![]() We use the triangular distribution to capture the uncertainty in demand. In light of these factors, the manufacturing capacity investments by COVID-19 vaccine developers are likely to be significantly smaller as compared to the interests of society as a whole.įigure 1 illustrates the differences in the level of capacity that maximizes social welfare and the capacity that a vaccine developer may choose based on its own risk return calculus. ![]() In particular, there are large benefit externalities (beyond the benefit to the individual) from increases in vaccine manufacturing capacity stemming from reduced transmission of the disease and mitigation of negative effects on the economy (Castillo et al. Furthermore, the full value to society from the availability of an effective therapeutic is unlikely to be captured in the manufacturer’s profit calculus. Pricing to recoup within a short time frame may create reputational risks for manufacturers. However, COVID-19 vaccines are under intense public scrutiny. ![]() In other products with high demand-side risks and significant capital cost for production capacity, manufacturers charge higher prices to compensate for such risks. In this case, the risk largely stems from highly uncertain medium-term demand. Vaccine developers invest in capacity to achieve a level of profit that is commensurate with the level of risk. 2021), the incentives for a vaccine developer to invest in sufficient capacity to serve the overall global needs are weak. While the need for a rapid and significant expansion of COVID-19 vaccine manufacturing capacity is clear (Wouters et al. There are additional sources of uncertainty that hinder a vaccine developer’s confidence in making additional investment to increase capacity: emergence of new variants, duration of protective immunity (Murray and Piot 2021), results of studies in pediatric and other patient groups which could lead to indication expansions, potential success of competing vaccines, and future investments by country government to purchase significant quantities of COVID-19 vaccines. 2010) and demand for specific COVID-19 vaccines is highly uncertain. In the past, vaccines for SARS and H1N1 (IOM 2010), and antiviral agents such as Tamiflu, have seen significant fluctuations in demand during and after a pandemic (Kopczak et al. Moreover, a firm which has developed a safe and efficacious vaccine requires sufficient confidence in long-term demand in order to increase its production capacity. It can take up to 9 to 12 months to build capacity and/or ramp up production capability and obtain regulatory validation, and the capital expenditures can run as high as $500 million to $1 billion. The development and construction of new manufacturing capacity for COVID-19 vaccines is both resource- and time-intensive. 2021), we try to identify the least costly instrument that incentivizes the COVID-19 vaccine developer to build sufficient capacity to meet global demand. Building upon our earlier work (Kazaz et al. While it is a salient ideological debate with a long list of pros and cons, we focus in this note on the problem of incentivizing the vaccine developer to expand manufacturing capacity, either in-house, by adding more contract manufacturing sites, or through manufacturing partnerships with other manufacturers. Some discussions focus on capacity expansion through the vaccine developers sharing intellectual property (IP) and manufacturing know-how, so that as many companies globally can manufacture COVID-19 vaccines (Prabhala et al. (2021) estimate that installed capacity for 3 billion annual vaccine courses leads to a global benefit of $17.4 trillion, making it vital from both a health and an economic perspective to build sufficient manufacturing capacity for COVID-19 vaccines. There is continuing debate about how to create sufficient capacity of specific vaccine platforms such as mRNA which some argue are more versatile for future preparedness efforts (Moore and Offit 2021, Wilfredo et al. ![]() There is a need to expand the manufacturing capacity for COVID-19 vaccines. However, the total manufacturing capacity is insufficient for accelerated immunization across countries globally in the short-term (e.g., next six months) and is not sufficient in a disaggregate sense, i.e., for each individual vaccine type. The available global production capacity may be sufficient in aggregate across all vaccine manufacturing platforms over an 18- to 24-month window. But to vaccinate the global population as quickly as possible requires additional production capacity. Safe and efficacious vaccines are our best tools for defeating COVID-19, and an unprecedented research and development effort has led to 12 vaccines being approved for full, emergency, or limited use, globally.
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