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[NOTE: This is an UPDATE to a case study initially published in 2009. Read the original case study for appropriate context.]

Vaccines are among the most effective interventions in the public health toolbox. Yet few are ever devised to prevent diseases that primarily affect the developing world. In the absence of a profitable end-market, vaccine manufacturers have little incentive to take on the risk of developing such products. Moreover, new vaccines of relevance to all people typically reach low-income countries only decades after they have been rolled out in wealthy ones.

To address this market failure, an Advanced Market Commitment (AMC) for pneumococcal vaccines was launched in February, 2007, with $1.5 billion in funds from Italy, the United Kingdom, Canada, Russia, Norway and the Bill & Melinda Gates Foundation. Pneumococcal disease was an ideal if not obvious choice: the illness takes 1.5 million lives each year, mostly of children in Asia and Africa. The pilot AMC guarantees manufacturers a high, introductory price of U.S. $7 for each dose of a novel and suitable pneumococcal vaccine for a defined period. This price—guaranteed for about 20 percent of the doses manufacturers commit to sell through the AMC—is intended to help cover the costs of building production capacity. In return, the manufacturers sign a binding agreement to provide additional doses at a “tail price” of $3.50 for at least a decade.

Pledging $1.5 billion up front, says Susan McAdams, Director of Multilateral and Innovative Financing at the World Bank, gave the pilot AMC some credibility. Further, since manufacturers were consulted extensively on the AMC’s design, they were invested in its success. The prices offered mattered as well. “If the tail price had been too low,” says McAdams, “they probably would not have participated anyway. But we were in the right ball park—and it was a 95% reduction in price, which is a big deal.”

Shepherded into existence with the oversight of the World Bank and the GAVI Alliance, the pilot AMC became operational in September 2009, when UNICEF issued its first tender. The pharmaceutical company GlaxoSmithKline signed on to provide 30 million doses each year of a pneumococcal conjugate vaccine (PCV) covering 10 serotypes of the Streptococcus pneumoniae, beginning in January, 2012. Its competitor, Pfizer, committed to the same quantity of a PCV covering 13 serotypes, beginning a year later. Both also agreed to supply their vaccines in the interim, as they scaled up production capacity. The two vaccines, according to the Pneumococcal Global Serotype Project, should prevent more than 70% of serious pneumococcal infections in Africa and Asia.

Though critics continue to question the very rationale for providing subsidies to a profitable global industry, there’s little doubt the pilot AMC is fulfilling its own objectives. In December 2010, Nicaragua became the first country to immunize its children with the new vaccines. Since then, 15 others — Kenya, Guyana, Sierra Leone, Yemen, Honduras, Democratic Republic of the Congo, Mali, Central African Republic, Gambia, Benin, Cameroon, Rwanda, Burundi, Ethiopia and Malawi— have added them to vaccination schedules. Some 3.6 million children have so far been vaccinated with the PCVs, within months of the vaccines being rolled out in the US and Europe.

“There were far fewer issues during the launch and rollout than there were during the design phase of the AMC because of how binding and structured the AMC deal was.” says Tania Cernuschi, senior manager at GAVI’s Accelerated Vaccine Introduction Initiative (AVI). “The roles of different organizations were really well set out.” GAVI, working through AVI, funds and coordinates the AMC’s implementation; the World Bank handles the $1.5 billion in donor funds; the World Health Organization provides technical advice and prequalifies new PCVs; and UNICEF is charged with procuring and distributing the new vaccines.

Similarly, establishing immutable terms for supply and payment has provided an essential measure of predictability to the AMCs arrangements. During times of financial hardship for international vaccine funding, recalls Cernuschi, several observers raised the possibility of accessing AMC funds to help fill the gap. Any attempt to do so, however, would have hurt the credibility of the AMC. Such ideas didn’t get very far, says Cernuschi, because the AMC’s terms are binding, and any such measure would have required the sanction of every participating partner and funder.

On the other hand, she notes, the partners who formulated the AMC overlooked the need to determine in advance exactly which countries would be eligible for receiving the pneumococcal vaccines. As a consequence, when GAVI changed the eligibility criteria for countries receiving GAVI support, the changes reduced the peak future demand for the PCVs. This would have adversely affected participating nations, manufacturers and the AMC. Fortunately, a collaborative effort of the AMC partners convinced the GAVI board to continue to provide the PCVs to all countries that were eligible for GAVI support at the time the AMC agreements were signed.

The AMC has clearly sped delivery of the novel vaccines to low-income countries. By 2015, some 58 countries will have integrated the vaccine into their immunization schedules, reaching 90 million children. A report released by the U.S.-based International Vaccine Access Center finds that by delivering PCVs to developing countries far faster than the other major vaccine against pneumonia—the Haemophilus influenzae type B vaccine—the AMC will help to protect 158 million additional children in developing countries from pneumonia over the next decade.

According to another paper published in the journal International Health, the new vaccines could save the lives of three to four million children over the next decade. That study found that under the terms and prices of the AMC, the PCVs are likely to be highly cost-effective in 69 out of the 72 GAVI-eligible countries; between 2010 and 2019, their use could avert between U.S. $986 million to U.S. $1.2 billion in direct and indirect costs of pneumococcal disease.

So has the AMC worked? “The reason it’s called an AMC is because it is designed to create a market, not just a subsidy,” notes McAdams. “For that you need a developing country to put out a generic that will create competition and drive down the prices of the vaccines.” If that is the ultimate measure of success, the jury remains out on the AMC. Several manufacturers in emerging economies—including the China National Biotec Group and the Serum Institute of India—are developing vaccines for the AMC, but the earliest licensure isn’t likely to occur before 2016.

By Unmesh Kher