Brian Kenny: Regular listeners to Cold Call know that every episode features a faculty member from Harvard Business School, sharing insights and ideas from a business case they wrote; ideas that are close to practice because the cases are based on real people dealing with real life business challenges. When something momentous is happening in the world, like the COVID-19 pandemic, our faculty are drawn to the questions surrounding it.
In the months since the crisis began, HBS faculty have been hard at work researching and writing cases about various aspects of the pandemic. And we'll be bringing those to our listeners as special bonus episodes of Cold Call. Today on Cold Call, we'll discuss the case entitled, Gavi and COVID-19, Pandemic of the Century, with Professor Tarun Khanna. I'm your host, Brian Kenny, and you're listening Cold Call.
Tarun Khanna has spent over two decades studying, writing, and teaching about entrepreneurship as a means to social and economic development in emerging markets. So pleased to have you here today, Tarun, to talk about this late breaking case on Gavi. I think people will be really interested in hearing about it because it deals with the world of vaccines and we're hearing a lot about vaccines today.
Tarun Khanna: Brian, thank you for having me. Looking forward to it.
Brian Kenny: You've been on the show before, so we're really happy to have you back and here to talk about this very timely topic. Let me ask you to start by... When you're teaching this in the classroom, how would you start the class off? What would be your cold call?
Tarun Khanna: The case protagonist, Seth Berkley, is a friend whom I met at the world economic forum some years ago. I would start by putting the students in his shoes. He's about to go into a five year funding cycle for Gavi, the World Vaccine Alliance. And he has to ask for something like $7 billion in funding from various foundations and sovereigns. He has a delicate task because he also has to nudge Gavi in a direction a little bit away from its original mandate of working for vaccine deployment only in poor countries. And so he wants a handout, so to speak, for good purposes, but he also wants to change the mission.
Brian Kenny: That's a good cold call. I'm sure that's a tough one for the students. Let me ask you about; just the process of writing this case Tarun, because normally under normal circumstances, case writing, it's very meticulous, it can take months of time to get a case from start to finish. Here we have a case that's really coming out in the midst of this situation. What was it like to kind of work on this as things were unfolding?
Tarun Khanna: The circumstances of the case are somewhat fortuitous. I met Seth some years ago and we had talked about many of the innovative practices that Gavi had followed to deploy vaccines. Gavi has managed to vaccinate something like 750 million kids, saved 13 million lives in just the last couple of decades. It's really an extraordinary record. I'm sort of very intrigued by all the innovation that had gone into that, and then COVID hit, so we were in the midst of starting to write the case. And I got to hand it to Seth for really stepping up. As you can imagine, he's in the midst of negotiating all sorts of stuff for vaccines for COVID whenever they do a show up out of the laboratory and manufacturing processes, and he still gave us the time, frequent interviews with him and his team, all done on Zoom of course Brian as you know, for safety reasons. And extensive zoom calls with people at MedSource or Frontier, Doctors Without Borders, the United nations, various vaccine manufacturers around the world, the Gates foundation, you name it.
Brian Kenny: Speaking for myself and maybe for some of our listeners, I don't fully understand the vaccine landscape, and who the players are, and sort of where Gavi fits in that landscape. Can you give us a sort of overview?
Tarun Khanna: Broadly we can think of people who use vaccines, the healthcare systems in different countries in the world, and the vaccine manufacturers, who should be pharmaceutical companies that are your general big pharma, but also specialized vaccine manufacturers. The problem is that that link, going back 20 years or so, was pretty broken. In other words, vaccines were and are a pretty high fixed cost, low margin business, and so vaccine manufacturers are not predisposed to really participate in it, and then gradually kind of started to exit the space and there was inadequate research and the inadequate deployment of vaccines going on. So in between the healthcare users and the vaccine manufacturers, there are a whole bunch of actors that have come together. And really the story the case tries to tell is to present a narrative of how this intermediating infrastructure has emerged to fill the gaps in the language that I've used in other cases in my own writings, to fill what I refer to as institutional voids that prevent this market from working in a productive way. Just to give you an example, when Ebola hit in 2014 in West Africa, in Guinea, and then spread to Sierra Leone and Liberia and other places, we had vaccine candidates sitting in the United States as part of defense and bio-terrorism research and so on, had almost like 20 odd candidate vaccines as I am informally told. On the other hand, all the people suffering from Ebola were extremely poor people in extremely poor countries with extremely poor health systems. That's not a market. So really what Gavi has been created to do, is to structure that in a mediating space, to make sure that vaccine manufacturers have an incentive to make the vaccine and deploy it and get adequately compensated for it, and to make sure that countries all around the world get access to vaccines. And in there are of course the multilateral agencies are hugely important; the United Nations, the World Health Organization, which has recently been the subject of much controversy thanks to President Trump and various others. And there's also the Gates Foundation, Rockefeller Foundation, and a lot of other donors, the rich countries in Europe and North America. Somehow all these actors have to come together to make that match happen between vaccine manufacturers and the health system users of vaccines.
