Advance Market Commitment Concept & Development

Tania CernuschiSenior Manager, AMCCopenhagen, 26 August 2009 AMC Pneumo Pre-tender Meeting

2

Objectives

The problem

The AMC concept

The Pneumococcal AMC pilot

How does the pilot work?

Implications for countries

Some issues flagged by industry

Target results & next steps

Photo: GAVI-09-Indrias Getachew

R&D for Diseases Affecting Primarily Poor Countries

Little commercial investment to complement public resources

High and indivisible capital investment costs

Perceived small and risky market opportunity to recoup R&D costs:

Limited ability to pay of countries

Public Good nature of health R&D

Weak Intellectual Property rights

Anticipated time-inconsistent behaviour of donor agencies

Slow demand materialization

Source: G Finder Report 2008, the George Institute for International Health

Consequences

Investment for R&D to prevent/cure diseases primarily affecting poor countries is limited: $2.5 billion in 2007

Many needed vaccines are not developed

Existing vaccines do not meet developing countries’ needs for formulation, presentation, storage, and packaging

Existing vaccines are not available in enough quantities to meet large demand from developing countries

Lag of 10-15 years between the introduction of new vaccines in industrialised and in developing countries

The AMC is an up-front legally binding financial commitment by donors to support purchase of target vaccines for poor countries if and when they are developed.

The expected value of the financial commitment should be large enough to cover risks-adjusted costs of private investment for development of vaccines and scale-up of manufacturing capacity.

The AMC can spur increased commercial investment for vaccines of interest to the world’s poorest countries, consequently accelerating the introduction of needed vaccines.

AMC Concept

5

AMC structure

6

An AMC can be structured in many ways

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The Pneumococcal AMC pilot

Overarching goal: reduce morbidity and mortality from pneumococcal diseases. Target: save more than 7 million lives by 2030

Main objectives:

• Bring forward the availability of effective pneumococcal vaccines - scale up of production capacity.

• Accelerate development of second generation vaccines that meet developing country needs.

• Accelerate vaccine uptake - predictable vaccine pricing for countries and manufacturers.

• Test AMC concept

Pneumo AMC financial commitment: support pneumococcal vaccine market with US$ 1.5 billion

Why pneumococcus?

The decision to target the first AMC to pneumococcal vaccines was made by a Disease Expert Committee chaired by Dr. Hetherwick Ntaba, former Minister of Health, Malawi

High disease burden

Pneumo vaccines are likely to fit into existing delivery systems; concerns about growing antibiotic resistance

Economics, not science, is obstacle to introduction in poor countries

Good value for money: the pilot AMC will leverage the investments that industry has already made in R&D driven by affluent and middle-income markets

Importance of accelerating the development of new vaccines, capacity scale-up and reducing manufacturing costs

Quick measure of effectiveness of AMC concept8

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Which pneumococcal vaccine are we targeting?

Attribute Minimal Acceptable Profile

Vaccines serotypes• Must cover at least 60% of invasive disease isolates in target region• Must include serotypes 1,5,14

Target population Prevent disease among children < 5, in particular < 2

Dosage and scheduleCompatible with national infant immunisation programmes and no more than 3 doses in first year of life

Routes of administration Intramuscular or subcutaneous

Product presentation Mono-dose or low multi-dose

Product formulation Liquid formulation

Storage and cold chain Stable at 2-8 °C with minimum shelf life of 24 months

Product registration and pre-qualification

WHO pre-qualified

Source: Vaccine: pneumococcal vaccine – Technical Product Profile (TPP)http://www.vaccineamc.org/updatedec_08.html

How does the Pneumococcal AMC work?

Italy, UK, Canada, Norway, Russia, Bill & Melinda Gates Foundation have committed to support pneumococcal vaccine market: $ 1.5 billion (AMC subsidy).

Interested companies who develop an appropriate vaccine commit to supply certain quantities of the vaccine for 10 years.

As GAVI eligible demand the vaccine, companies receive $ 7 per dose (AMC price) for about 20% of the initial doses of vaccine - funded by the AMC subsidy; allows quick recouping of investment costs.

In exchange, companies are required to ensure the supply of the vaccine for the remaining doses at a price equal or below $3.50 per dose (tail price cap). Price close to manufacturing cost to be funded by beneficiary countries and GAVI.

