Advance Market Commitments for Vaccines Working Paper and Spread Sheet

43 Pages Posted: 2 May 2007

See all articles by Ernst R. Berndt

Ernst R. Berndt

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Rachel Glennerster

Massachusetts Institute of Technology (MIT) - Department of Economics

Michael Kremer

Harvard University - Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER); Center for Global Development; Harvard University - Harvard Kennedy School (HKS)

Jean Lee

Harvard University

Ruth Levine

Center for Global Development

Georg Weizsacker

Humboldt University Berlin; DIW Berlin

Heidi L. Williams

MIT Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 2006

Abstract

The G8 is considering committing to purchase vaccines against diseases concentrated in low-income countries (if and when desirable vaccines are developed) as a way to spur research and development on vaccines for these diseases. Under such an "advance market commitment," one or more sponsors would commit to a minimum price to be paid per person immunized for an eligible product, up to a certain number of individuals immunized. For additional purchases, the price would eventually drop to close to marginal cost. If no suitable product were developed, no payments would be made. We estimate the offer size which would make revenues similar to the revenues realized from investments in typical existing commercial pharmaceutical products, as well as the degree to which various model contracts and assumptions would affect the cost-effectiveness of such a commitment. We make adjustments for lower marketing costs under an advance market commitment and the risk that a developer may have to share the market with subsequent developers. We also show how this second risk could be reduced, and money saved, by introducing a superiority clause to a commitment. Under conservative assumptions, we document that a commitment comparable in value to sales earned by the average of a sample of recently launched commercial products (adjusted for lower marketing costs) would be a highly cost-effective way to address HIV/AIDS, malaria, and tuberculosis. Sensitivity analyses suggest most characteristics of a hypothetical vaccine would have little effect on the cost-effectiveness, but that the duration of protection conferred by a vaccine strongly affects potential cost-effectiveness. Readers can conduct their own sensitivity analyses employing a web-based spreadsheet tool.

Keywords: advance market commitment, vaccine, disease, HIV/AIDS, malaria, tuberculosis, cost-effective

JEL Classification: I11, I12, I10

Suggested Citation

Berndt, Ernst R. and Glennerster, Rachel and Kremer, Michael R. and Lee, Jean and Levine, Ruth and Weizsacker, Georg and Williams, Heidi L., Advance Market Commitments for Vaccines Working Paper and Spread Sheet (August 2006). Center for Global Development Working Paper No. 98. Available at SSRN: https://ssrn.com/abstract=982966 or http://dx.doi.org/10.2139/ssrn.982966

Ernst R. Berndt (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Rachel Glennerster

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Michael R. Kremer

Harvard University - Department of Economics ( email )

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Center for Global Development

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Harvard University - Harvard Kennedy School (HKS) ( email )

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Jean Lee

Harvard University ( email )

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Ruth Levine

Center for Global Development ( email )

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Georg Weizsacker

Humboldt University Berlin ( email )

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Heidi L. Williams

MIT Department of Economics ( email )

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