Over on Huffington Post, Seth Berkley and Orin Levine make a plea for the United States to consider an Advance Market Commitment for an AIDS vaccine:
Traditionally it has taken up to 20 years for new vaccines to reach children in developing countries. The AMC can fix this inequity. Through the pneumococcal AMC, and with the support of the GAVI Alliance which administers it, children in Rwanda and the Gambia are benefiting from pneumococcal vaccines even before children in wealthy countries such as Austria and Japan. What’s more, the mechanism is spurring development and deployment of two newer vaccines that extend protection against strains of pneumococcal disease most common in the developing world. Thanks to such advances, the accelerated use of pneumococcal vaccination is projected to save 5 to 7 million lives by 2030.
The idea (which is mainly down to Michael Kremer at Harvard) is simple: donors promise in advance that if somebody invents and delivers a vaccine that meets certain requirements, then donors will pay for it to be bought in large quantities. That promise may provide sufficient certainty for the private sector to invest in developing new products, and to build large-scale manufacturing facilities. Take a look at this video to see what a difference Michael’s idea is already making.
From a public policy point of view, a nice feature of this schemes is that if it doesn’t work, it doesn’t cost anything. If you make a promise to purchase an AIDS vaccine when one is developed, but scientists are unable to crack the puzzle, then you have not spent a dime. You are only committed to buying an AIDS vaccine when it is developed – which, let’s face it, you would have done anyway. By making a firm commitment in advance, you change the incentives for the private sector. (The economics is set out here in an article in The Economists’ Voice.)
This scheme is designed to tackle an economic problem that runs deep in most market economies. We typically set up incentives for firms to innovate by promising them a temporary monopoly (through patents) if they are successful. This enables a firm to charge a premium for a limited period to recoup its investment and to compensate it for the risk it has taken. But this scheme only works if the consumers are willing and able to pay that premium. (And even then, it has a social and economic cost because it excludes consumers too poor to pay the premium). The scheme doesn’t work at all for products most of whose consumers are very poor – such as people who get malaria or who need cassava plants that are resistant to attack by the mosaic virus. That’s why firms spend ten times as much hunting for a cure for baldness as they do hunting for a cure for malaria. The Advance Market Commitment makes investment in those products much more attractive to the private sector, because now there is an opportunity to charge a premium (paid by the donors) even though the ultimate consumers are poor.
We will be in a better position to judge the effectiveness of the pneumococcal AMC when kids are actually getting injections paid for under the AMC. An important test will be whether we see pharmaceutical firms returning to the development and large-scale production of vaccines for developing countries (and there are some early signs that this is happening).
But the Pneumococcal AMC has already taught us that it is possible to navigate the legal, financial, commercial and political waters to put in place a legally-binding multi-donor commitment to buy a future product. This is the result of outstanding work done by the Center for Global Development (in which I am proud to have played a small, walk-on part). Early nay-sayers complained that an AMC was theoretically attractive but impossible in practice. CGD played a critical role by developing a practical way of implementing the idea, which opened the door to the implementation of the pneumo AMC.
Now that it has been shown that an AMC is technically possible, we should be looking at:
- designing an AMC for an “early stage” vaccine such as AIDS;
It is occasionally said that an AMC works for a late stage product – ie one that has already been largely developed but needs incentives to get it produced – but that it would not be appropriate for products still requiring substantial research and development. There is no logic to this argument. The original modelling for an AMC was done for an early stage vaccine, and I have never seen a cogent case against using the approach (alongside conventional government funding for basic research) for products at an early stage of development.
- how to get the United States involved
This approach – of providing incentives for private sector entrepreneurship and risk taking to be involved in products for developing countries – ought to appeal to US policy-makers, and I have never understood why the US stood aside from the first AMC. There are some technicalities involved making commitments in the US budget process but these are not insurmountable. Let’s hope the US will be part of the next AMCs.
- using the AMC approach for other health products
In principle, the AMC could be used to encourage the development and manufacture of a range of other health products such as drugs, diagnostics and surgical instruments
- using the AMC to promote other forms of other research and development
we should consider whether the AMC might be a good approach for donor funding of other forms of research and development for products mainly used in the developing world, such as new agricultural varieties, solar energy products, and ways of providing clean water.
- the possibilities for other forms of “pull” incentive for research and development
The AMC is not the only possible pull mechanism to incentivise research for products needed in developing countries. For example, donors might set up schemes to buy out patents, prizes or other rewards for success (e.g. payments linked to DALY’s averted or social rates of return). We should look again at the costs and benefits of these different ways of getting the private sector involved.