1

Vaccines Pipeline The challenge

1960 1980 2000

HPV

HIV/AIDS

Gen

eral

sci

en

tifi

c/te

chn

ical

cer

tain

ty

YF

Polio

Tetanus

Measles

HepB

Hib

Pneumococcal

TB

Rotavirus

Malaria

Year/anticipated year of registration

Size of circle indicates number of deaths (400,000 deaths, 2002 data)Left side of circle aligned with expected introduction date

1970 1990 2010

Meningococcal A

Potential vaccines

JE

Typhoid

CholeraInfluenza

Next generation

Available andunderutilized

Traditional EPI

2

Vaccines Pipeline The challenge

3 million premature deaths from vaccine preventable diseases

7 million premature deaths from diseases for which vaccines are not yet widely available

1960 1980 2000

HPV

HIV/AIDS

Gen

eral

sci

en

tifi

c/te

chn

ical

cer

tain

ty

YF

Polio

Tetanus

Measles

HepB

Hib

Pneumococcal

TB

Rotavirus

Malaria

Year/anticipated year of registration

Size of circle indicates number of deaths (400,000 deaths, 2002 data)Left side of circle aligned with expected introduction date

1970 1990 2010

Meningococcal AJE

Typhoid

CholeraInfluenza

3

Source: Mercer Management Consulting analysis

Product Development Cycle

Low probability of market return

A disincentive to invest

Cu

mu

lati

ve

inve

stm

ent

Elapsed time (years)1 2 3 4 5 6 7 8 9 10 11 12 13

0

Research/pre-clinical

Primate/ early

clinical

Manufacturing capacity scale-up

Efficacy trials

(phase III)

?

Developing a new vaccine takes 7-20 years – assuming success at each stage– and costs hundreds of millions dollars. Expectations of future market determines today’s investment decisions and, therefore, tomorrows products.

Decision gate: Probability of a market return?

4

Slow introduction: Introduction of Hep B and Hib vaccines into developing countries is occurring 10-15 years after initial availability

The Vaccine Fund established

GAVI forecasts*

HepB -- all developing countries

HepB -- all developing countries, excl. India, China, Indonesia

Hib -- all developing countries

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

Hep B licensed in U.S.

Mill

ion

dose

s

Hib licensedin U.S.

5

Package of solutions

• Buying and using existing products (GAVI, IFFIm) – Improves market for existing products– Strengthens delivery systems to reach children– Increases predictability of funding

• Prepare for future products (GAVI, PPPs, WHO…) – Provide data for timely national decision on demand – Improve accuracy of forecasting

• Invest public resources in early R&D– Product-development PPPs– “Enterprise” for scientific collaboration

Missing: Assurance that the market for future products will exist

6

Funding the pipeline

Discovery &Research

Early Development

CapacityInvestment Supply

Vaccine for wealthy countries

Health R&D for wealthy countries$106 billion

Vaccines for poor countries

Private investment to complete the pipeline

Health R&D for poor countries$8 billion

Late Development Licensure

7

Advance Market Commitments (AMC)

Problem• Small, risky and unpredictable markets leads to under-investment in

products of importance to the developing world

• Industry’s investments in development/capacity determine what products are available, when and to whom

Solution• Assurances of a future market as incentive for more timely investment by

industry

• Provide credible commitments to guarantee future financing for priority vaccines – before funds are needed to purchase doses

• Only use funds – and buy vaccines - if there are results

8

Supply

Price- Industrial

Price – Middle Income

Price – Low income

Years after licensure1 5 10 15

Mill

ion

s o

f d

ose

s

$ P

ric

e p

er

do

se

Typical vaccine supply and pricing

9

AMC prices

Price

AMC

$x billion Post-AMC market

GuaranteedAMC price

Years

0

2

4

6

8

10

12

1 2 3 4 5 6 7 8 9 10 11 12 13 14

10

AMCs: A market-based incentive

• Create a market: for new vaccines needed in poor countries (not a purchase guarantee)

• Donors commit upfront: Donors fund an AMC of a specified market size and price for a target vaccine with set specifications (effectiveness, public health impact)

• Candidate vaccines become available: an Independent Assessment Committee determines if a vaccine meets the target specifications

• Country demand: Where recipient countries are interested in introducing a successful candidate vaccine, donors subsidize its purchase and recipient countries provide co-payment.

