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

Author

Listed:
  • 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.

Suggested Citation

  • Ernst R. Berndt & Rachel Glennerster & Michael R. Kremer & Jean Lee & Ruth Levine & Georg Weizsäcker & Heidi Williams, 2007. "Advance market commitments for vaccines against neglected diseases: estimating costs and effectiveness," Health Economics, John Wiley & Sons, Ltd., vol. 16(5), pages 491-511.
  • Handle: RePEc:wly:hlthec:v:16:y:2007:i:5:p:491-511
    DOI: 10.1002/hec.1176
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    References listed on IDEAS

    as
    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, Oxford University Press, vol. 119(2), pages 527-564.
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    Citations

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    Cited by:

    1. Mark Gersovitz, 2011. "Infectious Diseases: Responses to the Security Threat Without Borders," Chapters,in: Security and Development, chapter 9 Edward Elgar Publishing.
    2. Marco Sahm, 2015. "Advance-Purchase Financing of Projects with Few Buyers," CESifo Working Paper Series 5560, CESifo Group Munich.
    3. 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.
    4. P.K. Joshi & Avinash Kishore & Devesh Roy, 2016. "Making Pulses Affordable Again: Policy Options from the Farm to Retail in India," Working Papers id:11327, eSocialSciences.
    5. Elbe, Stefan & Roemer-Mahler, Anne & Long, Christopher, 2015. "Medical countermeasures for national security: A new government role in the pharmaceuticalization of society," Social Science & Medicine, Elsevier, vol. 131(C), pages 263-271.
    6. Joshua S. Gans & David B. Ridley, 2013. "Innovation Incentives under Transferable Fast-Track Regulatory Review," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 789-816, September.
    7. Abdulkadir Civan, 2009. "An Alternative Patent Mechanism for Pharmaceutical Drugs for Tropical Diseases," European Journal of Economic and Political Studies, Fatih University, vol. 2(1), pages 21-38.
    8. Leoni, Patrick, 2011. "The antagonism of push and pull strategies, and the current funding campaigns to fight orphan diseases," Social Science & Medicine, Elsevier, vol. 72(2), pages 202-205, January.
    9. Michael Drummond & Adrian Towse, 2014. "Orphan drugs policies: a suitable case for treatment," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(4), pages 335-340, May.
    10. Mueller-Langer, Frank, 2013. "Neglected infectious diseases: Are push and pull incentive mechanisms suitable for promoting drug development research?," Health Economics, Policy and Law, Cambridge University Press, vol. 8(02), pages 185-208, April.
    11. Hartz, Susanne & John, Jürgen, 2009. "Public health policy decisions on medical innovations: What role can early economic evaluation play?," Health Policy, Elsevier, vol. 89(2), pages 184-192, February.
    12. Bennato, Anna Rita & Valletti, Tommaso, 2014. "Pharmaceutical innovation and parallel trade," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 83-92.
    13. Emeric Henry, 2010. "Promising the right prize," Working Papers hal-00972957, HAL.
    14. Jeffrey Clemens, 2012. "The Effect of U.S. Health Insurance Expansions on Medical Innovation," Discussion Papers 11-016, Stanford Institute for Economic Policy Research.
    15. 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).
    16. 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.
    17. Sahm, Marco, 2015. "Advance-Purchase Financing of Projects with Few Buyers," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113122, Verein für Socialpolitik / German Economic Association.
    18. George Mavrotas (ed.), 2011. "Security and Development," Books, Edward Elgar Publishing, number 14631.
    19. 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.
    20. Mattoo, Aaditya & Subramanian, Arvind, 2013. "A"greenprint"for international cooperation on climate change," Policy Research Working Paper Series 6440, The World Bank.

    More about this item

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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