ADVANCED MARKET COMMITMENTS
v1.0 researched and written by Danielle Navarro, edited by Suerie Moon, last updated February 2019
The literature around advanced market commitments is considerable*, with most of the discussion focusing on the design and implementation of the pilot Advance Market Commitment (AMC) for pneumococcal vaccines implemented by the GAVI Alliance (GAVI). Most of the literature seems to have been produced from 2005 to 2011.
Advance Market/Purchase Commitment; Guaranteed Purchase
SYNTHESIS OF THE LITERATURE
PROPOSED DESIGN FEATURES
In 2005, the Report of the Center for Global Development’s (CGD) AMC Working Group recommended the creation of an AMC, which attempted to replicate the pharmaceutical market conditions and incentives existing in developed countries, in order to incentivize commercial research, development and production of vaccines targeting developing country diseases (Barder, Levine, and Kremer 2005).
The AMC proposal had the following key elements: creating an approximately USD 3 billion-worth market for suppliers, providing a guaranteed floor price for a fixed quantity as well as co-payments from sponsors topping-up the amounts purchased by developing countries, defining the specifications for the expected vaccine, committing the suppliers to a specified long-term selling price for the vaccines, making vaccine purchase dependent on actual demand from developing countries, and having an “independent adjudication committee” to resolve potential disputes.
The AMC was intended to address both the lack of R&D for vaccines targeting developing country health needs and the problem of low manufacturing volumes and high prices of vaccines, both linked to the limited expected market size in developing countries (Barder, Levine, and Kremer 2005).
Berndt et al. (2007) calculated that, for an AMC to offer comparable revenues as generated by commercial pharmaceutical products, it should offer an estimated net present value of USD 3.1 billion in revenues (Berndt et al. 2007). Barder, Kremer, and Williams (2006) argued that the AMC was a cost-effective means of addressing the lack of R&D on vaccines for neglected diseases (Barder, Kremer, and Williams 2006).
Some papers identified and examined issues concerning the conceptual design of AMCs, such as: (i) credibility of offer, (ii) identifying in advance the product requirements, purchase price and quantity, (iii) handling products developed after the first entrant, (iv) susceptibility to politically-motivated influence and (v) limited to pre-selected targeted diseases and treatments (Towse and Kettler 2005; Berndt and Hurvitz 2005; Ravvin 2008). Whether the products dealt with are “technologically close” or “technologically distant” has been noted to affect the ideal design of AMCs (Kremer and Williams 2010; Kremer, Levin, and Snyder 2015)
Sonderholm (2010, 2011) argued against the AMC recommended by the CGD based on the following rationale: (i) it is demand-based, which can lead to wasting of funds on “medically inferior products” if demanded by governments for “non-medical reasons”, e.g. cultural norms, instead of a similarly priced “medically superior product” in the situation of multiple licensed products (Sonderholm 2010), and (ii) it has features amounting to a “winner takes all” situation observed in prize proposals (Sonderholm 2011). Light (2005) argued that the CGD’s AMC model would fail to ensure the sustainability of the supply of vaccines (Light 2005). Light (2009) also argued that the pilot AMC was in reality an “advanced purchase commitment,” which did not address the need for R&D efforts for new vaccines, and maintained the status quo of strong intellectual property monopolies over medicines (Light 2009).
IMPLEMENTATION OF PILOT AMC
In 2009, the pilot AMC for pneumococcal vaccines (PCV) was launched. It had a funding pledge amounting to USD 1.5 billion from 5 governments and the Bill and Melinda Gates Foundation (BMGF), and was implemented by GAVI, the World Bank, United Nations Children’s Fund and World Health Organization. The AMC was legally binding in character, and invited vaccine producers to bid to supply a share of the annual estimated demand of 200 million doses of PCV for a period of 10 years. Chosen producers were bound to set their vaccine purchase price, paid for by GAVI and participating countries, at a maximum amount of USD 3.50 per dose, which is referred to as the “tail price.” Further, for about 20% of the initial supply, the producers were additionally compensated through AMC funds in order to bring the total vaccine price to USD 7. A notable feature of the AMC was that payment would only be triggered if a vaccine was actually developed, manufactured and subsequently purchased by developing countries (Hargreaves et al. 2011). Annual reports on the pilot AMC covering the period between 2009 to 2017 are available here: https://www.gavi.org/funding/pneumococcal-amc/. GAVI commissioned evaluations of the performance of the pilot AMC in 2016 as well as its process and design in 2013, which are available here: https://www.gavi.org/library/gavi-documents/evaluations/.
