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

  • 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)

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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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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  1. Michael Kremer & Edward Miguel & Rebecca Thornton, 2004. "Incentives to Learn," NBER Working Papers 10971, National Bureau of Economic Research, Inc.
  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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