An Advance Market Commitment (AMC) is a financial mechanism that creates incentives to attract investment by the pharmaceutical industry into areas where the commercial rewards of the market are lacking. The GAVI Alliance pilot AMC, designed to deliver pneumococcal vaccines to the developing world, has already secured colossal donor funding and attention, including from the G8. But is it all that it's cracked up to be?

Laurent Gadot, health economist with MSF, looks at the design of the AMC pilot, and in light of the IGWG, assesses the possible contribution of AMCs to the field of medical R&D.

 In 2007, a World Health Assembly Resolution called on the WHO Director-General to encourage the development R&D funding mechanisms for discussion at the IGWG. These were to include proposals that address “the linkage between the cost of research and development and the price of medicines, vaccines, diagnostic kits and other health-care products”.

One example of a desperately-needed health tool is a new vaccine against pneumococcal disease. Over one and a half million people, most of them children, die each year of pneumonia, bloodstream infections and meningitis caused by pneumococcal bacteria.

A vaccine against pneumococcal disease, appropriate to the forms of the disease prevalent in rich countries, has actually been available for use in those countries since 2000. But as it doesn't target several of the strains of the disease prevalent in developing countries – where the largest burden of the disease lies - it is of little use to patients there.

Eight years later, we are still waiting for a new generation of pneumo-vaccines that can be used widely in Asia and Africa. Fortunately, new products – from Glaxo-SmithKline (GSK) and Wyeth – should be launched in the coming years. Any initiative that aims to get these important vaccines deployed in poor countries as soon as they come to the market in wealthier ones is therefore to be welcomed as an important contribution.

The donors that have pledged to finance GAVI's pilot pneumo-AMC will meet in May 2008 to finalise the deal. Yet many questions about the pilot AMC remain unanswered.

A US$ 1.5 billion carrot to industry
The main question obviously s the US$ 1.5 billion price tag. Could it be done for less? When the initial design of the pneumo-AMC was released in 2007, MSF commented to the GAVI expert group that the design of the AMC would generate a sizeable windfall to industry - around US$ 600 million of extra-profit, beyond the standard profit required to attract investment.

In other words, US$1.5 billion of public donors’ money would be going towards a project that could happen for around US$ 900 million, and still generate a fair profit to industry. Many inadequacies are apparently currently being addressed as GAVI embarks on a redesign process - but the carrot to industry is still as big.

For the most part, the AMC does not have to recoup the industry’s R&D costs. GSK and Wyeth’s new generation vaccines are approaching the end of development, so these costs are largely paid for – and their vaccines will be marketed in rich countries, so the firms can expect to see their R&D investment rewarded from sales there. The AMC would have to be attractive enough to act as an R&D incentive though for emerging suppliers, as their candidate vaccines are still far away from licensure. But their products will be launched much later - and as such much of the money in the AMC pot is likely to have been claimed.

Nor is the US$ 1.5 billion paying for the cost incurred by the firms to produce the goods. Under the terms of the AMC, developing countries that purchase the vaccines will be asked to pay US$1-2 per dose – and this is roughly equivalent to GAVI’s estimate for the cost of production.

For GSK and Wyeth then, the AMC is not paying for the cost of R&D or production. It is only aimed at paying back companies for their investment in production capacity,  acting as an incentive for the firms to dedicate sufficient production of vaccines for supply to poor countries.

So why such a hefty subsidy? The experience of another new vaccine initiative shows how much can be done - and for much less outlay. The conjugate meningitis A vaccine is being developed through grants for a total of US$ 70 million (a sum which pays for the R&D), and the products will be marketed at US$ 0.40 per dose.

When too much is not enough
Despite all this, GAVI has warned that the AMC subsidy might still not be attractive enough to get firms to participate. Does the carrot need to be so big for companies that they need to see marketing the vaccines in poor countries as a profitable venture on a par with marketing a blockbuster vaccine in rich countries?

It should be enough to reward companies participating in the pilot that the AMC provides a fair and positive return on investment. But if the firms stay away, it suggests that the high price of health products in rich countries acts as an indirect but powerful barrier to access to medicines in poorer countries, where the rewards cannot hope to compete.

Governments on the other hand may find it relatively easy to commit to AMCs. After all, within an AMC, donors do not have to pay if the industry fails to deliver the vaccines according to pre-determined specifications. But that aversion to risk is costly: as donors will only pay if eligible countries actually order a product, suppliers will ask for a higher price to compensate for that risk – legitimately so. Some form of advanced purchase commitments, which guarantee purchase, would be a more cost-efficient and simpler mechanism to convince suppliers to invest in the necessary production capacity.

Urgent need to review the price tag
As a proposal that seeks to make urgently needed vaccines available in developing countries, the pneumo-AMC must be welcomed, and the latest configuration of the AMC pilot is undoubtedly a step in the right direction to improve the design. But the economic simulations on which GAVI's expert group bases its recommendations must be made public in order that we may properly assess if the AMC can be implemented with significantly less money. Until that happens, the real mechanism of the AMC remains opaque.

Addressing the linkage between cost and price
As one of the funding mechanisms on the table at the IGWG, to what extent do advance market commitments answer to the Resolution's call? That AMCs seem to have the wind in their sails may be because they are only a minor adaptation of the present patent based market-driven system. They neatly sidestep any of the complex issues about intellectual property and R&D, and the need for health products offered at radically lower prices.
Governments should recognise that in developing policies for essential health R&D, we need to go well beyond the support for AMCs. Other alternative financing mechanisms, such as prize funds or an R&D treaty, may be better suited to solve problems of access to medicines and neglected disease R&D.

The IGWG is expected to promote alternative financing mechanisms – particularly ones that address the link between the cost of R&D and the price of products developed. The AMC, which does not address that link, cannot be the only proposal on the table.