Hargreaves et al. (2011) noted that, while the AMC was originally conceptualized to promote R&D for malaria, tuberculosis and HIV vaccines, the pilot AMC focused on PCV which had either already been marketed or was about to obtain regulatory approval in the US; therefore, the AMC could facilitate access for developing countries by encouraging regulatory compliance and manufacturing capacity among PCV suppliers (Hargreaves et al. 2011). Cernuschi et al. (2011) discussed two challenges of the pilot AMC: encouraging effective participation among developers of first and second-generation vaccines, and dealing with uncertainties in demand and donor-reliant funding (Cernuschi et al. 2011). In conducting an initial economic evaluation of the pilot AMC, Synder, Begor, and Berndt (2011) concluded that AMCs offering higher profit margins would proportionately increase manufacturers’ interest in R&D of new pharmaceutical products (Snyder, Begor and Berndt 2011).
CRITICISMS OF PILOT AMC
The AMC has also been critiqued. Plahte (2012) provided initial findings on the impact of the pilot AMC, and concluded that the design of the AMC was unsuitable to vaccine producers from developing countries, the development of the PCV vaccines manufactured by GlaxoSmithKline (GSK) and Pfizer were not induced by the creation of the AMC and that there was a lack of evidence to back the creation of subsequent AMCs (Plahte 2012). Wilson (2010) argued that the vaccines procured through the AMC could also have been bought at a lower price with existing procurement mechanisms, i.e. through UNICEF. Médecins Sans Frontières (2011) noted that the pilot AMC was not only purchasing the vaccines from GSK and Pfizer at £2 per dose but also subsidizing each company with £137 million. MSF argued that these subsidies were unwarranted considering that these vaccines were sold in both developed and developing countries, and had long been commercially available (Médecins Sans Frontières 2011). Light (2011) argued that the AMC faced a funding challenge because that GAVI agreed to (i) decrease the co-payment amounts by the majority of eligible countries to about $0.30 and (ii) to shoulder a “tail price ceiling” of $3.50, which was too high (Light 2011).
Study of effectiveness of AMCs in driving early-stage and/or late-stage R&D for vaccines and other pharmaceutical products
Analysis of AMC’s ability to incentivize supplier competition and provide security of supply
CITED PAPERS WITH ABSTRACTS
Abbott, Frederick. 2016. “Excessive Pharmaceutical Prices and Competition Law: Doctrinal Development to Protect Public Health.” UC Irvine Law Review 6 (3): 281."Abstract: Public health budgets and individual patients around the world struggle with high prices for pharmaceutical products. Difficulties are not limited to low income countries. Prices for newly introduced therapies to treat hepatitis C, cancer, joint disease and other medical conditions have entered the stratosphere. In the United States, state pharmaceutical acquisition budgets are at the breaking point -- or have passed it -- and treatment is effectively rationed. Competition/antitrust law has rarely been used to address “excessive pricing” of pharmaceutical products. This is a worldwide phenomenon. In the United States, the federal courts have refused to apply excessive pricing as an antitrust doctrine, either with respect to pharmaceutical products or more generally. Courts in some other countries have been more receptive to considering the doctrine, but application in specific cases has been sporadic, including with respect to pharmaceuticals. This remains a paradox of sorts. Competition law experts acknowledge that one of the principal objectives of competition policy is to protect consumers against the charging of excessive prices. The currently preferred alternative is to address the “structural problems” that allow the charging of excessive prices. That is, “fixing the market” so that the underlying defect by which excessive prices are enabled is remedied. There is a fundamental problem with the “fixing the market” approach when addressing products protected by legislatively authorized market exclusivity mechanisms such as patents and regulatory marketing exclusivity. That is, mechanical aspects of the market are not broken in the conventional antitrust sense. Rather, the market has been designed without adequate control mechanisms or “limiters” that act to constrain exploitive behavior. Political institutions, such as legislatures, that might step in are constrained by political economy (e.g., lobbying), and do not respond as they should. Competition law and policy should develop robust doctrine to address excessive pricing in markets lacking adequate control mechanisms. This article will focus specifically on the pharmaceutical sector because of its unique structure and social importance. This focus is not intended to exclude the possibility that development of excessive pricing doctrine would be useful in other contexts. This article is divided into two parts. The first addresses competition policy and why it is appropriate to develop the doctrine of excessive pricing to address distortions in the pharmaceutical sector. The second addresses the technical aspect of how courts or administrative authorities may determine when prices are excessive, and potential remedies. The policy prescription of this article is twofold: first, the United States should incorporate excessive pricing doctrine in its antitrust arsenal, and; second, other countries should maintain the status quo with respect to multilateral competition rules that allow them flexibility to develop and refine doctrine, including excessive pricing doctrine, that is best suited to their circumstances and interests. Link: https://scholarship.law.uci.edu/ucilr/vol6/iss3/3/
