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Advance market commitments for vaccines against neglected diseases: estimating costs and effectiveness

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  • Ernst R. Berndt
  • Rachel Glennerster

    (MIT Abdul Latif Jameel Poverty Action Lab, USA)

  • Michael R. Kremer
  • Jean Lee

    (Harvard University, USA)

  • Ruth Levine

    (Center for Global Development, USA)

  • Georg Weizsäcker

    (London School of Economics, London, UK)

  • Heidi Williams

    (Harvard University, USA)

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. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.1176
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 16 (2007)
Issue (Month): 5 ()
Pages: 491-511

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Handle: RePEc:wly:hlthec:v:16:y:2007:i:5:p:491-511

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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  1. Michael Kremer & Edward Miguel & Rebecca Thornton, 2009. "Incentives to Learn," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 437-456, August.
  2. Amy Finkelstein, 2004. "Static and Dynamic Effects of Health Policy: Evidence From the Vaccine Industry," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 527-564, May.
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Cited by:
  1. Mattoo, Aaditya & Subramanian, Arvind, 2013. "A"greenprint"for international cooperation on climate change," Policy Research Working Paper Series 6440, The World Bank.
  2. Masters, William A. & Delbecq, Benoit, 2008. "Accelerating innovation with prize rewards: History and typology of technology prizes and a new contest design for innovation in African agriculture," IFPRI discussion papers 835, International Food Policy Research Institute (IFPRI).
  3. Michael Drummond & Adrian Towse, 2014. "Orphan drugs policies: a suitable case for treatment," The European Journal of Health Economics, Springer, vol. 15(4), pages 335-340, May.
  4. Jeffrey Clemens, 2013. "The Effect of U.S. Health Insurance Expansions on Medical Innovation," NBER Working Papers 19761, National Bureau of Economic Research, Inc.
  5. Henry, Emeric, 2010. "Promising the right prize," CEPR Discussion Papers 7758, C.E.P.R. Discussion Papers.
  6. Jean-Paul Moatti & Bruno Ventelou, 2009. "Économie de la santé dans les pays en développement des paradigmes en mutation," Revue économique, Presses de Sciences-Po, vol. 60(2), pages 241-256.
  7. Mueller-Langer, Frank, 2011. "Neglected infectious diseases: are push and pull incentive mechanisms suitable for promoting research?," MPRA Paper 40193, University Library of Munich, Germany.
  8. Rutger P. Daems PhD & Edith L. Maes DBA & Guy Nuyts, PhD, 2013. "Advancing Pharmaceutical R&D on Neglected Diseases: Valuing Push and Pull Economic Incentive Mechanisms," Working Papers 2013/11, Maastricht School of Management.
  9. Susanne Hartz & Jürgen John, 2007. "Public health policy decisions on medical innovations: What role can early economic evaluation play?," Jena Economic Research Papers 2007-095, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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