Advance Market Commitment Concept & Development

1. Advance Market Commitment Concept & Development Tania Cernuschi Senior Manager, AMC Copenhagen, 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

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

4. 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

5. AMC Concept • 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.

6. AMC structure An AMC can be structured in many ways

7. 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

8. Why pneumococcus? • The decision to target the first AMC to pneumococcal vaccines was made by a Disease Expert Committee chaired by Dr. HetherwickNtaba, 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 concept

9. Which pneumococcal vaccine are we targeting? Source: Vaccine: pneumococcal vaccine – Technical Product Profile (TPP) http://www.vaccineamc.org/updatedec_08.html

10. 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.

11. The process Step 1 Donors provide AMC subsidy Donors Financial Support Step 3 Step 4 World Bank Financial Management for Donor Funds WB manages AMC subsidy disbursing it to UNICEF as needed UNICEF procures vaccines from manufacturers UNICEF Procurement Agency Entry into a Supply Agreement UNICEF Call for Supply Offers Manufacturers Develop and produce vaccines Manufacturer supply offer Step 2 Application for pre-qualification WHO Technical support Defines TPPs Pre-qualification WHO prequalifies pneumococcal vaccine GAVI Financial, Administrative, Programmatic support IAC assesses if the vaccine meets the Target Product Profile GAVI Strategic Demand forecast updated biannually GAVI and countries contribute to cost of vaccine Countries Decide to adopt vaccine and co-finance Vaccines are delivered to countries Application for vaccines

12. UNICEF calls for offers Million of doses 222 200 127 19 Source: AMC website http://www.vaccineamc.org/files/StrategicDemandForecast.pdf

13. Supply Commitments • 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) AMC Funds Available FIRM A gets $ 375M US$ 1.5 billion $ 1125M

14. Funding Sources $7 FIRM A US$ 375 M AMCsubsidy AMC Price per Dose Tail price cap $3.50 GAVI funding Country Co-pay ( $0.10 - $0.30 per dose initially) * $0 2 4 6 8 10 Years 1stEligible Vaccine available supplier’s share of AMC funds depleted Supply Commitment Fulfilled AMC Period Tail Period 10 yrs * Co-financing levels will be in line with the applicable GAVI co-financing policy.

15. 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 Example $7 Top up: + $ 5.00 AMCEnvelope AMC Price Tail Price $2.00 GAVI & Countries AMC Period Tail Period

16. What does this mean for GAVI countries? Same • 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 • 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

17. 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

18. 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

19. 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): • World Bank • WHO IFPMA DCVMN IAC’s roles: Approve and modify TPP AMC eligibility determination Monitoring Review and modification of AMC prices

20. Target results More than 7 million deaths averted by 2030

21. Next steps First call for offers Q3 (September 09) legal agreements signed on 12 June 2009 Vaccines could be delivered to countries Q1-Q2 2010 SDF v 0.1 published on AMC website (August 09) 2010 2009 First Supply Agreement potentially signed Q4 2009 First potential vaccine Available Q3-Q4 2009 Design Implementation

22. Thank you Source: GAVI