Scale the price for a coronavirus vaccine by the harm it averts

The race is on to develop a Covid-19 vaccine. But there are impediments to vaccine developments.

First, there is a free-rider problem with vaccines and treatments for infectious diseases — if you pay for the vaccine and don’t get the virus, then someone like me who didn’t pay for the vaccine partially benefits too. We see free-riding in the relatively low take-up rates for the seasonal flu shot and the anti-vaxxer movement. It reduces the incentives to develop vaccines because vaccine manufacturers will capture only a fraction of the value of their investment.

But there are other impediments. Imagine that a Boston company were to discover a vaccine for this strain of coronavirus — one that would inoculate us against this scourge completely — and offered to sell the unlimited rights to this technology for $70 billion ($70 billion is several multiples of the largest annual sales number in the history of drugs; it was picked to be deliberately high). We would surely hear charges about price-gouging, and we could imagine politicians and pundits proposing the seizure of the patents or capping profits instead of paying this price. But this timidity discourages discovery.

Paying $70 billion for unlimited use of a Covid-19 vaccine is much better than paying $7 trillion — about how much the US stock market has lost since Feb. 19. A little math can mean having a large arsenal of treatments and vaccines for the next coronavirus and avoiding death, hospitalizations, disruptions, and catastrophic economic losses.

The world will continue to experience assaults from the coronavirus (SARS, MERS and COVID-19) and infectious diseases like Ebola and Nipah virus. At the same time, climate change will expose us to more malaria and West-Nile virus. What can we do?

First, discovering vaccines before for virus pandemics is better than discovering them during, or after, pandemics: we get to avoid health, social, educational and economic costs. We also need to worry less about virus mutations, which increase with time, and reduce the effectiveness of vaccines.

Second, let us appreciate the hard work of foundations and philanthropists. But private donations are meager by an order of magnitude relative to everything that we know about the cost of drug development. Moreover, society’s pandemic response should not rely on the presence of philanthropists, for this is a fundamental duty of government that should not be evaded.

Government will be drawn to increasing public funding for basic-science research on infectious diseases. This will reduce scientific uncertainty. But it’s insufficient if concerns about patent-seizing and profit confiscation persist, because companies will stick to innovation in markets where they can impress their investors — launching new scooter companies, building better wearables (like Fitbits and smart watches), or launching oncology treatments where society has a high willingness to pay (there are over 22,000 active clinical studies for cancer treatments underway around the world; 135 for malaria; 42 for all the coronaviruses).

Yet, because market failure is the hobgoblin of innovation for infectious diseases, advanced purchase commitments from government would help and should be thought of as equivalent to pandemic insurance funded by taxes. For each infectious disease, we could consider the probability of an outbreak, the costs of not acting, and pre-announce a price that we will pay to have unlimited access to technology. This is different from paying a “price per pill”— it’s more like a Netflix model of pricing, where we get to watch as many movies as we want. Here, we get to treat as many people as necessary to contain the disease and not be constrained by a per-dose pricing formula that may discourage some people from not getting the vaccine.

Such contracts are not cheap — so once again, we have to remember to scale the appropriate price for a vaccine by the harm that it averts. This is very different from looking only at the cost of development or gasping at the price tag.

Finally, just like basic science is not the same as drug development, vaccine development is not the same as vaccine manufacturing. It doesn’t make sense to have governments be the sole manufacturers of these vaccines or to stockpile them for pandemics that have not happened. But it’s smart to think about rapid manufacturing for pandemics — by contracting with private facilities that are distributed around the world to reduce of any one facility being affected by contangion. We do not need to be able to manufacture vaccines for the entire world, but be able to contain outbreaks in specific locations like Wuhan, Milan, and on cursed cruise ships. Rapid and targeted deployment will reduce contagion, and reduce the likelihood of viral mutations. By implementing these proposals, we can help prevent the next pandemic and reduce the colossal economic disruption that we are likely to confront very shortly

Amitabh Chandra is a professor at Harvard Kennedy School and Harvard Business School and a member of the Congressional Budget Office’s panel of health advisors.

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