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Advance Market Commitment Concept & Development Tania Cernuschi Senior Manager, AMC Copenhagen, 26 August Advance Market Commitment Concept & Development Tania Cernuschi Senior Manager, AMC Copenhagen, 26 August 2009 AMC Pneumo Pre-tender Meeting

Objectives § The problem § The AMC concept § The Pneumococcal AMC pilot § Objectives § The problem § The AMC concept § The Pneumococcal AMC pilot § How does the pilot work? Photo: GAVI-09 -Indrias Getachew § Implications for countries § Some issues flagged by industry § Target results & next steps 2

R&D for Diseases Affecting Primarily Poor Countries § Little commercial investment to complement public 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

Consequences § Investment for R&D to prevent/cure diseases primarily affecting poor countries is limited: 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 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

AMC Concept § The AMC is an up-front legally binding financial commitment by donors 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. 5

AMC structure A financial commitment by donors to subsidize vaccine purchase at a set AMC structure A financial commitment by donors to subsidize vaccine purchase at a set price (AMC PRICE) for a certain amount of doses, to allow recouping of R&D costs, if and when the vaccine is developed according to a specified target product profile (TPP) and if the vaccine is demanded by beneficiary countries. In exchange, manufacturers must continue supply at manufacturing cost in the long term. The manufacturing cost is paid by beneficiary countries (and development agencies). An AMC can be structured in many ways 6

The Pneumococcal AMC pilot Overarching goal: reduce morbidity and mortality from pneumococcal diseases. Target: 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 7

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

Which pneumococcal vaccine are we targeting? Attribute Minimal Acceptable Profile Vaccines serotypes • Must Which pneumococcal vaccine are we targeting? Attribute Minimal Acceptable Profile Vaccines serotypes • Must cover at least 60% of invasive disease isolates in target region • Must include serotypes 1, 5, 14 Target population Prevent disease among children < 5, in particular < 2 Dosage and schedule Compatible with national infant immunisation programmes and no more than 3 doses in first year of life Routes of administration Intramuscular or subcutaneous Product presentation Mono-dose or low multi-dose Product formulation Liquid formulation Storage and cold chain Stable at 2 -8 °C with minimum shelf life of 24 months Product registration and pre-qualification WHO pre-qualified Source: Vaccine: pneumococcal vaccine – Technical Product Profile (TPP) http: //www. vaccineamc. org/updatedec_08. html 9

How does the Pneumococcal AMC work? § Italy, UK, Canada, Norway, Russia, Bill & 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. 10

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

UNICEF calls for offers Million of doses 250, 000 222 200, 000 150, 000 UNICEF calls for offers Million of doses 250, 000 222 200, 000 150, 000 127 100, 000 50, 000 19 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Source: AMC website http: //www. vaccineamc. org/files/Strategic. Demand. Forecast. pdf

Supply Commitments § Suppliers make 10 -year commitment to supply a share of the 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. AMC Funds Available FIRM A gets $ 375 M US$ 1. 5 billion $ 1125 M Example: § Firm A makes an offer to supply 50 M doses (25% of 200 M) § Firm A is entitled to US$ 375 M (25% of the total US$ 1. 5 B AMC) 13

Funding Sources AMC Price per Dose $7 FIRM A US$ 375 M AMC subsidy Funding Sources AMC Price per Dose $7 FIRM A US$ 375 M AMC subsidy Tail price cap $3. 50 GAVI funding Country Co-pay ( $0. 10 - $0. 30 per dose initially) * $0 2 1 st. Eligible Vaccine available 4 6 8 supplier’s share of AMC funds depleted 10 Years Supply Commitment Fulfilled AMC Period Tail Period 10 yrs * Co-financing levels will be in line with the applicable GAVI co-financing policy. 14

Example Firm A: AMC Price $7 Top up: + $ 5. 00 Tail Price Example Firm A: AMC Price $7 Top up: + $ 5. 00 Tail Price AMC Envelope • commits to supply 50 M doses annually for 10 yrs –entitled to up to $375 M of the total $1. 5 B AMC • sets its tail price at $2, then $ 375 M disbursed at a rate of $ 5. 00 per dose (top up) • sells 75 M doses at $7 (from $375 M/$5. 00 ) • Sells 425 M doses at $2 (from 500 M - 75 M doses) • AMC period = 1. 5 years (from 75 M/ 50 M doses per yr) • tail period = 8. 5 years $2. 00 GAVI & Countries AMC Period Tail Period 15

What does this mean for GAVI countries? Same Country Applications IRC Review GAVI Board/EC What does this mean for GAVI countries? Same Country Applications IRC Review GAVI Board/EC approval • 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 16

Demand Risk Purchase of vaccines from each supplier is dependent on demand Source of 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 17

Economic Adjustments for Inflation adjustment mechanism (Condition 8 T&Cs): At request of manufacturers, • Economic Adjustments for 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 18

Independent Assessment Committee (IAC) Independent Committee of Experts in: Clinical performance & vaccine delivery 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): 1. 2. IFPMA DCVMN 3. 4. World Bank WHO IAC’s roles: 1. Approve and modify TPP 2. AMC eligibility determination 3. Monitoring 4. Review and modification of AMC prices

Target results More than 7 million deaths averted by 2030 Companies are Production capacity Target results More than 7 million deaths averted by 2030 Companies are Production capacity reassured on the terms of pneumo purchase before making costly investment Increased commercial investment for pneumococcal vaccines developed to meet demand from GAVI countries: 2 billion doses made available Second generation vaccines are developed Accelerated, sustainable access: $12. 75 total for a 3 -shot course of immunization compared to $200 in U. S. Multiple supplier participation is encouraged and competition enhanced Vaccine security is enhanced Vaccine quality improves over time while vaccine price declines Socially highly efficient: $33 -36 per DALY, compared to WB $100 benchmark 20

Next steps First call for offers Q 3 (September 09) ü legal agreements signed Next steps First call for offers Q 3 (September 09) ü legal agreements signed on 12 June 2009 SDF v 0. 1 published on AMC website (August 09) 2009 First potential vaccine Available Q 3 -Q 4 2009 Design Vaccines could be delivered to countries Q 1 -Q 2 2010 First Supply Agreement potentially signed Q 4 2009 Implementation 21

Thank you Source: GAVI Thank you Source: GAVI