Global Health Ideas

Finding global health solutions through innovation and technology

Advance Market Commitment for Vaccines Takes Off: A Partial Solution

by Dweep Chanana

CGDev reported on Monday (also covered in BW) that some G7 nations, together with the Bill and Melinda Gates Foundation have agreed to provide an advance market commitment of $1.5 billion for purchase of vaccines against pneumococcal disease. Why is this commitment important?

By promising in advance to pay for life-saving vaccines once they are produced, these countries are creating incentives for biotechnology and pharmaceutical companies to produce vaccines appropriate for use in poor countries, and to sell them at affordable prices.

The reports bring up some interesting points. First, who contributed – in addition to 5 nations, the Gates Foundation contributes $50 million – and who did not – the U.S. refrained due to ‘budgetary restrains

Second, while the AMC is hailed as a big step forward, as a pilot it targets only the low hanging fruit of vaccine research. After all, a vaccine for pneumococcal disease exists already, and costs about $60 in the U.S. Further, other vaccines are in development, for instance by GlaxoSmithKline, which heralded the agreement as an “innovative financing mechanism” (what else will they say, as an interested party?).

More information came from Owen (thanks to Aman for the reference), who writes on his blog about the genesis and evolution of the AMC. He also provided the GAVI presentation on the subject, slides 10 and 11 of which explain the AMC pricing mechanism. So, we now know that the AMC will work by guaranteeing to (any) manufacturers, a certain price. A small part of the price would be paid by the recipient developing country, while the rest by the AMC, till such time as costs come down.

Problem One: Where are the numbers?

So, now I know how the mechanism works. But what I do not know is significantly more important. Have the numbers been worked out? For instance, what is the target cost to a developing country? What is the mark-up the AMC will pay? In essence, how many vaccines will this $1.5 billion pay for, under various scenarios?

It may not be obvious, but these questions are important to understand just how useful the AMC really is. I realize that it targets vaccines that are currently under development, but that would take years to become available in developing countries. But $1.5 billion is a lot of money for research that has already been mostly done. Besides, what if a vaccine is not being developed for a particular strain?

Problem Two: An Unsustainable AMC Model
Overall, I think the AMC goes a long way to test if the right market incentives will spur vaccine research. However, as I have argued before, the vaccine market is negligible compared to the drug market, so market incentives need to be significantly larger. However, in doing that, the current AMC model is not financially sustainable because it is funded by international donors whose attention spans are famously fickle. Today public health is the issue of choice, tomorrow it will be climate change mitigation.

So, two questions remain. How can the AMC model be expanded such that it creates a) a significantly larger incentive, and b) is financially sustainable?

A Global Fund: Correcting Markets Through Policy Obligations?

The answer is only to be found at the international policy level, and I return to TRIPS, since it brought forth the issue of minimum international intellectual property legislation. However, if TRIPS legislates on patent rights, it should also legislate on patent obligations at the international level.

So here is a possible if controversial solution. Create an internationally administered fund, derived from global drug sales, that is directed only to correct the market failures that cause the 90/10 gap, or the vaccine vs. drug R&D gap, and could fund many more AMC’s of the sort being tested now.

There are many benefits to such an approach. First, the financial burden of such a fund would be negligible, with 0.5% of global sales providing about $3 billion annually. Second, it would affect neither industry competitiveness nor the wider market incentives, as it would apply equally to all players. At a policy level, it would also restore the balance between patent rights and obligations, a point seldom raised by those seeking solutions to the 90/10 gap, including those behind this initiative. And finally, it would not allow the rich world to hide behind occasional check-writing of the sort this AMC epitomizes to defend market failures and distortions created by their own policies under the guise of ‘free enterprise’.

This initiative is being led by extremely smart people, so I’m sure someone has looked at the numbers. Yet, this AMC model cannot be sustainable if it is to be replicated. So I worry if the AMC will simply end up being a handout to big pharma. And if it allows us to ignore the more pressing and fundamental failures of the market, created and driven by international policy, it may actually do some harm in the long term.

For more opinion, check out the comments at Marginal Revolution.

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Written by Guest Contributor

February 15, 2007 at 7:20 pm

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  1. […] Crossposted from the THDBlog. […]


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