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Making Markets for Vaccines / Advance Market Commitments
A CGD Working Group produced an economic and legal framework for funds to incentivize vaccine development. The G-7 Finance Ministers endorsed the approach and five donors (Canada, Italy, Norway, UK and Russia, and the Gates Foundation) committed $1.5 billion to create an incentive for a vaccine against the strains of pneumococcus disease prevalent in low-income countries. For updates, see Advance Market Commitments for Vaccines (http://www.vaccineamc.org/), a joint effort of the GAVI Alliance and the World Bank.
Making a commitment in advance to buy vaccines if and when they are developed would create incentives for industry to increase investment in research and development. New commercial investment would complement funding of research and development (R&D) by public and charitable bodies, accelerating the development of vital new vaccines for the developing world.
This report presents the proposal from theory to practice, by showing how a commitment can be consistent with ordinary legal and budgetary principles. A draft contract term sheet is included, highlighting the key elements of a credible guarantee.
This generation can leave an historic legacy. By creating arrangements that devote the same scientific effort to diseases of the poor as we put into diseases of the rich, we can make a lasting contribution to the defeat of poverty.
CGD has been following Advanced Market Commitment (AMC) for vaccines for a while now: from its groundwork in the CGD report Making Markets for Vaccines, to its launch and the delivery of its first vaccines in 2010 (GAVI also offers a nice timeline of events here). This innovative financing mechanism aims to increase investment in vaccines for use in lower-middle income countries (LMIC)by guaranteeing a market for appropriate health products and services, reducing unpredictability or volatility that can discourage private investment, and increasing competition and innovation between companies and organizations (read more here).
The pilot AMC -- launched in 2009 -- incentivized the development of pneumococcal vaccines (PNV) and attracted 1.5 billion in commitments from a variety of donors. Since then, both GlaxoSmithKline and Pfizer have produced PNV at the $3.50/dose cost threshold established, and the vaccine has since been rolled out in 25 countries. But was the $3.50/dose threshold the right place to draw the line? A recent evaluation from Dalberg (contracted by the GAVI Alliance) sought to answer this question among others.
There have been a few previous evaluations of the AMC, but this most recent evaluation of the pneumococcal AMC focuses on the AMC’s strategic decision making processes and how well the pilot fulfilled its objectives to accelerate the development of pneumococcal vaccines and increase their availability and affordability. The methodology of the report included interviews, data analysis, and secondary research and built on previous models—however, the Dalberg report does note a lack of suitable counterfactuals or control scenarios with which to compare the AMC.
In particular, the report explores the processes for determining prices for vaccines funded by the AMC, which is is one of the most difficult steps in the design process. For the PNV pilot, AMC designers established the price ceiling to maximize the number of existing or potential PNV manufacturer participants. Participating pharmaceutical companies obtained an estimated internal rate of return between 10-20%, suggesting that the target price point did provide a sufficient incentive. But not all PNV manufacturers participated, and generally higher cost firms opted out. Thus, lower cost vaccine manufactures might have made similar returns without the AMC subsidy, but whether the demand component would have been the same without the AMC momentum isn’t clear. Also, while other bidders are set to enter the market with potentially lower prices, the interviews that informed the report suggested that new entrants won’t join until 2017, at which point more than two-thirds of the AMC-funded PNV will have already been purchased and delivered.
Another key takeaway from the report is that GAVI’s “learning by doing” strategy, which allowed for the AMC experiment, was successful in pioneering a route for other AMCs. The authors recommend that future AMCs be developed in an iterative process, “intentionally build[ing] flexibility and space for iteration into the design and implementation processes,” including predetermined checks (such as revaluations prompted by price estimates, country co-payments reaching particular levels, or manufacturer interest), and reviews of baseline assumptions. While adjustments should only be marginal—reducing volatility is one of the main attractions of the AMC—self-feedback loops might increase buy-in from stakeholders while maintaining the credibility of commitments.
Getting the price right on AMCs is a delicate balance, but the lessons learned from the PNV AMC will be instrumental in informing the design of future efforts. What’s next? Malaria? Climate Change?
Donors are considering committing in advance to purchase vaccines against diseases concentrated in low-income countries to spur research and development on vaccines for neglected diseases. How much money is needed? The authors of this paper find that a commitment comparable in size to the average sales of recently launched commercial products (adjusted for lower marketing costs)—about $3 billion per disease when products are at a relatively early stage in development —would be a highly cost-effective way to address major killers, such as malaria, tuberculosis and HIV/AIDS. The paper includes a link to a Web-based spread sheet for readers to conduct their own sensitivity analysis.Learn more
On Thursday April 7, 2005 - World Health Day - CGD launched a report with the potential to save millions of lives. Making Markets for Vaccines: Ideas to Action presents an achievable approach to creating incentives for pharmaceutical and biotechnology manufacturers in the rich world to invest in the research and development of vaccines for diseases that mostly affect the poor world.
Making Markets for Vaccines: Ideas to Action presents the proposal from theory to practice, by showing how a commitment can be consistent with ordinary legal and budgetary principles. A draft contract term sheet is included, highlighting the key elements of a credible guarantee.
New medicines are usually financed by a mixture of public funding by governments, philanthropic giving, and investment by private firms. Private investment is especially important in paying for and managing the later stages of clinical trials, regulatory approval, and investment in manufacturing capacity. But for diseases that mainly affect people in developing countries, the prospective sales market is tiny—and not sufficient to justify commercially the large scale investment that is needed to develop new products.
An advance market commitment to accelerate the development of vaccines for diseases concentrated in developing countries, donors could make a binding commitment to pay for a desired vaccine if and when it is developed. This advance market commitment would mean firms could invest in finding a vaccine with the confidence that if they succeed there would be a market for the product.