a release that The Exchange reviewed, its new fund is about three times the size of its preceding investment vehicle.

I caught up with M25 partner Mike Asem to chat about the round. Asem joined M25 in 2016 after partner Victor Gutwein spearheaded the effort with a small $1 million fund. Asem and Gutwein have led the firm since its first material, if technically second fund.

Asem said that his team had targeted a $25 million to $30 million fund three, meaning that they came in a bit higher than anticipated in fundraising terms. That’s not a surprise in today’s venture capital market, given the pace at which capital is both invested into VC funds and startups.

The investor told The Exchange that M25 has been investing out of its third fund for some time, including CASHDROP, a startup that I’ve heard good things about regarding its growth rate. (More here on the CASHDROP round that M25 put capital into.)

All that’s fine, but what makes M25 an interesting bet is that the firm only invests in Midwest-headquartered startups. Often when I chat to a fund that has a unique geographical focus, it’s merely that, a focus. As opposed to M25’s more hard-and-fast rule. Now with more capital and plans to take part in 12-15 deals per year, the group can double down on its thesis.

Per Asem, M25 has done about a third of its deals in Chicago, where it’s based, but has put capital into startups in 24 cities thus far. TechCrunch covered one of those companies, Metafy, earlier this week when it closed more than $5 million in new capital.

Why does M25 think that the Midwest is the place to deploy capital and generate outsize returns? Asem listed a number of perspectives that underpin his team’s thesis: The Midwest’s economic might, the network that his partner and him developed in the area before founding M25, and the fact that valuations can prove to be more attractive in the region at the stage that his firm invests. They are sufficiently different, he said, that his firm can generate material returns even with exits at around the $100 million mark, a lower threshold than most VCs with larger capital vehicles might find palatable.

M25 is not alone in its bets on alternative regions. The Exchange also chatted with Somak Chattopadhyay of Armory Square Ventures on Friday, a firm that is based in upstate New York and invests in B2B software companies in what we might call post-manufacturing cities. One of its investments has gone public, and the group’s latest fund is a multiple of the size of its first. Armory now has around $60 million in AUM.

All that’s to say that the venture capital boom is not merely helping firms like a16z raise another billion here, or another billion there. But the generally hot market for startups and private capital is helping even smaller firms raise more capital to take on less traditional spaces. It’s heartening.

On-demand pricing, and grokking the insurance game

This week The Exchange chatted with Twilio CFO Khozema Shipchandler about his company’s earnings report. You can read more on the hard numbers here. The short gist is that it was a good quarter. But what mattered most in our chat was Shipchandler riffing on where the center of gravity at Twilio will remain in revenue terms.

Briefly, Twilio is best known for building APIs that allow developers to leverage telecom services. Those developers and their employers pay for as much Twilio as they used. But over time Twilio has bought more and more companies, building out a diverse product set after its 2016-era IPO.

So we were curious: Where does the company stand on the on-demand versus SaaS pricing debate that is currently raging in the software world? Staunchly in the first camp, still, despite buying Segment, which is a SaaS service. Per Shipchandler, Twilio revenue is still more than 70% on-demand, and the company wants to make sure that its customers only buy more of its services as they sell more of their own.

Startups, then, probably don’t have to give up on on-demand pricing as they scale. Twilio is huge and is sticking to it!

Then there was Root’s earnings report. Again, here are the core numbers. The Exchange is keeping tabs on Root’s post-IPO performance not only because it was a company we tracked extensively during its late private life, but also because it is a bellwether of sorts for the yet-private, neoinsurane companies. Which matters for fellow neoinsurance player Hippo, as it is going public via a SPAC.

Alex Timm, Root’s CEO, said that his firm performed well in the first quarter, generating more direct written premium than anticipated, and at better loss-rates to boot. The company also remains very cash-rich post IPO, and Timm is confident that his company’s data science work has lots more room to improve Root’s underwriting models.

So, faster-than-expected growth, lots of cash, improving economics and a bullish technology take — Root’s stock is flying, right? No, it is not. Instead Root has taken a bit of a public-market pounding in recent months. The Exchange asked Timm about the disparity between how he views his company’s performance and future, and how it is being valued. He said that the insurance folks don’t always get its technology work and that tech folks don’t always grok Root’s insurance business.

That’s tough. But with years and years of cash at its current burn rate, Root has more than enough space to prove its critics wrong, provided that its modeling holds up over the next dozen quarters or so. Its share price can’t be great for the yet-private neoinsurance companies, however. Even if Next Insurance did just raise another grip of cash at another new, higher valuation.

Corporate spend’s big week

As you’ve read by now, Bill.com is buying corporate-spend unicorn Divvy for $2.5 billion. I dug into the numbers behind the deal here, if that’s your sort of thing.

But after collecting notes from the CEOs of Divvy competitors Ramp and Brex here, another bit of commentary came in that I wanted to share. Thejo Kote, the corporate spend startup Airbase’s CEO and founder did some math on Divvy’s results that Bill.com shared with its own investors, arguing that the company’s March payment volume and active customer account implies that the company’s “average spend volume per customer was $44,400 per month.”

Is that good or bad? Kote is not impressed, saying that Airbase’s “average spend volume per customer is almost 10 [times] that of Divvy,” or around “$375,000 per month.” What’s driving that difference? A focus on larger customers, and the fact that Airbase covers more ground, in Kote’s view, than Divvy by encompassing software work that Bill.com itself and Expensify manage.

I bring you all of this as the war in managing spend for companies large and small is heating up in software terms. With Divvy off the table, Ramp is now perhaps the largest player in the space not charging for the software it wraps around corporate cards. Brex recently launched a software product that it charges for on a recurring basis. (More on Brex at this link, if you are into it.)

Various and sundry

Two final notes for you, things that should make you either laugh, grimace, or howl:

  1. The Wall Street Journal’s Eliot Brown tweeted some data this week from the Financial Times, namely that amongst the roughly 40 SPACs that completed deals last year, a dozen and a half have lost more than half their value. And that the average drop amongst the combined entities is 38%. Woof.
  2. And, finally, welcome to peak everything.

More to come next week, including notes on the return of the Kaltura and Procore IPOs, and whatever it is we can suss out from the Krispy Kreme S-1 filing, as donuts are life.

Alex

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