• Post-AMC predictable supply and pricing: When AMC funding is depleted, manufacturer continue to provide the vaccine at an established price for a specified period.

11

Market incentives…

An AMC is tailored to the technical challenges and market conditions of each disease to provide an appropriate incentive for greater investment

– Market entry: Open to all players – multinational and emerging, biotechs and vaccine manufacturers

– Competition: Designed to sustain 2-3 firms to encourage adequate capacity and price competition

– Continued innovation: Designed to last 7-10 years to allow time for 2nd and possibly 3rd generation products

12

The objective is to motivate increased investment and activity across the R&D pipeline, enabling the availability of better

vaccines, sooner.

Research Pre-Clinical Phase I Phase IIPhase III

Build capacityApproval

InMarket

Research: Stimulate new

or refocus researchactivity

Early-Stage: Advance

proof-of-conceptResurrect latent

projects

Late-Stage:Continue/accelerate late

developmentIncrease planned

manufacturing capacity

In-Market:Increase capacity

• Pneumococcal•HIV/AIDS•Malaria•TB

•Rotavirus

•HPV

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FrameworkAgreementAnnounced

Details on AMC: Size, price, target product goal

•Donors sign binding financial commitments•Companies sign on

Framework Agreement

• Suppliers provide

vaccine to eligible

countries at agreed lower

price

AMC Commitment

exhausted

Legal framework

FirstVaccineApproved

Guarantee Agreement 1

• Price guarantee• Manufacturing capacity

• Vaccines delivered

• Second vaccine purchased

Guarantee Agreement 2

SecondVaccineApproved

14

AMC complements other strategies

• Increased investment in R&D (push)– Direct investment in vaccine candidates – Investment in establishing development capacity (clinical trial field sites

etc) – Investment in public-private partnerships

• Strengthened delivery systems to ensure vaccines reach target populations

• Strengthened demand forecasting to reduce industry risk

• Strengthened national planning of health priorities and budgets

• Credible assurance of future commitment to purchase priority new vaccines -- AMC

15

BACKGROUND

16

Next steps

• Technical dialogue on AMC as requested

• Further work on …..

• Second meeting of Donor Consortium in late-October

17

GAVI, IFFIm and AMCs

TNZ CAR Ken Nig Eth Laos Cam Haiti Tajik …

GAVI

Support for 72 poorest countries (vaccines, funds for systems, TA)

Annual pledges

$

IFFIm: frontloaded, predictable resources

$

AMC

$ to subsidize country co-pay for specified vaccine

18

“Typical” vaccine pricing

New on market Gradual Market penetration

Mature product

Year from first licensure

Availability

Capacity

Pricing

1-5 years

Capacity small, few suppliers (usually 1 or 2)

Prices premium

Limited to wealthiest

6-10 years

Capacity expanding with experience, 2 -3 suppliers

Prices tier for industrial and middle income

Industrial plus middle income countries

10-15+

High capacityBetter yields and 3-6 suppliers

Prices lower, tiered for industrial, middle income low income countries

Global

19

The case for vaccines

Safe, effective, sustainable Low systems costs Highly cost effective

$15-30 per DALY$100 yardstick in developing countries$100 000 yardstick in US

Huge benefitsLives savedEconomic productivityDemographic transition50% improved standard of living in 20th C

the result of improved longevity

References: See Barder, Kremer, Williams (2006)

22

Advance Market Commitments

Response to Vaccine and Biotech Industry’s concerns to initial AMC proposal

23

Size of the AMC

• CGD proposal: $3.0 billion AMC size for all products (average market size for successful pharmaceutical products

• Industry reaction: Market size most critical factor in AMC. Size must be tailored to specific scientific and market conditions

• Current AMC work: AMC estimates tailored to each product based on risk-adjusted, net-present value return to industry. Model allows scenarios to be run with different assumptions.

24

Continuing Demand Uncertain• CGD proposal: The proposal assumed that the AMC

guarantee addresses financing risk and demand risk

• Industry reaction: There is a continued high level of risk associated with timely knowledge about developing country demand for vaccines even with AMC support.