Heller, Peter S. “The Prospects of Creating ‘Fiscal Space’ for the Health Sector.” Health Policy and Planning 21, no. 2 (March 1, 2006): 75–79. https://doi.org/10.1093/heapol/czj013."Abstract: Not Available Link: https://academic.oup.com/heapol/article/21/2/75/554947
Lexchin, Joel. 2015. “Drug Pricing in Canada.” In Pharmaceutical Prices in the 21st Century, 25–41. Adis, Cham. https://doi.org/10.1007/978-3-319-12169-7_2."Abstract: Not available Link: https://link.springer.com/chapter/10.1007/978-3-319-12169-7_2
Love, James. 2012. “Affidavit: Natco Pharma Limited versus Bayer Corporation.” https://www.keionline.org/sites/default/files/aff-jameslove_13Feb2012_as_Filed.pdf."Abstract: Not available Link: https://www.keionline.org/sites/default/files/aff-jameslove_13Feb2012_as_Filed.pdf
Ottersen, Trygve, Riku Elovainio, David B. Evans, David McCoy, Di Mcintyre, Filip Meheus, Suerie Moon, Gorik Ooms, and John-Arne Røttingen. 2017. “Towards a Coherent Global Framework for Health Financing: Recommendations and Recent Developments.” Health Economics, Policy, and Law 12 (2): 285–96. https://doi.org/10.1017/S1744133116000505."Abstract: The articles in this special issue have demonstrated how unprecedented transitions have come with both challenges and opportunities for health financing. Against the background of these challenges and opportunities, the Working Group on Health Financing at the Chatham House Centre on Global Health Security laid out, in 2014, a set of policy responses encapsulated in 20 recommendations for how to make progress towards a coherent global framework for health financing. These recommendations pertain to domestic financing of national health systems, global public goods for health, external financing for national health systems and the cross-cutting issues of accountability and agreement on a new global framework. Since the Working Group concluded its work, multiple events have reinforced the group’s recommendations. Among these are the agreement on the Addis Ababa Action Agenda, the adoption of the Sustainable Development Goals, the outbreak of Ebola in West Africa and the release of the Panama Papers. These events also represent new stepping stones towards a new global framework. Link: https://www.cambridge.org/core/journals/health-economics-policy-and-law/article/towards-a-coherent-global-framework-for-health-financing-recommendations-and-recent-developments/32B84686FD13D7CB340643D798832095
Wirtz, Veronika J., Hans V. Hogerzeil, Andrew L. Gray, Maryam Bigdeli, Cornelis P. de Joncheere, Margaret A. Ewen, Martha Gyansa-Lutterodt, et al. 2017. “Essential Medicines for Universal Health Coverage.” The Lancet 389 (10067): 403–76. https://doi.org/10.1016/S0140-6736(16)31599-9."Abstract: Not available Link: https://www.thelancet.com/action/showPdf?pii=S0140-6736%2816%2931599-9
World Health Organization. n.d. “Essential Medicines.” WHO. http://www.who.int/medicines/services/essmedicines_def/en/.Abstract: Not available Link: http://www.who.int/medicines/services/essmedicines_def/en/
Xu, Ke, David B Evans, Kei Kawabata, Riadh Zeramdini, Jan Klavus, and Christopher J L Murray. 2003. “Household Catastrophic Health Expenditure: A Multicountry Analysis.” The Lancet 362. http://www.who.int/health_financing/documents/lancet-catastrophic_expenditure.pdf."Abstract: Not available Link: http://www.who.int/health_financing/documents/lancet-catastrophic_expenditure.pdf
* For the purposes of this review, we have established three categories to describe the state of the literature: thin, considerable, and rich.
- Thin: There are relatively few papers and/or there are not many recent papers and/or there are clear gaps
- Considerable: There are several papers and/or there are a handful of recent papers and/or there are some clear gaps
- Rich: There is a wealth of papers on the topic and/or papers continue to be published that address this issue area and/or there are less obvious gaps
Scope: While many of these issues can touch a variety of sectors, this review focuses on medicines. The term medicines is used to cover the category of health technologies, including drugs, biologics (including vaccines), and diagnostic devices.
Disclaimer: The research syntheses aim to provide a concise, comprehensive overview of the current state of research on a specific topic. They seek to cover the main studies in the academic and grey literature, but are not systematic reviews capturing all published studies on a topic. As with any research synthesis, they also reflect the judgments of the researchers. The length and detail vary by topic. Each synthesis will undergo open peer review, and be updated periodically based on feedback received on important missing studies and/or new research. Selected topics focus on national and international-level policies, while recognizing that other determinants of access operate at sub-national level. Work is ongoing on additional topics. We welcome suggestions on the current syntheses and/or on new topics to cover.