Option-based guarantees to accelerate urgent, high-risk vaccines: a new market-shaping approach

Manheim, David; Foster, Derek

Accelerating the availability of COVID-19 vaccines is critical to preventing further waves and mitigating the impact on society. However, preparations for large-scale manufacturing, such as building production facilities, are typically delayed until a vaccine is proven safe and effective. This makes sense from a commercial perspective, but incurs great costs in terms of lives lost and damage to the economy. Several policy options are available to reduce this delay, all of which involve incentives or subsidies to invest in production facilities. We review existing approaches, then propose a novel alternative using “option-based guarantees” in which the government commits to paying a proportion of the manufacturer’s preparation costs should the product turn out not to be viable. Counterintuitively, this “payment for failure” is appropriate because in the case of success, a company makes a profit from the product itself, and does not need additional money from the government. While other approaches have critical roles, we argue that option-based guarantees are the most promising approach to ensuring a rapid vaccine for COVID-19. Compared to the alternative approaches, they reduce both costs to the government and risk to the companies, while maintaining an incentive to produce a high-quality product quickly and at scale.