By Arnab Acharya and Sanjay G. Reddy
Arnab Acharya, an independent scholar, is a public health economist and researcher. Previous posts include associate professor at London School of Hygiene and Tropical Medicine.
Sanjay G. Reddy is an economist at the New School for Social Research in New York. You can follow him on Twitter at @sanjaygreddy.
This article was first carried as a commentary in Barron’s Daily, January 29, 2021 (https://www.barrons.com/ articles / hoarding-is-undermining-a-key-effort-to-vaccinate-worldwide- ill-51611882933)
During the Biden administration’s first full day in office, she announced that the United States is rejoining the World Health Organization and will now support its effort to develop and distribute Covid-19 vaccines fairly. These are worthwhile goals, but there is a problem. The multilateral effort, called Covax, has chosen the wrong tool for the job.
Covax has relied on a tool called advance market commitment, or AMC, to push the private sector to develop vaccines. AMC, which is managed by the international vaccine institutes Gavi and the Coalition for Epidemic Readiness Innovation in collaboration with the World Health Organization, has made a binding commitment to purchase vaccines that meet specific technical specifications and has invited companies to participate. So far only a few have done so. That’s because this model doesn’t work for Covid-19. AMC Covax competes with other buyers with more deep pocket. Therefore the approach of the Asset Management Committee cannot deliver what it promises poorer countries.
The idea of AMC to encourage vaccine development was first conceived for neglected diseases because the people who suffer from them are poor and therefore unable to create sufficient expected demand. As proposed for this purpose, the buyer would require a company to offer its product at a modest price in exchange for an advance commitment. Donors would also subsidize purchases on behalf of consumers who could not otherwise afford them. Simple advance sales without these elements are not AMC as originally understood.
Covid-19 is very different from the diseases for which ART was conceived. It was certain that there would be a large global market for Covid-19 vaccine, both in the richer countries and beyond. Because companies realized this, many made plans to sell their vaccines at prices likely to generate significant profits. Companies have sold in advance to many rich country governments, apparently instead of selling to Covax. There is no reason to believe that companies need these advance purchases as an incentive for research and development, as they do not generally rely on previous sales to bring lucrative products to market. Governments also did not seem to insist on price moderation, nor did they buy on behalf of others. The advance purchases made by rich countries for their own benefit undermined the Covax initiative. Their purchases look like a tool for hoarding rather than for innovation. It seems highly unlikely that Covax could ever have succeeded given this behavior from richer countries.
Of the 48 companies involved in the development of the Covid-19 vaccine in mid-November, just before emergency authorizations to use any vaccines, 13 had pre-sold. The companies had promised to deliver 7.5 billion doses of vaccines to different countries before any of them showed clinical trial results sufficient for approval. Of these doses, more than half (or 3.85 billion) were promised to high-income countries, which comprise about one-seventh of the world’s population. Only six of these companies were committed to low- and middle-income countries. The majority of doses that such countries were able to contract by the end of last year came from one company, AstraZeneca, which has stated that it will not seek to profit from its sales during the pandemic.
The reason why so few companies signed up for the WHO scheme seems to be simply, as noted earlier, the Covax initiative having competed with other advance buyers. Logically, either a specific advance purchase offer locks at a low price, less than or equal to what companies expect from alternative buyers now or in the future, or it locks for higher price. In the first case, companies would have little reason to sell in advance. In the second case, companies would have more reason to enter into a contract in advance, but why would countries? The main incentive for buyers to pay a premium seems to be to get ahead of others when claiming available vaccines. This explains the frenetic activity by rich countries to sign such contracts bilaterally, independently of Covax’s plans, and more than its more public initiative.
It seems likely that Covax terms were not attractive to most companies. Instead, vaccine developers have relied on advance sales to rich countries or expected future revenues from the open market, having these sufficient to justify their research and development costs. For an individual company, up-front sales protect against competition out of the market once it develops a usable vaccine, for example because its product may turn out to be less efficient than a competitor’s. Advance sales can also be a cheap source of finance. While these are reasons for a company to make sales in advance, its choice to sell to one buyer and not another will depend largely on who offers what price.
AMC Covax aims to provide a way for wealthier countries to give money to support purchases for others who cannot afford them. But in practice, poorer countries that rely on this initiative have been disadvantaged because the rich countries spend far more on themselves. It’s like a race where some drivers invest heavily in “fast and furious,” modern cars, but also make small donations to allow other drivers to buy older, slower models that meet minimum entry requirements. The budding drivers can take part in the race, but they have little chance of winning.
Whether the advance sales made to rich countries have spurred R&D or not, they have certainly decided who gets what. By entering into contracts with multiple companies, wealthier nations have not only guaranteed early supplies to themselves, but have also imposed restrictions on the amount left to sell on the open market to other countries. Ironically, advance purchase has become a tool for competitive vaccine nationalism rather than a means of promoting the welfare of all.
If advance purchases, and Covax AMC in particular, have played little or no role in driving innovation in this pandemic, what would be a better alternative? One option we have suggested elsewhere is public funding for the development or purchase of a vaccine formula, allowing any intellectual property arising from it to be shared freely. This would enable generic manufacturers to reduce prices and increase supply. But whatever the approach, it is vital to increase supply and make vaccines available to all the people of the world. As the continuous circulation of the disease elsewhere may make variants of the virus more likely to emerge, failure to do so is not only extremely unfair, but is even detrimental to the interests of rich countries. themselves.