Advanced Market Commitments! What Are They Good For?
Advance Market Commitments are a method for countries or NGOs to incentivize the production of vaccines for developing countries. This helps overcome the basic problem that pharma companies are less likely to develop vaccines for illnesses that people won’t be able to pay high prices for.
An well-functioning AMC has two main purposes:
Ensures that vaccine companies invest in the capacity to sell their vaccines in low-income countries
Ensures that the price of those vaccines is low enough for it to get to the people who need it
An AMC is basically a contract between a funder and a company. The funder gives the company a bunch of money, and the company agrees to provide a certain number of vaccines, at a certain price, for a certain amount of time. After that time, it’s theoretically possible that the company could jack up its prices so that the poorest people would no longer be able to afford the vaccine, or that it would simply stop selling the vaccine. But the likelihood of either of these happening is low if the AMC was designed well. Competitive and PR pressures would prevent the company from jacking up its prices. And because the marginal costs of production for a dose of the vaccine are low, it’s unlikely that the company would leave the market after having already put in the up-front costs needed to produce, distribute, and sell the vaccine.
The AMC is a relatively new idea, and the first “pilot” AMC program has just completed. From 2010-2019, the GAVI Alliance paid companies who agreed to sell a pneumococcal conjugate vaccine (PCV) to developing countries. In 2007 when the program was announced, a vaccine to treat PCV in developing countries was in late-stage trials, so the idea of the AMC was not to incentivize the development of an entirely new vaccine, but rather to incentivize the scaling up of production and distribution capabilities for a vaccine that would be available soon. If a company agreed to provide 20 million doses of the vaccine per year for ten years at $3.50 per dose, they got $150M. This $150M is in addition to the $3.50 they already get per dose.
The AMC appears to have been incredibly successful. Three companies (GSK, Pfizer, and Serum Institute) are distributing the vaccine, and charging <$3 per dose (so they are charging even less than they are mandated by the terms of the ACM, making it seem unlikely that they will phase out production of the drug now that the 10 years are over). Over 50 million children received the vaccine per year, and an estimated 700,000 lives were saved. That’s astounding — almost as many people as died in the Civil War. And all saved in the past 10 years by a vaccine I knew nothing about until 2 weeks ago.
This is very exciting to me as someone who wants to see more of the world’s talent and capabilities being efficiently allocated towards our toughest problems. A great idea + organizational knowledge and international cooperation + generosity of donors + power of markets led to hundreds of thousands of lives saved. Potential solutions are out there — it just takes dedication, work, and cooperation to bring them to life.
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All my information comes from this working paper by Kremer, Levin, and Snyder.
Some other interesting tidbits:
Countries participating in the program had to cover part of the vaccine cost themselves roughly $0.20 per dose. Kremer et al. show that from a strictly financial perspective this doesn’t make that much sense — the 20 cents that GAVI saves per dose are not worth the possibility that takeup of the drug will be lower than it would have been if the vaccine was free. But they note that it still may be worth it to have small copayments to function as a market test to see if there is really a demand for these vaccines.
The WHO standard for a cost-effective intervention is $1,638 per DALY (DALY = Disability Adjusted Life Year. Basically, if you can allow someone to live an extra year for $1,638, that’s a cost-effective intervention). Kremer et al. don’t provide an estimated cost per DALY for this program because they don’t have the data to do so, and they’re good economists. But I’m not not a good economist and a lack of data isn’t going to stop me from making a back-of-the-envelop estimate:
The program cost $1.5B plus $3.50 per dose + ~$1 per dose in administration. In 2016 there were 160M doses distributed. So let’s say the overall program cost over the 10 years is $8.9B. ~700,000 lives were saved by the PVC vaccine. We don’t know how quickly and at what price the vaccine would have been brought to market in the absence of the AMC, but let’s say that the vaccine would have been on the market in each country just two years later without the AMC (and at the same $3.50 price). Then we should only count one-fifth of the 700,000 lives as being saved by the AMC, and we’d be looking at $63,571 per life saved, or ~$1,000 per DALY (assuming 60 year lifespan). So it seems reasonable to claim that the program was cost-effective by WHO standards.