What drives innovation? Lessons from COVID-19 R&D

Area of Science:

• Health Economics
• Pharmaceutical R&D
• Global Health Policy

Background:

• Understanding the drivers of research and development (R&D) investment is crucial for addressing global health challenges.
• The COVID-19 pandemic necessitated an unprecedented acceleration in R&D efforts for vaccines and treatments.
• Existing economic models often predict R&D based on market size, but the rapid response to COVID-19 suggested other factors were at play.

Purpose of the Study:

• To quantify the relationship between market size and R&D investment across various diseases.
• To analyze the R&D response to COVID-19 in comparison to its market size.
• To identify the key drivers, particularly the role of public institutions and incentives, in accelerating R&D during the pandemic.

Main Methods:

• Cross-sectional analysis of R&D effort elasticity with respect to market size for a range of diseases.
• Comparative analysis of COVID-19 R&D investment against market-size-predicted levels.
• Examination of clinical trial data to assess aggregate R&D elasticity and impact on non-COVID disease trials.
• Evaluation of the contribution of public research institutions and government incentives to COVID-19 R&D.

Main Results:

• The cross-sectional elasticity of R&D effort with respect to market size was found to be approximately 1/2.
• The R&D response to COVID-19 was 4 to 26 times greater than predicted by its market size alone.
• Aggregate R&D elasticity in science and innovation proved substantial, with a 38% increase in clinical trials in 2020, showing minimal displacement of non-COVID trials.
• Public research institutions were pivotal, spearheading 70% of global COVID-19 clinical trials.

Conclusions:

• Market size is a significant, but not the sole, determinant of R&D investment.
• The COVID-19 pandemic demonstrated the potential for rapid, large-scale R&D mobilization.
• Public institutions and targeted incentives, including non-monetary ones, are critical for scaling up global R&D efforts for major health threats.