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«. Ministero dell’Economia e delle Finanze Background papers to Advanced Market Commitments for vaccines A new tool in the fight against disease and ...»

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Ministero dell’Economia e delle Finanze

Background papers to

Advanced Market Commitments for vaccines

A new tool in the fight against disease and poverty

Report to the G8 Finance Ministers

Giulio Tremonti

Minister of the Economy and Finance, Italy

London, December 2, 2005

Table of contents










The papers collected here provide the analysis underpinning Minister Giulio Tremonti’s Report to the G8 Finance Ministers Advanced Market Commitments to Vaccines. A new tool in the fight against disease and poverty. They are the fruit of a collective work carried out by a team at the Italian Ministry of the Economy and Finance, Michael Kremer, Owen Barder, Cheri Grace and a team at World Bank led by Amie Batson and Susan McAdams with guidance from Geoffrey Lamb and Jean-Louis Sarbib, with the contributions of Samantha Naidoo, Alastair West, John Hurvitz, Roy Widdus and Applied Strategies Consulting.



This paper discusses the rationale for AMCs. The main points are:

Immunization is a very cost-effective development policy; paying for vaccines is a very welltargeted and effective form of aid.

R&D for medicines for rich countries is funded by a mixture of public funding and private investment. But for diseases concentrated in poor countries, there is insufficient private investment.

This gap in the pipeline reduces the effectiveness of public and philanthropic funding of basic research.

There are two important challenges. First, vaccines are not being developed for diseases which mainly affect poor countries. Second, vaccines for rich-country diseases are not being made available quickly and affordably in poor countries.

Two market failures contribute to these problems. First, R&D is a global public good. This means that in the absence of a coordinated policy intervention there will either be inefficiently little innovation, or the resulting products will be inefficiently expensive. Second, policy-makers’ incentives are time inconsistent – oncea vaccine is developed, policy-makers’ interest in creating incentives for R&D are overtaken by the need to ensure affordable and widespread access to the vaccine. Knowing that policy-makers’ incentives will change in the future, firms have little incentive to invest today.

AMCs correct both these market failures. They create a differential between the price needed to reward the company for its R&D and the lower price needed to ensure optimal access to the product, thus reconciling the conflict between these two objectives. They also limit policy-makers’ future discretion, preventing them from later re-optimising and reducing the price after a vaccine has been developed.

The goals of AMCs are to encourage private sector firms to accelerate the discovery of new vaccines; develop effective and safe vaccines; develop second and subsequent generation products that improve on the first; invest in large volume production with low unit costs; reliably provide vaccines at very low prices in the long term; and use their expertise, resources and managerial drive to complement public sector research. Other interventions – such as the establishment of a purchase fund without a legally binding commitment – achieve only some of these goals.

AMCs are complementary to other interventions, such as supporting public-private partnerships and public research to develop new vaccines and increase their effectiveness. Because they increase the probability that the results of public research will be picked up and translated into products that are actually used, AMCs complement, and do not substitute for, other policies to support R&D on diseases concentrated in poor countries.

The commitment should be set large enough to create incentives which will accelerate the development of new vaccines, while providing excellent value for money for donors. Analyses suggest AMCs would be cost-effective at a wide range of commitment sizes. Larger commitment sizes would stimulate more R&D and so be expected to produce a better vaccine, with more certainty, sooner - and so save more lives.

AMCs create incentives analogous to the incentives for R&D of medicines for diseases of affluent countries. The prospect of a valuable market for vaccines for diseases concentrated in poor countries creates incentives for small firms to invest in new technologies, in the hope of selling or licensing their technology to larger companies that will produce the vaccine. The existing activities of the biotechnology and pharmaceutical industries in response to those incentives, together with empirical evidence of the effect of market size on investment in R&D, suggests that an AMC would be likely to increase R&D. Furthermore, donors have little to lose: if no vaccine is developed, the commitments are not disbursed.


I. Vaccines are a very cost effective development intervention Immunization has been one of the most important successes in public health during the last 40 years. The Expanded Programme on Immunization (EPI) was launched by the World Health Assembly in 1974, aimed at increasing coverage of vaccines against six diseases (tuberculosis, diphtheria, neonatal tetanus, whooping cough, poliomyelitis and measles). 1 As a result of these vaccinations, an estimated 3 million lives are saved each year, and an additional 750 000 children are saved from permanent disability. 2 In 1993, the World Bank concluded that the six EPI vaccines together with hepatitis B vaccine, yellow fever and vitamin supplements (“EPI plus”) were among the most cost-effective health interventions for developing countries, ranging from US$16-22 per life-year gained 3 in low income countries and US$33-39 per life-year gained in middle income countries. 4

–  –  –

As a benchmark for judging the cost-effectiveness estimates set out in Table 1 above, development interventions are generally considered to be extremely cost effective if the cost per lifeyear saved is less than $100. 6 More recently, a country’s annual GDP per capita has been used as a WHO Vaccines, Immunization and Biologicals Department History of Vaccination http://www.who.int/vaccines-diseases/history/history.shtml Kim-Farley R and the Expanded Programme on Immunization Team. “Global Immunization,” Annual Review of Public Health 1992, 13, pp. 223-237.

Life years in this paper are measured as Disability Adjusted Life Years (DALYs) throughout.

World Bank. Investing in Health. The World Development Report 1993. World Bank, Washington DC. The figures have been adjusted to 2005 prices using the change in the Consumer Price Index.

