Are coronavirus vaccines being developed as fast as possible? I hope so, but I’m doubtful. Vaccine profitability is not great; only about five percent of revenue.

Paul A. Offit, an infectious disease doctor who co-invented a rotavirus vaccine, wrote in Health Affairs, “Pharmaceutical companies are gradually abandoning vaccines because the research, development, testing, and manufacture of vaccines are expensive and because the market to sell vaccines is much smaller than the market for other drug products.” 

The huge benefits of a vaccine for COVID-19 would be felt worldwide, but development is a risky proposition. The odds are against any one team being successful. Even if a company finds a vaccine, it may have to compete with other vaccines. And once developed, social and political pressure against profiteering would limit pricing power.

From a corporate risk-return perspective, spending billions to develop a vaccine is closer to philanthropy than hard-headed business.

Yet, other corporations would benefit mightily from the existence of a vaccine. People would return to restaurants and stores. They would travel. They might even take cruises. They would buy more cars. Businesses would invest in the future. The global economy would quickly recover.

This disparity between the private gains to an innovator and the social gains to society from the innovation appears across wide parts of the economy. Nobel laureate William Nordhaus estimated that only about two percent of the benefits of innovations accrue to the innovator. The remainder go to consumers and workers. For a vaccine, the corporate gain would likely be much, much tinier than two percent.

The massive widespread gains from a vaccine was illustrated on May 18 when Moderna (MRNA) announced positive early results from its vaccine. The company’s stock valuation jumped by about $5 billion. That’s nice, but on the same day, global stocks were boosted by the prospects of a vaccine and jumped over one trillion dollars.

How can we get some of the benefit that large corporations will reap from a vaccine into the development efforts of the pharmaceutical companies and laboratories best positioned to develop a vaccine? Let’s consider options on the vaccine.

Suppose a major corporation that would benefit from a stronger economy peels off $100 million, or even $1 billion, to buy the option to purchase doses of a vaccine, if developed, for the cost of production. Normally, a drug is priced much above its manufacturing costs, because the company needs to earn a return on its research and development. The option-buying company could fund R&D costs upfront in exchange for low-cost doses.

When the vaccine is developed—if it works—the option-buyer has choices. It could sell its option at a huge gain. Or, it could take delivery of the vaccine to distribute to its employees and customers. The company might even give away the vaccine to health care workers, first-responders, and high-risk people. The investment would pay off in total profits to the company because in a world with a vaccine, people would be buying more goods and services.

The option-buying company takes the risk that the option-seller won’t succeed. They might reduce their risk by buying options from multiple vaccine developers.

There’s no reason for just one company to do this. Let’s encourage most major corporations to buy vaccine options. No hard feelings if the airlines and hotel chains don’t have the cash available. But those corporations with cash, who would benefit greatly from a vaccine, should use their resources to speed development.