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What does the R&D response to Covid-19 tell us about innovation?

The response of scientific research to Covid-19 suggests the possibility of scaling up innovation to confront other deadly diseases as well as global challenges like climate change. Doing so is likely to require harnessing the power of public research institutions and broadening incentives.

It is hard to overstate the importance of vaccines in addressing the Covid-19 pandemic, with vaccinations reducing the risk of getting severe disease by 80% or more (Pormohammad et al, 2021). Scaling up Covid-19 vaccine production and distribution – particularly to low- and middle-income countries – remains a vital challenge (Agarwal and Gopinath, 2021). But the development of vaccines in record time has been a triumph for modern science and technology.

How did that success come about? The stories behind the development of the Pfizer-BioNTech, Moderna and Oxford-AstraZeneca vaccines have been widely reported in the media. Less well known is the fact that their success was the result of a massive research effort. By the end of 2020, more than 200 Covid-19 vaccines were in development. Close to 1,500 clinical trials on Covid-19 were conducted in 2020, not only for vaccines but also diagnostics and therapeutics, which would help to diagnose and treat patients.

How unique was the research and development response to Covid-19?

To put the Covid-19 research and development (R&D) response into context, it is useful to compare it with clinical trials for all diseases over time. From 2015 to 2019, around 300 new clinical trials were started globally every month (see Figure 1).

In 2020, this shot up by about 40%, with nearly half of new trials in initial months being Covid-19 trials. Surprisingly, R&D directed towards diseases other than Covid-19 barely went down.

Figure 1: Number of new trials started monthly (three-months moving average)

Source: Agarwal and Gaule, 2021; based on data from

The scale of the Covid-19 R&D response and its success in terms of innovation outcomes were not expected. Previously, four years was the fastest that any vaccine had been developed. The development of Covid-19 vaccines took less than a year.

In the spring of 2020, scientific observers were noting many obstacles to rapid Covid-19 vaccine and drug development, including the lack of animal models (animals mimicking aspects of a disease found in humans) (Begum et al, 2020).

Similarly, a group of innovation economists were suggesting that, at least in the short run, the Covid-19 R&D effort might be hard to scale up due to scarcity of ideas or expertise (Abi Younes et al, 2020). Previous economic research had found that inducing scientists to change the direction of their research requires a large amount of funding in expectation (Myers, 2020).

This suggested that it is difficult for scientists to work on topics they have not worked on before. Combined with there being a limited number of scientists with relevant expertise (say, in virology) it was expected that it would be hard to scale up research directed towards Covid-19.

Additionally, if good research ideas are scarce (as argued, for example, by Scotchmer, 2014), increasing the number of Covid-19 trials would run into diminishing returns. In other words, beyond a certain level, more trials would not bring any additional benefit.

But in reality, within a year of the pandemic, we had several vaccine candidates with emergency use authorisation in several countries, and researchers had identified various treatments that could bring a non-negligible reduction in mortality rates.

Why was the Covid-19 R&D response special?

One obvious explanation for the unique R&D response to Covid-19 is that any treatment or vaccine produced would have a very large market. Diseases that affect more (or richer) patients correspond to larger market size, and thus represent more profitable investment opportunities for pharmaceutical companies. A large body of economic research has documented that R&D investment and pharmaceutical innovation do indeed respond to market size (Acemoglu and Linn, 2004; Dubois et al, 2015).

Yet the response of R&D to market size is less than proportional: when the market size for a disease doubles, R&D investment goes up by less than 50%, a pattern we call the ‘law of diminishing effort’ (Agarwal and Gaule, 2021). Comparing the actual level of investment with how much would have been expected given the law of diminishing effort, we find that Covid-19 R&D was seven to twenty times larger than what would have been anticipated.

The fact that investment largely exceeded expectations based on market size suggests that other factors also played a large role. Two in particular stand out:

  • Research by the public sector: Public research institutions played a large role, with 70% of the Covid-19 trials conducted by hospitals, universities and other public bodies. One notable success was the discovery that the drug dexamethasone was effective in reducing mortality among severely ill Covid-19 patients in a large trial supported by the UK National Institute for Health Research.
  • Early stage incentives: Governments provided R&D support for clinical trials and manufacturing capacity that were not conditional on eventual success. Most notably, the US government provided funding for various vaccine candidates, some of which reached the market in record time, through Operation Warp Speed. Analysis of the progress of 200 Covid-19 vaccine candidates also confirms that American vaccines reached the pre-clinical and clinical stages faster than European ones (Agarwal and Gaule, 2021).

Additional factors may have also contributed, but more research is needed. For example, new diseases may elicit a different R&D response, either because they require new ideas and research that haven’t been ‘depleted’ by previous effort, or because drugs for a new disease do not face competition from previously invented drugs.

Alternatively, crises may play a catalysing role in focusing attention and effort in a specific direction. This could have occurred in the Covid-19 response in part due to non-monetary incentives for researchers, such as altruism or reputation.

Figure 2: What drives innovation: lessons from Covid-19 R&D

Source: Agarwal and Gaule, 2021

Lessons for future innovation

The scientific and technological success that the Covid-19 vaccines and treatments represent bodes well for future innovation. First, there is the possibility that some of technologies used in the Covid-19 vaccines – including, but not limited to, mRNA technology – could have applications for other diseases.

Second, the size and effectiveness of the response raises the possibility that innovation could be scaled up significantly to tackle other global challenges, including other deadly diseases or climate change.

The response shows that when the incentives are right, innovation can proceed at a very fast pace. While economists tend to see market size as the main driver for innovation, it is likely that a broader perspective that takes the greater good into account is needed. Early stage incentives, non-monetary incentives and public institutions can all play important roles in scaling up innovation, as the response to Covid-19 has shown.

Where can I find out more?

Who are experts on this question?

  • Ruchir Agarwal, International Monetary Fund
  • Patrick Gaule, University of Bristol
  • Michael Kremer, University of Chicago
  • Margaret Kyle, Mines ParisTech
  • Bhaven Sampat, Columbia University
Authors: Ruchir Agarwal and Patrick Gaule
Photo by National Cancer Institute on Unsplash
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