• Current AMC work: Agree, ongoing discussion to explore parallel activities to improve accuracy of forecasts e.g. – support PPPs and other partners in ensuring gov’ts have

necessary data to make decisions– Strengthen forecasting– Explore gov’ts signing intent to introduce or not to introduce an

AMC vaccine – Explore possibilities of capital investment or small guarantees

through other entities

25

Post-AMC pricing and volume commitments

• CGD proposal: Once AMC depleted, companies benefiting from the AMC would be required to drop prices substantially (marginal costs discussed) and commit to supply to meet all demand from eligible developing countries

• Industry reaction: Commiting to a long-term (post-AMC), low prices before there is knowledge about the costs of production or investment might mean companies forced to sell at a loss. No company will commit to this.

• Current AMC work: Agree, ongoing discussion to explore options. – Favored idea is that each firm sets post-AMC price at time that

they submit product for review to the IAC. Post-AMC price then used to establish co-pay so incentive for industry to keep low.

26

Superiority vs Comparability for Second Entrants

• CGD proposal: The second entrant to the AMC would be required to prove their product was superior to the first entrant

• Industry reaction: Extremely complex to implement

• Current AMC work: Agree, this is now deleted from the AMC. Any products that meet the IAC product standards are eligible for AMC funding. Multiple entrants will be encouraged (through decisions on size and duration of AMC) to assure capacity and promote competition.

27

Structure and Function of the IAC

• CGD proposal: An independent expert body needed to set the product Goals to trigger an AMC and determine if a given product achieves the goal. Also need entity to lower requirements in necessitated.

• Industry reaction: Unease over adding another layer of bureacracy on-top of national licensing requirements and WHO pre-qualification

• Current AMC work: Understand concern but IAC plays unique role. Attempt to minimize requirements and avoid any duplication– Endorse licensing decision of credible NRA– Set public health performance goal for target countries – Early communication of minimum data to show performance– Working with WHO to harmonize with pre-qualification process

28

Credibility of donor agreements

• CGD proposal: Guarantee agreement with each qualifying firm is signed by all donor governments with donors making binding commitments.

• Industry reaction: Transaction costs and risk of donor reneging too high with multiple signatories or multiple contracts.

• Current AMC work: Agree, donors also wish to avoid complexity of multiple signatories and multiple contracts. On-going discussion to explore options but probable that a single agent for the donors will hold binding commitments and sign contracts on strength of commitments.

29

Product Specifications

• CGD proposal: IAC should define the product goals that will trigger AMC funding.

• Industry reaction: Value in having clear product goal but the actual product specifications will strongly affect the attractiveness of the AMC.

• Current AMC work: Understood. Work on-going to determine AMC composition to ensure critical skills and knowledge on public health goals, state of science and commercial implications product goals. Uncertain how to engage firms without losing independence and credibility of decision.

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Milestone payments or push funding

• CGD proposal: AMCs are a market based mechanism that ensures funding at a reasonable price when the desired product is demanded by a given government.

• Industry reaction: The market return is far in the future for early stage and still has large demand risks. Milestone payments at key points (e.g. proof of concept, finish 2b clinical trial, finish phase 3 trials, make capital investment in capacity)

• Current AMC work: Understand but not feasible within the AMC given G8 focus on market mechanism. Flat payments to industry too risky and politically untenable. Will explore potential of other partners to make investment with link back to AMC.

31

AMCs: A market-based incentive

AMCs are designed to provide an adequate return on manufacturer investment in target vaccines.

AMC process:– Donors commit to fund AMC for target vaccine.

– Target vaccine specifications (effectiveness, public health impact), tailored AMC market size and AMC price are established.

– An Independent Assessment Committee determines if a vaccine meets the target specifications.

– When a vaccine meets the specifications and countries are interested in introducing the vaccine, donors pay subsidy and recipient countries provide co-payment.

– When AMC funding is depleted, manufacturer is obligated to continue to provide the vaccine at an established price for a specified period.

AMC complements direct R&D funding as well as efforts to strengthen current immunization programs and systems.