7 April 2008 — Norway is one of six donors that have put money on the table for a mechanism designed to provide incentive to pharmaceutical companies to develop and supply vaccines to developing countries.
The Advance Market Commitment (AMC) is a USD 1.5 billion carrot to industry. The whole experiment rides on setting the “right" price. Too high, and AMC could end up as a giant subsidy to drug firms. Too low and companies might not take the bait.
Though the concept of AMC has been around for over a decade, such an aid financing model has never been tried before. In its current form, it originates from a 2005 proposal by Harvard economist Michael Kremer and Ruth Levine of the Center for Global Development in Washington DC. This pilot AMC project aims to make pneumococcal vaccine available to the poor.
The win-win scenario, proponents say, is that donors pay nothing until a vaccine that meets World Health Organisation specs is in place, while industry is guaranteed a market that would otherwise be too risky to invest in.
If it works, the public health benefits could be enormous. Pneumonia and meningitis kill almost 800,000 children under age five each year, according to the WHO. Without AMC, there would be a time lag of some 15 years between release of a vaccine in rich countries and release in poor countries. With AMC in place, pneumococcal vaccine could be available in the poorest countries as early as 2010.
AMC is being led by Italy with a USD 635 million contribution. Other G8 donors are the United Kingdom (USD 485m), Canada (USD 200m) and Russia (USD 80m). They are joined by Norway and the Gates Foundation (USD 50m each).
Other donors not contributing to this AMC, like the United States, Spain and Australia, have indicated interest in supporting AMCs for the development of vaccines for other key diseases - malaria and tuberculosis are mentioned in particular.
At a key meeting next month, the donors will decide on the price per dose that will be the cornerstone of this AMC deal.
If the price is too high, the long-term demand from poor country governments might not materialise, which in turn would make it less interesting for industry to invest in additional manufacturing capacity. If the price is too low, industry might not take the bait at all.
“For me the main question is ‘how big does the carrot have to get’?" says Tido von Schoen-Angerer, Director of the Campaign for Access to Essential Medicines at Médecins Sans Frontières. He welcomes the AMC initiative, and supports the choice of pneumococcal disease for this pilot, but points to major uncertainties in finding a price that will work. He notes that all financial modelling is limited by the fact that the real costs borne by industry of research and increased production capacity remain unknown.
Working price
The working price mentioned so far has been USD 5-7 per dose. Donald Light at the Center for Bioethics in Philadelphia has argued in the The Lancet that this is far too expensive, and will result in much of the AMC funds ending up in industry’s pockets. Tore Godal, former Executive Director of GAVI, which administers AMC, and an advisor to the Norwegian Prime Minister, agrees that USD 5 is too high. He says in the Norwegian daily Aftenposten that he hopes the price will eventually be pushed down once production in developing countries gets underway.
Yet there are indications that industry is lukewarm about AMC. And Development Today has learned that a price as high as USD 10 per dose is being floated.
An expert group that includes one of the original proponents of this AMC, Ruth Levine, recently submitted its final report with recommendations to the donors on the AMC design.
The group concludes that USD 1.5 billion is enough money. But one of its main recommendations - “frontloading" of payment - sweetens the deal for industry considerably. Frontloading involves paying a large portion of a firm’s share of AMC in an early phase of the supply period in order to make participation even more attractive. The donors have accepted this recommendation.
Groups like MSF and even some donors point to pharmaceutical companies’ corporate social responsibility and their “moral obligation" to make existing vaccines available for the poor at affordable prices.
But that is not what AMC is about. Rather, it aims to find the pain threshold of acceptable profit margin for industry.
At a GAVI telephone press briefing to which DT was invited, Levine noted that in designing AMC her expert group modelled what the financial returns for industry are likely to look like. This, she insisted, is not because providing a profitable business is the end goal of AMC, “but rather because we recognise that we can’t expect to get adequate supply if firms are in effect losing money on the deal".