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

Abstract

This paper studies the global R&D effort to fight the deadliest diseases. We find: (1) the elasticity of R&D effort with respect to market size is about 1/2 in the cross-section of diseases; (2) given this elasticity, the R&D response to COVID-19 has been 4 to 26 times greater than that implied by its market size; (3) the aggregate short-term elasticity of science and innovation can be very large, as demonstrated by the aggregate flow of clinical trials increasing by 38% in 2020, with limited crowding out of trials for non-COVID diseases; and (4) public institutions and government-led incentives were a key driver of the COVID-19 R&D effort-with public research institutions accounting for 70 percent of all COVID-19 clinical trials globally. Overall, our work suggests that leveraging early-stage incentives, non-monetary incentives, and public institutions may be important for scaling up global innovation.

Keywords: COVID-19; Innovation; Market size; Pharmaceutical industry.

Fig. 1

R&D Effort across Diseases and Diminishing Effort. Notes: The figure displays the relationship between potential market size and research effort in the cross-section of 75 diseases in our sample (COVID-19 not included). Research effort is defined as the average yearly number of new trials per disease from 2015 to 2019, and expressed in logs. Potential market size is the 2017 disease-level mortality at the national level weighted by national GDP per capita and a value of statistical life of USD 1 million for the mean global citizen, expressed in logs. The upper left figure displays the overall relationship, while the lower left, and lower right figure restrict the sample to cancers and infectious diseases respectively. Finally, the upper right figure displays residualized research effort instead of actual research effort, where the residualized research effort comes from a regression of research effort on a broad set of potential determinants (except potential market size) detailed in Table 2 column 4. The regression equivalent of these figures are in Table 2.

Fig. 2

Share of COVID-19 Trials among Newly Started Trials. Notes: Based on clinicaltrials.gov data, the figure displays the share of new trials that were related to COVID-19 among all new trials on a monthly basis. For example, a number of.4 implies that 40% of the new trials in a given month were related to COVID-19. The COVID-19 trials are tagged as such by clinicaltrials.gov based upon a set of keywords related to COVID-19.

Fig. 3

New Clinical Trials Started Monthly for All Diseases. Notes: Based on clinicaltrials.gov data, the figure displays the total of new clinical trials worldwide (across all diseases) on a monthly basis. COVID-19 trials are showed in the shaded area. COVID-19 trials are tagged as such by clinicaltrials.gov based upon a set of keywords related to COVID-19.

Fig. 4

Crowding Out of R&D Directed Towards Non-COVID-19 Diseases. Notes: In this figure, we compare the number of new trials by disease between 2019 (April-December) and 2020 (April-December). The sample includes all diseases except COVID-19. The choice of using the last three quarters for our comparison window is based on the spike in COVID-19 clinical trials observed after Q1 of 2020.

Fig. 5

COVID-19 R&D Effort Compared with Other Diseases. Notes: The figure displays the relationship between potential market size and research effort in the cross-section of 75 diseases in our sample, plus COVID-19. Research effort is defined as the average yearly number of new trials per disease from 2015 to 2019; for COVID-19 we use the actual number of 2020 COVID-19 trials instead. Potential market size is the 2017 disease-level mortality at the national level weighted by national GDP per capita and a value of statistical life of USD 1 million for the mean global citizen, expressed in logs. For COVID-19, our estimate of potential market size is based on the hypothetical case in which in the absence of non-pharmaceutical control measures 70% of the world population eventually would get infected, and COVID-19 has an infection fatality rate of 0.5%. The dashed vertical line represents a 95% prediction interval for the number of COVID-19 trials. See main text for a detailed discussion of the COVID-19 potential market size and Table A.3 for sensitivity to different elasticity estimates and COVID-19 market size assumptions.

Fig. A.1

Share of COVID-19 Trials among Newly Started Trials, by Region. Notes: Based on clinicaltrials.gov data, the figure displays the share of new trials that were related to COVID-19 among all new trials on a monthly basis in the world, U.S., Europe, and China. Europe includes European Union Members as well as the United Kingdom and Switzerland. For example, a number of.4 implies that 40% of the new trials in a given month were related to COVID-19. The COVID-19 trials are tagged as such by clinicaltrials.gov based upon a set of keywords related to COVID-19.

Fig. A.2

New Clinical Trials Started Monthly for All Diseases, by Region. Notes: Based on clinicaltrials.gov data, the figure displays the total of new clinical trials (across all diseases) on a monthly basis in the world, U.S., Europe and China. Europe includes European Union Members as well as the United Kingdom and Switzerland. COVID-19 trials are showed in the shaded area. COVID-19 trials are tagged as such by clinicaltrials.gov based upon a set of keywords related to COVID-19.

Fig. A.3

COVID-19 R&D Effort Compared with Other Diseases, by Phase. Notes: This figure reproduces Fig. 5 but distinguishes research effort by phases. Research effort is defined as the average yearly number of new trials per disease and phase from 2015 to 2019; for COVID-19 we use the actual number of 2020 COVID-19 trials instead. Potential market size is the 2017 disease-level mortality at the national level weighted by national GDP per capita and a value of statistical life of USD 1 million for the mean global citizen, expressed in logs. For COVID-19, our estimate of potential market size is based on the hypothetical case in which in the absence of non-pharmaceutical control measures 70% of the world population eventually would get infected, and COVID-19 has an infection fatality rate of 0.5%. This corresponds to 26.6 million COVID-19 deaths. See main text for a detailed discussion of the COVID-19 potential market size.