Adaptive R&D contract for urgently needed drugs: Lessons from COVID-19 vaccine development

This paper analyzes an incentive contract for new vaccine research and development (R & D) under pan-demic situations such as COVID-19, considering the R & D contract's adaptability to the pandemic. We study how the public sector (government) designs the adaptive R & D contract and offers it to pharmaceutical enterprises. An agency-theoretic model is employed to explore the contract whose terms are an upfront grant as a fixed fee and a sales tax credit as an incentive tool, examining how the values of related parameters affect contract term determinations. We found that the adaptability factor derived from urgent policies such as emergency use authorization (EUA) as well as tax credits, can be utilized as practical incentive tools that lead vaccine developers to increase their effort levels for R & D success. We also found that public-private state-emergency contracts may not follow the conventional wisdom. Counter -intuitively, dependency on tax credits (incentive part) decrease as the client's degree of risk averseness increases in the emergency contract. (C) 2022 Published by Elsevier Ltd.

Automated summary

This paper analyzes an incentive contract for new vaccine research and development (R & D) under pandemic situations and explores how the public sector designs and offers the adaptive R & D contract to pharmaceutical enterprises. The study finds that urgent policies and tax credits can be utilized as practical incentive tools to increase vaccine developers' effort levels for R & D success.