Struggles from below

“You never want a serious crisis to go to waste,” Rahm Emanuel, Barack Obama’s Chief of Staff, told the Wall Street Journal in the depths of the 2008 financial crisis. The now infamously ill-timed, tone-deaf statement did, however, have a more benevolent point: harness the chaos of crisis to make tough systemic changes that bolster a society against future crises. The same applies to COVID-19: learn from it and plan for the next pandemic.      

In our top story last week, by The New Yorker’s Bernard Avishai, we learnt about an exciting new initiative that aims to use financial engineering to accelerate vaccine development. 

The current pandemic is laying bare the financial constraints that have always hampered the search for vaccines. The scientific community has known about fatal coronaviruses, such as SARS and MERS, for years, but we’ve consistently failed to invest in sufficient vaccine research. 

The sad reality is that there’s little business case for a pharmaceutical product whose markets start radically shrinking once it becomes widely available. As Anthony Fauci, the US’ leading virus expert, noted in 2005: “Faced with the choice of $200 million into a new area, will pharmaceutical companies make a product to combat an emerging microbe, for which there is an uncertain market, or will they develop a new Viagra or a better Lipitor (cholestoreal treatment)?” No surprise that before COVID-19, only four of the Big Pharma companies deemed the market for vaccines appealing enough to develop them in their own labs. The challenge, thought Fauci, was to turn vaccine development into an investable financial asset.

Andrew Lo and Roger Stein, of the Massachusetts Institute of Technology’s Laboratory for Financial Engineering, have now come up with a possible solution: a vaccine bond. They reasoned that significantly lowering the investment risk of vaccine development, even if that meant equally lowering the rewards, would attract interest from the bond markets—from managers of pension funds, sovereign-wealth funds and university endowments, who traditionally seek low-risk, low-return assets. 

The MIT pair have designed a instrument that combines the principles of securitisation—when investment banks bundle consumer debt (from credit cards or mortgages) into a single bond, have it assessed by a rating agency, and sell it to fund managers—and the tenets of derivatives trading, which sees traders profit from broad portfolios of high-risk, high-reward assets on the premise that if one succeeds, it more than compensates for the remaining losses. 

The portfolio would invest in vaccine biotech firms as long as their research yields positive results. Avishai explains: “Suppose that the portfolio acquired 150 biotech firms in this way and, to pay for the equity, it raised a megafund of perhaps $25 billion, mainly through borrowing, using the companies’ scientific prospects as collateral. It could issue a bond—in the case of this portfolio, a 10-year, “zero-coupon” bond, the kind that pays no annual interest but pays back a lump sum (capital plus compounded interest) at maturity.” One could expect a number of the companies to be successful and provide big pay-offs when the vaccines are sold for manufacture, with the whole portfolio subsequently turning a healthy profit. And a government guarantee could help catalyse the private investment. 

This nifty proposition is just the latest in a string of initiatives that have emerged in recent months, as the world looks to learn from the spread of the SARS-CoV-2 coronavirus to prepare for similar pandemics in the future. One firm is looking at ways of designing cities so they can better respond to pandemics, such as creating buildings that can quickly switch use in emergencies, or designing public spaces such as airports in ways that reduce crowding.

Another development is the creation of an open-source medical platform where scientists and researchers can freely access technological tools for researching disease, share their discoveries, launch investigations into molecules or potential drugs, and find entities to turn that research into medicine. If the Linux-like platform succeeds, it would allow drugs to prosper on their merit and need, rather than their profitability.

And a nascent effort to create a global blood observatory, dubbed the Global Immunological Observatory (GIO), aims to monitor for signs of pathogens spreading through the population. Instead of a telescope, the GIO uses technology that can measure hundreds of thousands of distinct antibodies in a microlitre of blood, and would serve as a powerful tool for monitoring and responding to disease outbreaks.

“You never want a serious crisis to go to waste,” said Emanuel. “And what I mean by that is it's an opportunity to do things that you think you couldn’t before.” Sadly for Rahm, no one remembers that last bit.