Brian Kenny: And Gavi is sort of the glue that's bringing them together and holding them together. Is that one way to look at it?
Tarun Khanna: Gavi is a very cleverly structured alliance. I'm told that it was conceived by Bill Gates and the Gates foundation. In fact, it's one of the early big things that the Gates foundation did. It's an alliance that brings together vaccine manufacturers, philanthropists, foundations, so as to provide the market mechanism to give vaccine manufacturers reassurance, that yes, they should go and make the vaccines because somebody is there to pay for them, and it makes sure that those vaccines are adequately deployed in the poor countries around the world. Its mission is primarily to serve children and people in poor countries. And the reason is that prior to its existence in the pre-Gavi world, we used to have situations where we had lots of vaccines available to us in the well of countries, and it would take 10, 20 years before these vaccines would show up in the poorer countries, obviously causing untold suffering and death. There are a couple of innovations that Gavi has played a steering role in, that are worth mentioning. And to be honest, those were the innovations that got me interested in Gavi from the standpoint of writing an HBS case. And one way was to guarantee through an advanced market commitment that if you make the vaccine, we will buy a minimum number of doses at a minimum agreed price, that would adequately meet your return on capital expectations, or sometimes you will sell your vaccines to the poor countries for a certain amount of dollars per dose and we would top it up with in effect, an extra subsidy, so that again, you meet your return on capital expectations. That has not only induced many vaccine manufacturers to come back into the game, it's also attracted new entrants, so that you move from a situation where you used to have maybe one producer or zero producers for a vaccine. By producer, I mean people who are manufacturing billions of doses that you typically need, to a situation where you've made it a duopoly and then an oligopoly of different sorts. What that does is it drives down prices of vaccines by inducing competition. The other thing I'd mention, Brian, is a capital market innovation. These things called vaccine bonds, which is again the creation of Gavi and of Gordon Brown, who is the chancellor of finance in the UK, or the prime minister, I forget what position he had at the time. But Gordon Brown was instrumental in advocating for vaccine bonds. The idea of the vaccine bonds is that; okay, you've got these well-meaning wealthy countries, let's say UK, France, Norway, who step up and say, "We will donate billions of dollars to fund vaccine dissemination in the poorer countries as part of aid.” The problem is that those commitments are made over long time periods, and it's not clear to me that vaccine manufacturers treated them as completely credible. What's to stop for instance, domestic politics in the United Kingdom or France, sentiment from changing and saying, "Yeah, the previous government agreed to give half a billion dollars over the next five years, but we just got elected and we don't think that's a good use of the aid budget, so therefore we are rescinding that promise and not following through on it." I'm not sure if that actually happened, but I think it was not credible enough. And so what Gordon Brown and others suggested, and Gavi orchestrated is to say, "Why don't we issue opportunistically two to three year vaccine bonds in the global bond markets? Sometimes in Japan, sometimes in the middle East, sometimes in the Euro bond market, which are backed by these pledges from wealthy sovereigns, so that we can frontload the expenditure that these guys are committing over 10, 20 years, and spend a lot of that money before it actually comes due, and give an attractive return to socially minded investors in the different countries.” That's been absolutely brilliant, because what that's done is, it essentially allowed Gavi to raise about six to seven billion dollars in the last few years, which is about a fifth of its budget, and really expedited distribution of vaccines to the poor countries. It's pretty cool.
Brian Kenny: So I'm wondering, what is Dr. Berkley's background and who are the kinds of people that are drawn to Gavi and that are working there?
