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See Inside July 2006

Dangling a Carrot for Vaccines

Drug companies do not see much of a market in treating diseases of developing nations. Michael Kremer hopes to change that--with a plan that taps the profit motive

"The details of how this is done will make a big difference," Kremer acknowledges. One trade-off hinges on the commitment's payment structure, which could range from a competition that awards a sum to the first company that develops a vaccine to a more marketlike approach, in which any product meeting the clinical requirements is eligible for purchase. By judiciously selecting the price and quantity of doses that they commit to, donors can choose to reward the fast development of an initial vaccine or the intro-duction of subsequent, possibly superior products, Kremer says.

One criticism leveled at advanced market commitments (AMCs), as the purchase commitments are now called, is that they would encourage industry to dust off abandoned, mediocre vaccine candidates. To Kremer, that is the whole point: "If they have something they think has a 10 percent chance, I want them to take that off the shelf."

To succeed, the commitment has to minimize industry's risk of supplying vaccines to a single buyer, the donor, who might decide to pay the lowest price possible once a vaccine was developed. The U.S. government's Project BioShield illustrates the danger. Enacted in 2004, it allocated $5.6 billion over 10 years to stimulate development of vaccines and drugs for potential terrorist threats. The government has purchased drugs from a few biotech firms. But BioShield's original rules, now modified, gave administrators discretion in whether, how much and at what price to buy, and some companies that sunk millions into drug development were left without a customer.

The Center for Global Development, where Kremer is a nonresident fellow, convened a working group in 2003 to study the feasibility of purchase commitments. Made up of economists, lawyers, public health experts and representatives from industry, the group published its recommendations last year, including sample contracts. It advocated allowing multiple companies to share in an AMC, in part to attract more industry participation, and letting poor countries refuse a vaccine, in case circumstances changed. These efforts caught the attention of the Group of Seven nations. In its December meeting last year, the G7 called for a pilot proposal from the World Bank for one of six diseases: malaria, HIV, tuberculosis, rotavirus, pneumococcus or human papillomavirus.

The concern persists that AMCs might compete with public-private partnerships. A commitment would have to be designed to tie up funds only on completion of a vaccine, Kremer emphasizes. "There was a tendency earlier on to present this as an alternative to up-front funding," he admits. "We're not trying to take the public sector out of this."

Indeed, getting industry, donors and the public sector working together seems key to making an AMC work. Industry still faces uncertainty about how much vaccine poor countries would want to buy and how to set a long-term price in advance. The G7 has asked the World Bank and the Global Alliance for Vaccines and Immunizations to help improve demand forecasting and other implementation issues. Robert Hecht of the International AIDS Vaccine Initiative notes that the international vaccine procurement system and laws governing liability and intellectual property also need further development. "There are many people who doubt it will actually work, and there are many who hope it will," Zaffran says.

If Kremer errs on the side of overexuberance, it stems partly from his desire to help those sharing the lot of the Kenyans he knew and partly from his belief as an economist in the power of institutions to shape incentives. "There's a tendency for this whole debate over pricing of drugs in the developing world to be framed in terms of access versus incentives," he says--poverty versus profit. "Both sides in that debate are taking the existing institutions as given. I'm trying to think about ways to make the market work to the advantage of people."

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