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The processDonors

provide AMC subsidy

Entry into a Supply

Agreement

Application for vaccines

IAC assesses if the vaccine

meets the Target Product Profile

WHO prequalifies

pneumococcal vaccine

Application for pre-qualification

GAVI Strategic Demand forecast

updated biannually

UNICEF Call for Supply Offers

CountriesDecide to adopt vaccine and co-

finance

GAVIFinancial,

Administrative, Programmatic

support

WHOTechnical support

Defines TPPsPre-qualification

ManufacturersDevelop and

produce vaccines

UNICEFProcurement

Agency

Manufacturer supply offer

World BankFinancial

Management for Donor Funds

Vaccines are

delivered to

countries

UNICEF procures

vaccines from manufacturers

DonorsFinancial Support

WB manages AMC subsidy disbursing it to

UNICEF as needed

GAVI and countries

contribute to cost of vaccine

Step 1

Step 2

Step 3

Step 4

Million of doses

UNICEF calls for offers

127

222

200

Source: AMC website

http://www.vaccineamc.org/files/StrategicDemandForecast.pdf

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Supply Commitments

$ 1125M

AMC Funds Available

US$ 1.5 billion

FIRM A gets $ 375M

Suppliers make 10-year commitment to supply a share of the total demand forecast of 200 million doses annually.

The AMC provides a directly proportional share of the US$1.5 billion.

Example:Firm A makes an offer to supply 50M doses

(25% of 200M)

Firm A is entitled to US$ 375M

(25% of the total US$ 1.5B AMC)

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Funding Sources

AM

C

Pri

ce p

er

Do

se

AMC Period Tail Period

AMC subsidy

GAVIfunding

Country Co-pay ( $0.10 - $0.30 per dose initially) *

$7

$3.50

10 yrs

$0

Tail price cap

1stEligible Vaccine available

supplier’s share of AMC funds

depleted

10 Years2 64 8

Supply CommitmentFulfilled

FIRM A US$ 375 M

* Co-financing levels will be in line with the applicable GAVI co-financing policy.

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Example

AM

C

Pri

ce

TailPrice

AMC Period Tail Period

AMC Envelope

$7

$2.00

Firm A: •commits to supply 50M doses annually for 10 yrs –entitled to up to $375M of the total $1.5B AMC•sets its tail price at $2, then $ 375 M disbursed at a rate of $ 5.00 per dose (top up)•sells 75M doses at $7 (from $375 M/$5.00 )•Sells 425M doses at $2 (from 500M - 75M doses)•AMC period = 1.5 years (from 75M/ 50 M doses per yr)•tail period = 8.5 years

Top up: + $ 5.00

GAVI & Countries

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What does this mean for GAVI countries?

• Countries express their preference on pneumo vaccines

• GAVI co-financing and default policies will apply to the AMC without modifications

• Vaccines are procured through UNICEF

But different

Same

• Vaccines will be available in the right quantities to cover demand

• Availability of support funding is known years in advance

• The price of these vaccines for developing countries is known years before procurement starts

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Demand Risk

Purchase of vaccines from each supplier is dependent on demand

Source of risk: Risk is inherent in binding supply commitment Fear of demand over-estimation Funding contingent upon long-term ODA commitments and

country co-financing

Mitigation: AMC subsidy provides financing for capital cost Fast AMC subsidy payout for early cash flow Partial demand guarantee to ensure subsidy payments (45% of

one year demand – firm order timing) Opt-out provision if demand absent Production planning based on the rolling 12-months demand

forecast by UNICEF

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Economic Adjustments for Inflation

Inflation adjustment mechanism (Condition 8 T&Cs):

At request of manufacturers,

•IAC will increase tail price annually up to the cap at rate of inflation

•IAC will consider an increase in the tail price cap at rate of inflation:

• Each third anniversary of 12 June 2009 or

• Every time 7% cumulative inflation since 12 June 2009 or latest inflation review

Requests for increases above inflation rate must be accompanied by relevant Cost Information

Independent Assessment Committee (IAC)

Independent Committee of Experts in: Clinical performance & vaccine delivery systems; Public Health, Contract Law, Health Economics, Public/Private Finance, Vaccine Business Economics

Selected by IAC Selection Panel (chaired by GAVI – non voting):

1. IFPMA2. DCVMN

3. World Bank4. WHO

IAC’s roles:

1.Approve and modify TPP

2.AMC eligibility determination

3.Monitoring

4.Review and modification of AMC prices

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Target results

More than 7 million deaths averted by 2030

First call for offersQ3 (September 09)

First Supply Agreement

potentially signedQ4 2009

2010

Vaccines could be delivered to

countries Q1-Q2 2010

First potential vaccine

AvailableQ3-Q4 2009

2009

Next steps

legal agreements signed on 12 June

2009

ImplementationDesign

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SDF v 0.1 published on AMC website

(August 09)

Thank you

Source: GAVI