Tarun Khanna: Oh, that's a great question Brian. All kinds of folks. Dr. Berkley is a medical doctor. Then he has kind of meandered into internal medicine and epidemiology, worked at the CDC, the center for disease control, and was very instrumental in fighting the AIDS epidemic around the world. And in 2011-ish, he joined Gavi as the CEO. So there is a combination of course of doctors, epidemiologists. There are former McKinsey type people, the former Goldman and JP Morgan and Citibank investment bankers, and that's where I think the financial innovation also becomes feasible. There are lots of people involved in the human rights movement. Gavi actually is a pretty efficiently organized alliance. And so it relies on feet on the street in countries that are part of the World Health Organization and part of various multilateral organizations. So you've got that entire constellation of people who work at the multilateral agencies also working with Gavi. That's what I like about Gavi. It's kind of a one level of light touch alliance structure that's evolved from... As Gates would have said in his imagination, it was just five people in a spreadsheet, should be enough to do this. Is now evolved to a 300 person organization in Geneva, New York, but really working through many, many thousands of people on the ground in many, many countries around the world, and interfacing between this constellation of players and continually experimenting and looking forward and trying to say, "How do we structure the market so that the different players have incentives to do what we think is the socially right thing to do."
Brian Kenny: So is this sort of the epitome of a social enterprise as you think about social enterprises and what they do in the world?
Tarun Khanna: It's a great example. One more thing to clarify; Gavi does not do any research on the actual vaccines. So the way I think about this is that there's a different social enterprise, if you will, that was founded much after Gavi, in fact, right after the Ebola epidemic, which is purely dedicated to doing the R&D for new vaccines. Its acronym is CEPI, C-E-P-I; and CEPI has very many of the same donors behind it, but that's a different organization. I think of CEPI as the people who are doing the research to create vaccines for the future, and Gavi as the entity that's waiting for people to invent vaccines and then making sure that it gets disseminated appropriately and fairly, so it's like a pitcher catcher. Does that make sense?
Brian Kenny: Yeah, that's great clarification. I think that helps to clarify. So Gavi at the time of the case, they're 20 years old, they're in their 20th anniversary. They're facing down this global pandemic that we're all sort of dealing with in real time. What kind of issues are they looking at as they try to move down this path? And Dr. Berkley has to make these big decisions for the future of Gavi.
Tarun Khanna: I think there are a couple of things that are different about COVID from Ebola, which is one of the epidemics that are in people's memories, because it was reasonably recent, 2013, '14, that time period and then resurgences in '17, '18, in Africa. Ebola didn't really touch rich countries. COVID clearly has. That's a big difference. And what that means is that the rich countries of the world immediately see that it's in their parochial self-interest to help do something about this. The crude way to say this is as long as the virus has both human reservoirs and non-human reservoirs anywhere in the world, then all of us remain vulnerable. This is only a question of time before it pops up again in your backyard, and therefore everybody has an incentive to contribute to stamping it out. So I think that gives Seth and his team a really interesting way... In my mind anyway, the way I think about it. I don't want to put words in his mouth, but an interesting way to think about how to refocus the mission of Gavi in a direction that they and a number of others, for instance, MedSource or Frontier have been advocating for some time. Gavi's original constitutional mandate was to focus only on poor countries below a certain national income threshold. And the problem is that there are a lot of countries whose national income exceeds that threshold, but actually have a pretty pathetic health systems and pretty poor, almost nonexistent records of immunization around the world. That means that they will provide reservoirs for virus indefinitely. So we've got to find a way to shift Gavi so that the board isn't fixated to the letter of the law, as much as it's fixated on the intent of the law that they had laid down, which is we want to get to under immunized populations both for humanitarian and for economic and social reasons as quickly as possible, and not be limited to saying it has to be below this somewhat arbitrary income threshold. So now because COVID has affected everybody, maybe Seth is thinking this is a good time to make that case because people would be predisposed to hearing the case now since this sort of pandemic is likely to recur in the future, not just with COVID, because of the way humans have mismanaged their environment and interface with other species around the world. That's the challenge for Gavi is how do we shift the mandate and do it in real time while we're dealing with this COVID crisis.
Brian Kenny: Actually you just mentioned that many of the countries that they work with, have very poor infrastructures where it comes to delivering healthcare services to their population. What are some of the things that Gavi has done to try and help their country partners improve on that scale? Because it doesn't seem productive or sustainable to go in and vaccinate people and then leave them to the whims of a broken healthcare delivery system.