Quoted in Vaccines are cost-effective: a summary of recent research. GAVI Research Briefing. Available at:


- Miller M and McCann L. “Policy analysis of the use of hepatitis B, Haemophilus influenzae type B, Streptococcus pneumoniae-conjugate and rotavirus vaccines in national immunization schedules,” Health Economics, January 2000.Jamison DT, Mosley WH, Measham AR, Bobadilla JL. Disease Control Priorities in Developing countries. Oxford University Press. 1993

- Miller M “An assessment of the value of Haemophilus influenzae type b conjugate vaccine in Asia,” Pediatric Infectious Disease Journal 1998 Sep;17(9 Suppl):S152-9 World Bank. Disease Control Priorities in Developing Countries. New York, NY: Oxford Medical Publications, Oxford University Press for the World Bank. 1993.


benchmark for cost-effectiveness. 7 On either of these benchmarks, the cost-effectiveness estimates presented in Table 1 show that vaccination is extremely cost-effective.

For comparison, in the United States the cost-effectiveness threshold for medical interventions is estimated to be $50,000 to $100,000 per life-year saved. 8 In the United Kingdom, the decisions of the National Institute for Clinical Excellence are consistent with an implicit cost effectiveness threshold of about £30,000 ($50,000) per life-year saved. 9 As we shall see, vaccines bought under an AMC for a malaria vaccine are estimated to cost just $15 per life-year saved – well within the range of highly cost-effective interventions.

Vaccination is also highly cost-effective compared with other public health interventions in developing countries. For example, insecticide-treated bednets are estimated to cost $19 - $85 per life year saved; 10 and anti-retrovirals for HIV cost a great deal more than $100 per life year saved. 11 Furthermore, most studies of the benefits of vaccination have focused on narrow medical benefits and the averted health care costs, and have not taken account of the broader benefits from improving health that could lead to faster economic growth. Healthy children perform better at school;

and healthy adults are more productive at work. Healthy families are more likely to save for the future, have fewer children and invest more in their life chances. Bloom, Canning and Weston (2005) estimate that, including these broader benefits, the rate of return on GAVI’s vaccination program might be as high as 18 percent. 12 II. Paying for vaccines is an effective form of aid We have seen that vaccination is a cost-effective public policy. Supporting vaccination in developing countries is a particularly effective form of aid for several reasons.

The benefits are disproportionately targeted to the poor. By choosing to pursue AMCs for diseases that are concentrated in low-income countries, the benefits can be focused on the poor. The poor are particularly vulnerable to communicable diseases, because they are more likely to be susceptible to disease, and because they are less likely to be able to afford health care and treatment. By reducing the impact of communicable diseases, the benefits of vaccination disproportionately accrue to the poor.

Vaccines are easier to deliver than other treatments. Notwithstanding the logistical challenge to reach some communities with vaccines, in general vaccination can be delivered in developing countries more effectively than other health care interventions. Three quarters of the world’s children receive some form of childhood vaccination. Vaccines require little training or Global Alliance for Vaccines and Immunization (GAVI). “Health, Immunization, and Economic Growth, Research Briefing #2, Vaccines are Cost-effective: A Summary of Recent Research,” 2004. http://www.vaccinealliance.org. Also World Health Organization. “Less-Used Vaccines against Major Diseases Are Cost-Effective, Researchers Conclude,” Bulletin of the World Health Organization 2000, 78(2):274.

Neumann PJ, Sandburg E, Chaim AB, Stone PW, Chapman RH. “Are Pharmaceuticals Cost-Effective? A Review of the Evidence,” Health Affairs 2000, 19(2), 92-109.

Towse A. What is NICE’s threshold? An external view. Chapter 2 in Devlin N, Towse A (eds) Cost effectiveness thresholds: economic and ethical issues. London: Kings Fund / Office of Health Economics. 2002. Devlin N and Parkin D, Does NICE have a cost effectiveness threshold and what other factors influence its decisions? A discrete choice analysis.

City University Economics Department Discussion Paper 03/01.

http://www.city.ac.uk/economics/dps/discussion_papers/0301.pdf Goodman C, Coleman P, Mills A. “Cost-effectiveness of changing the first line drug for the treatment of uncomplicated malaria in Sub-Saharan Africa,” Health Economics 2001, 10(8): 731-749.

Creese A, Floyd K, Alban A, Guinness L. “Cost-effectiveness of HIV/AIDS interventions in Africa: a systematic review of the evidence,” Lancet 2002, 359: 1635–42 Bloom D, Canning D, Weston M. “The Value of Vaccination,” World Economics 2005, Vol 6 No 3.


expensive equipment to implement, do not require diagnosis, can be taken in a few doses instead of in longer-term regimens, and rarely have major side effects. Hence, they can be prescribed and distributed by health-care workers with limited training. Through herd immunity, the benefits of vaccination can also spill over to other, non-vaccinated individuals in the community.

There is little adverse effect on the exchange rate. Some economists are concerned at the possible macroeconomic impact of exchange rate appreciation resulting from increased aid flows in aid-dependent countries. Paying for vaccines to be imported into developing countries which would not otherwise receive them, by contrast, has no direct impact on the exchange rate of the recipient country.

Research and development of new vaccines is a global public good. Even for those who are skeptical of the benefits of some international aid, there is a sound economic argument for the international community to cooperate to finance the provision of global public goods.

International cooperation is needed to provide enough investment in these goods, because all countries have an incentive to free-ride on the R&D investments of others.

For these reasons, donor support for immunization programmes is a very effective form of international development assistance.

III. Medicines are developed by a mix of public and commercial funding It is difficult for vaccine researchers to appropriate privately the fruits of basic scientific research – such as identifying antigen targets and developing new techniques. The scientific knowledge is used by the scientific community as a whole, in different ways, to develop new drugs and vaccines.

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