How do Advance Market Commitments work ?
The basic functioning mechanism of an AMC is as follows:
1) A donor organisation commits a certain amount of money (e.g. US$30 million) to subsidise a health product (e.g. a diagnostic test, a vaccine) that does not exist yet, on the condition that any product developed meets certain criteria, including safety and efficacy. The donor agrees to subsidise a pre-determined quantity (e.g. 10 million doses) of the product, suppliers agree to sell it at a pre-determined price (e.g. US$5/dose), part of which will be paid for by the donor (e.g. US$3/dose).
2) For the AMC to provide enough incentive for companies to participate, the total AMC (i.e. the sum of money that all the donors involved in the AMC have agreed to spend on subsidising the finished product) must cover both the actual costs of R&D and manufacturing capacity for the product, and a premium or incentive for companies to invest in developing the product. The incentive has to be large enough to cover the industry’s perception of its risk, or it will simply not participate in the AMC.
3) Once a product that meets the standards is developed, certain countries are deemed eligible to purchase the product at a discounted price (in this example, US$2/dose). Eligible countries that want to use the product thereby contribute a small amount to the overall costs of the product. This small amount is known as the ‘co-payment’.
4) The result of this transaction is that a product meeting certain criteria of safety, efficacy etc. is made available to patients in developing countries, against a heavily subsidised price.
5) Once the funds in the AMC have been used up, developing countries will continue to pay for the products they buy. There will be no more donor subsidy. Instead, the company commits to sell the product at a lower and sustainable price, known as the tail price.
Proponents of the AMC mechanism argue that it is an efficient idea that avoids wasting public money on unsuccessful projects or on products developing countries would end up not using. Indeed, an AMC is not a purchase guarantee, as the companies will only be paid if recipient countries decide to buy the products. If the product fails to respond to the needs of developing countries, taxpayers’ money is not wasted.
Supporters of AMCs also argue that it is a very flexible instrument. Each AMC can be structured to suit the individual objectives of the donor country or organisation. It is possible to manipulate the key elements of each AMC, for example by varying the price per dose, the number of doses, the time duration of the AMC, the amount eligible countries will pay, or the tail price to be paid once the AMC funds are empty.
These variations have a considerable impact on the coverage of the AMC. For example, if the AMC establishes a high price per product, then the AMC money will run out faster, and fewer doses will be subsidised. The bulk of the AMC money will go to the first firm that gets a product to market meets its commitment to the donors.
A lower price per product, on the other hand, will allow for larger quantities. This will extend the duration of the AMC and could lead to support the development of second-generation products, as there is still money left in the pot that encourages firms to invest in R&D.
These elements are determined for each AMC with calculations, estimates and hypotheses that take into account R&D costs, probabilities of success, demand forecasts, date of launch, expected returns on investment, and so on