Tarun Khanna: You're absolutely right. I mean, vaccines are only one albeit very important instrument in dealing with primary health in any country including ours here in the United States. Just witness the discussions and debates we're having about testing in this country as we speak, Brian. So Gavi realized early on that in order for vaccines to be effective and effectively deployed, it needed to be a participant in strengthening the health systems of many countries. So it's created sort of what I would think of loosely as a technical consultancy type of arm, and some funding mechanism within the Gavi ability to finance that allow countries to ask for and receive technical assistance to work with their local ministers of health and healthcare systems to help strengthen them. And the second thing that I would say is that; maybe about four or five years ago, there was another program that was created within Gavi. I know the acronym is called INFUSE. But, it's really a way of tapping into local entrepreneurs in the developing country. So I think of it more as a very light touch incubator to nudge forward the innovation part of the vaccine and primary health ecosystem in these developing countries. So both I think are very important initiatives.
Brian Kenny: I wonder if Dr. Berkley is thinking about Gavi's role in helping to alleviate some of that tension that can emerge between countries when it comes to sharing the vaccine and science discoveries across nations.
Tarun Khanna: I would say that's a central concern, not just with COVID. I mean, we saw that the US administration tried to get his hands on vaccines in Germany. I believe it was France that tried to restrict sales of masks. Many countries have put restrictions on PPE—personal protective equipment. Countries will do what countries will do, which is they will behave in self-interested manners. And part of sets rule as a global humanitarian, global philanthropist is to say, "There has to be a modicum of fairness." By the way, it's also self-interest for something as violent as COVID-19, but also a humanitarian impulse to make sure that there isn't excessive stockpiling. And Gavi has to be prepared to do things with it, but there are also efforts going on in China. I saw some data in the media recently that loosely said that let's say 40% of the interesting vaccine trials are going on in the US, 40% in China and 20% other places. It's like the space race of the 1960s, except it's being waged more by private players than by governments, but imagine that we don't know who's going to win. So it's in everyone’s incentives to hedge their bets, I think right now and say, "Look, let's agree on expos sharing mechanism that distributes this." Equity concern and fairness is part of the negotiation that's going to happen when the vaccine that proves to be successful eventually shows up, which is still some months away in the best case.
Brian Kenny: What's one thing you want our listeners to take away from this case as they read the headlines and hear the news unfolding?
Tarun Khanna: One thing that I learned, Brian, through immersion in Gavi and the vaccine last couple of months, is that at one level there's no rocket science here, it's just recognition by Mr. Gates and the Gates foundation, Rockefeller Foundation and others way back when... There's a broken system, that the vaccine users are not getting connected to the vaccine manufacturers because of these voids in the market mechanism, and use basic economics and basic contract design. The kind of thinking that we teach right in the beginning of the MBA program, that's really all it takes. And that an attitude to experimentation, and a little bit of judicious risk taking, some entrepreneurship in finance and the capital markets. That's all it takes to unlock the science. And this lesson is going to play out over and over and over again in the decades to come, and is a central part of this new course that I'm going to teach for which I was writing the Gavi case, “Grand Challenges for Entrepreneurs,” in the fall that I'm super excited about. I just believe that with openness, a little bit of analysis, and an attitude to risk taking and experimentation, you really can change the world.
Brian Kenny: It certainly does seem like entrepreneurship is going to be front and center in many ways as we figure out what reopening looks like and what treatment looks like and all those things, so entrepreneurs may rule the day going forward.
Tarun Khanna: I hope so.
Brian Kenny: Tarun, thank you so much for joining us and for sharing this very timely and compelling case with our listeners. Really appreciate it.
Tarun Khanna: Thank you Brian. It's kind of you to have me on.
Brian Kenny: If you enjoy Cold Call, you might like other podcasts on the HBR Presents network. Whether you're looking for advice on navigating your career, you want the latest thinking in business and management, or you just want to hear what's on the mind of Harvard Business School professors, the HBR Presents network has a podcast for you. Find them on Apple Podcasts or wherever you listen. I'm your host, Brain Kenny, and you've been listening to Cold Call, an official podcast of Harvard Business School on the HBR Presents network.