The Covid-19 virus has killed over 200,000 people, overwhelmed health systems and confined billions of people in their homes. Large sections of the world economy have been locked down.
We are desperate for a vaccine, and research is underway around the world toward that goal. However, the challenge facing us has been underestimated. Vaccines often take 10 years to bring to market. We want a new vaccine as fast as possible, where each month matters.
The fact is that starting from the early stages of development, most vaccines fail. We cannot afford to fail, so we need to plan for success. To do that, we must think and invest as ambitiously as we can — and that means in a Covid vaccine advance market commitment.
The A.M.C. model was proposed in the early 2000s. And in 2007, the pneumococcus advance market commitment guaranteed vaccine manufacturers sales at a fixed price in return for an effective vaccine. It led to the successful development and distribution of hundreds of millions of doses of vaccine and saved an estimated 700,000 lives.
Today, the U.S. government could go big and create a Covid-19 vaccine A.M.C., guaranteeing to spend about $70 billion on new vaccines — enough to make direct investments to support capacity installation or to repurpose capacity and to pay, say, $100 per person for the first 300 million people vaccinated.
An investment of that size can anticipate and overcome several challenges typical of vaccine development. If we want to achieve a 90 percent probability of success, we must take into account historical rates of success from publicly available data; doing that suggests that we need to actively pursue not two or three vaccine candidates, but 15 to 20.
We don’t want to find ourselves with a working vaccine but too little manufacturing capacity. From an economic point of view, it would make sense to install enough capacity so that everyone in the U.S. who wanted could be vaccinated within a month. Normally, new vaccines cannot be produced so quickly and in sufficient supply. Each step of the manufacturing process must be verified and tested, and inputs to the process may face their own supply chain bottlenecks. Just as shortages of swabs and reagents delayed the rollout of testing, shortages of glass vials, bioreactors or adjuvants (a substance that increases immune stimulation) may delay vaccines. For want of a vial, the vaccine could be lost. To stand a reasonable chance of having a substantial supply of vaccines in 2021, we need to plan for capacity and reinforce supply chains now.
Usually, to avoid the risk of investing in capacity that eventually proves worthless, firms invest in large-scale capacity only after the vaccine has proved effective. But in the middle of a pandemic, there are huge social and economic advantages to having vaccines ready to use as soon as they have been approved. If we leave it entirely to the market, we will get too little vaccine too late.
An advance market commitment for Covid-19 should combine “push” and “pull” incentives. The “pull” incentive is the commitment to buy 300 million courses of vaccine at a per-person price of $100, for vaccines produced within a specified time frame. If multiple vaccines are developed, the A.M.C. fund will have authority to choose products to purchase based on efficacy, the availability of sufficient vaccine for timely vaccination or suitability for different population groups. So firms compete to serve the first 300 million people with the most attractive vaccines, and the “pull” component provides strong incentives for both speed and quality.
The “push” incentive guarantees firms partial reimbursement for production capacity built or repurposed at risk and partial reimbursement as they achieve milestones. The partial reimbursement ensures that manufacturers have “skin in the game,” while inducing them to build large-scale capacity before approval is certain.
The A.M.C. is a win-win solution: It reduces the risk to firms from building production capacity or repurposing it from other uses before vaccine testing is complete, while focusing investment on products that firms believe could potentially meet the technical specifications of the vaccine. This ensures that the entrepreneurs who have the most information and expertise and are best placed to make judgments about whether a vaccine is sufficiently promising to merit large-scale investment will have a voice in decisions and skin in the game.
Firms can also be confident that if they develop a successful product, the government will not expropriate their intellectual property or use regulatory powers to drive down prices to a point where they cannot recover their investment. An advance market commitment reallocates some risk to the public sector while unleashing the resources and inventiveness of the private sector to accelerate the delivery of a vaccine.
After challenges arose with vaccine manufacturing capacity in previous pandemics, the U.S. government built facilities designed for emergency production. Although the capacity currently available is only a small fraction of what would be needed to vaccinate the American population quickly, it provides a model of how some of the investment required can be put into place without full knowledge of what the eventual vaccine will be.
It is not sufficient that the U.S. economy is open for business. Our economy depends upon imports, exports, travel and tourism. We must protect Americans, but by going big we make sure there is adequate supply to vaccinate people around the world. The successful vaccine may not be made in the U.S. Through international cooperation on installing capacity we can ensure that the U.S. and the world get the vaccine we all need, and that the global economy restarts as quickly as possible.
The European Commission, the Bill & Melinda Gates Foundation and others have formed an ACT (Access to Covid-19 Tools) Accelerator to fund diagnostics, therapeutics and treatments that is seeking to raise just $8 billion. Similarly, the United States has made investments of about $1.5 billion in vaccine development. We need multiple shots on goal, so all such efforts should be joined and encouraged.
But much more is needed and would pay for itself. President Trump’s recent announcement of Operation Warp Speed suggests a willingness to spend much more and accelerate the development process — two key pillars of a successful approach.
Now is the time to go on the offensive. The United States has tremendous strengths: We are the world’s most innovative economy and we have powerful resources in our government, business and civil sectors. An advance market commitment to support vaccine development is a critical component of a timely plan to defeat the virus, reopen the economy and return to normal life stronger and more resilient.
Susan Athey is the economics of technology professor at the Stanford Graduate School of Business. Michael Kremer is the Gates professor of developing societies at Harvard and a winner of the 2019 Nobel in economic science. Christopher Snyder is the Joel Z. and Susan Hyatt professor in economics at Dartmouth. Alex Tabarrok is Bartley J. Madden chair in economics at the Mercatus Center at George Mason University.