Financing and Scaling Innovation for the COVID Fight: A Closer Look at Demand-Side Incentives for a Vaccine

Article by: Adrian Towse

A COVID-19 vaccine is needed now, but timelines (12-18 months) create large market risk. By the time a vaccine is ready, the crisis may have passed.  A CGD Note explores three options: business as usual, which may lead to promotion of an inferior vaccine or fierce country competition for supply; two models (cost- or value-based), with countries pre-committing to purchases meeting specified efficacy. The authors prefer a value-based model.

A CGD Note published on the Center for Global Development website, co-authored by Rachel Silverman, Carleigh Krubiner, Kalipso Chalkidou and Adrian Towse, discusses options to fund a vaccine against COVID-19.

The Note points out that global leaders are realizing that we need a better toolbox to fight the novel coronavirus. A safe and effective vaccine would be enormously valuable, but the long development timeline (at least 12-18 months) creates large market risk for potential developers  on top of substantial scientific risk. What if the disease dies out naturally (as happened with SARS or MERS), is fully controlled (like the 2014/2015 West African Ebola outbreak), or enough people contract it and recover to establish herd immunity, perhaps resulting from a managed strategy of using testing to enable social distancing measures to be relaxed and economic activity revived?

If we want industry to invest up-front in the risky, high-cost business of vaccine development and manufacture on the scale required, we need to offer a predictable market for an effective vaccine that offers both access for all and a reasonable return on investment – de-risking market (commercial) uncertainty while still expecting companies to absorb the scientific risk that their products may fail.

To understand the potential scope and appropriate application of demand-side incentives, the Note outlines a few important characteristics of the market for a theoretical vaccine:

  • Shared burden and demand across high-income, middle-income, and low-income countries
  • Non-viability of a traditional profit-maximizing sales strategy
  • Need for massive, rapid scale-up
  • Existence of substantial push funding

Given this landscape, the authors discuss how a demand-side incentive could best be structured. The Note considers three scenarios:

  • Business as Usual: Intensive push funding (as we are currently seeing) but no explicit demand-side intervention. One or more companies proceed to market with a vaccine (supported by public and philanthropic funding). Other companies opt out given the high commercial risk. Vaccines that make it to market may be inferior to others that potentially could have been developed because of push funders ‘picking winners’ from the early prospects, before their push money is exhausted. If an effective vaccine comes to market, fierce competition among countries to access it will drive up price and (likely) mean that wealthiest countries receive preferential access (as happened with H1N1, where wealthy countries quickly bought up almost all global vaccine supply and vaccines arrived late to LMICs).
  • An Advance Market Commitment (AMC): Deployed at Gavi to incentivise development of a pneumococcal vaccine tailored to the LMIC disease burden, the AMC helped accelerate investments in manufacturing capacity for rapid scale-up of the vaccine, which has saved an estimated 700,000 lives by 2020. In this scenario, governments and/or foundations—ideally in partnership—put aside a pot of money dedicated to purchasing a potential vaccine meeting a prespecified target product profile (TPP), which does not yet exist and would need to be agreed upon. It could be structured as a market entry prize (lump sum) or a price-volume commitment; either way, the price/prize would be fixed in advance. Governments could also require the successful innovator(s) to license their vaccines out to local biologic producers at low or zero cost, to facilitate widespread scale-up.
  • A Market-Driven, Value-Based Advance Commitment (MVAC): This scenario builds on the AMC with adaptations. Most importantly, the MVAC incorporates a value assessment: a more effective vaccine receives a more generous lump sum or price/volume commitment. HICs and MICs alike could participate in the mechanism to guarantee a large total market/entry prize, but their contributions to the total market would vary based on their respective ability to pay (but not overpay). Early health technology assessment would be used to understand the role a vaccine would play in different contexts; the results would be ‘locked in’ to provide overall market predictability. Governments could also consider constructing the MVAC to offer value-based entry prizes to multiple developers that meet the minimum effectiveness threshold to keep many different potential innovators in the game. This would hedge risk against late failure of early candidates and against possible safety risks after widespread deployment of the first entrant requiring restricted use or withdrawal. As a condition of accessing this guaranteed market, governments could require the successful innovator(s) to license their vaccines out to generic producers at low or zero cost, helping facilitate widespread scale-up across LICs (potentially financed with Gavi support).

The authors state that the MVAC offers a better route as it differentiates price according to efficacy, incentivising development and use of vaccines with higher disease prevention rates. Without value consideration, countries risk locking into purchasing inferior or cost-ineffective products, diverting scarce resources from other COVID-19 responses. Later, superior vaccines may be boxed out of the market if all funding immediately flows to a first, poor-value or minimally efficacious entrant. Adjustments can be made to ensure that push funding of a successful candidate is taken into account, and that value-based prices for HICs and MICs only apply to the volume required for innovators to get an appropriate return on investment, with much lower prices applying after that point, while also ensuring that vaccines are available at manufacturing cost for LICs.

The CGD Note is available for download at: https://www.cgdev.org/publication/financing-and-scaling-innovation-covid-fight-closer-look-demand-side-incentives-vaccine

Related Research: 

Chalkidou, K., Garau, M., Silverman, R., and Towse A. (2020). Blueprint for a Market-Driven Value-Based Advance Commitment (MVAC) for Tuberculosis. Center for Global Development. Available at: https://www.cgdev.org/publication/blueprint-market-driven-value-based-advance-commitment-tuberculosis

Posted in Drug Development/R&D, Value-Based Pricing, Innovation | Tagged External publications