U.S. markets open in 2 hours 19 minutes
  • S&P Futures

    3,891.25
    +23.75 (+0.61%)
     
  • Dow Futures

    31,569.00
    +211.00 (+0.67%)
     
  • Nasdaq Futures

    13,149.50
    +94.25 (+0.72%)
     
  • Russell 2000 Futures

    2,253.50
    +24.40 (+1.09%)
     
  • Crude Oil

    60.79
    +1.04 (+1.74%)
     
  • Gold

    1,722.30
    -11.30 (-0.65%)
     
  • Silver

    26.67
    -0.20 (-0.76%)
     
  • EUR/USD

    1.2069
    -0.0019 (-0.16%)
     
  • 10-Yr Bond

    1.4150
    0.0000 (0.00%)
     
  • Vix

    22.88
    -0.47 (-2.01%)
     
  • GBP/USD

    1.3948
    -0.0008 (-0.06%)
     
  • USD/JPY

    106.9950
    +0.2850 (+0.27%)
     
  • BTC-USD

    51,618.48
    +2,859.77 (+5.87%)
     
  • CMC Crypto 200

    1,030.63
    +42.54 (+4.31%)
     
  • FTSE 100

    6,673.43
    +59.68 (+0.90%)
     
  • Nikkei 225

    29,559.10
    +150.93 (+0.51%)
     

Pay a Bounty to Develop a Covid-19 Vaccine Faster

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Hanno Lustig and Jeffrey Zwiebel
·4 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

(Bloomberg Opinion) -- If we want a vaccine or drug treatment to stop coronavirus, the government should ignore those complaining about drug-company profits and commit to a huge reward that encourages more businesses to develop one. It wouldn’t just save lives; it could save the global economy.

The coronavirus could cost the U.S. $1.5 trillion in annual economic output, or $125 billion every month — and that’s a conservative estimate. The losses for the entire world economy will be four to five times larger. And these economic costs will be dwarfed by the human costs of illness and death.

Absent a vaccine or treatment, this pandemic will likely be with us for more than a year. Speeding the development of vaccines and effective drug therapies by vastly increasing the rewards for businesses would decisively limit the economic damage. Based on the economic losses in the U.S. alone, the government should be willing to spend at least an additional $62.5 billion to spur Covid-19 research and development. Even if that shortened the crisis by just two weeks, it would be a bargain.

Research teams at large pharma companies such as Roche, Eli Lilly, Sanofi Pasteur and Takeda, and smaller biotech firms such as BioNTech, are racing to develop a vaccine. But these firms stand to capture only a small fraction of the large economic benefit that will accrue to society when they successfully produce a vaccine or therapy. Developers will likely be pressured to offer a future vaccine at a low price. Even now, there have been calls to sharply limit future profits from such a vaccine.

The result is significant underinvestment in the development of vaccines that will likely have large social benefits. Here is a simple way to see this. U.S. spending on all pharmaceutical R&D in 2020 was projected to be $80 billion — equivalent to three weeks of the annual U.S. economic output loss — with only a small fraction of this directed toward infectious diseases. In 1967, 26 pharmaceutical companies produced vaccines; by 1980, 17 did; only four — GlaxoSmithKline, Merck, Pfizer and Sanofi Pasteur — undertake significant production today.

This is not surprising. Developing a vaccine requires $500 million to $1 billion in investment, recent estimates suggest, while only 7% of projects result in a vaccine. As a result, even today, with the pandemic raging, many small biotech firms are watching from the sidelines. Those working on vaccines rely on money from foundations and government initiatives. Two of the most promising developers of a Covid-19 vaccine, Inovio and Moderna, are funded by the Coalition for Epidemic Preparedness Innovations (Cepi), an alliance of charities and governments.

The U.S. government, perhaps working with others, should guarantee a significant financial payment to whoever first develops a vaccine. One way to do this would be to commit to a high price for each administered dose of an effective vaccine or treatment therapy. As an example, if the U.S. government were to promise a price of $190 per administered dose to the developers, spending a maximum of $62.5 billion to vaccinate or treat all Americans, then society would have earned back its investment even if this only sped up the development by two weeks. The vaccine should also be made available at marginal cost to developing countries.

The government could further stimulate collaboration by committing to large awards for successful clinical trials, provided that the research is fully disclosed. If the European Union were to make a similar commitment to this price per administered dose, the total incentives could be strengthened by another $100 billion.

While creating vaccines always takes time, experts in the field have learned from previous episodes that there can be major bottlenecks in vaccine development and manufacturing. Once developed, the supply is likely to fall short of demand for a long period. Additional financial resources can relieve these production bottlenecks.

We are not asking the U.S. government, or any other government, to pick winners. We are asking the government to make an ironclad commitment right now, backed by legislation, to reward those companies that successfully lead the fight against Covid-19 and future outbreaks.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Hanno Lustig is a professor of finance at Stanford University.

Jeffrey Zwiebel is a professor of finance at Stanford University.

For more articles like this, please visit us at bloomberg.com/opinion

Subscribe now to stay ahead with the most trusted business news source.

©2020 Bloomberg L.P.