By Arnab Acharya and Sanjay G. Reddy
Arnab Acharya, an independent scholar, is an economist and public health researcher. His previous posts include an associate professorship at the 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, Jan. 29, 2021 (https://www.barrons.com/ articles/hoarding-is-undermining-a-key-effort-to-vaccinate-the-global-poor-51611882933)
During the Biden administration’s first full day in office, it announced that the U.S. is rejoining the World Health Organization and will now support its effort to develop Covid-19 vaccines and distribute them equitably. 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 an instrument called an advance market commitment, or AMC, to push the private sector to develop vaccines. The AMC, which is managed by the international vaccines organizations Gavi and the Coalition for Epidemic Preparedness Innovations in coordination with the WHO, has made a binding commitment to purchase vaccines that meet specific technical specifications and invited companies to participate. So far only a few have done so. That is because this model doesn’t work for Covid-19. The Covax AMC is in competition with other, more deep-pocketed buyers. The AMC approach therefore cannot deliver what it promises to poorer countries.
The idea of an AMC to encourage vaccine development was first conceived for diseases neglected because the people who suffer from them are poor and hence unable to create sufficient expected demand. As proposed for this purpose, the purchaser would demand that a company offer its product at a moderate price in return for an advance commitment. Donors would also subsidize purchases on behalf of consumers who could not otherwise afford them. A simple advance sale without these elements is not an AMC as originally understood.
Covid-19 is very different from the diseases for which AMC was conceived. There was sure to be a large global market for a Covid-19 vaccine, in the richer countries and beyond. Because firms realized this, a number of them made plans to sell their vaccines at prices that are likely to generate sizable profits. Firms have made advance sales to many rich-country governments, in apparent preference over selling to Covax. There is no reason to believe that companies needed these advance purchases as an incentive for research and development, as they do not generally depend on prior sales to bring profitable products to market. Governments also did not seem to demand price moderation, and they did not make purchases on behalf of others. The advance purchases made by rich countries for their own benefit undermined the Covax initiative. Their buys look like a tool for hoarding rather than for innovation. It seems very unlikely that Covax could ever have succeeded given this behavior by richer countries.
Among the 48 firms engaged in Covid-19 vaccine development as of mid-November, just prior to emergency authorizations for usage of any vaccines, 13 had made advance sales. The companies had promised to deliver 7.5 billion doses of vaccines to various countries before any of them had shown clinical trial results sufficient for approval. Of these doses, more than half (or 3.85 billion) were promised to high-income countries, which comprise around one-seventh of the world’s population. Only six of these companies had made commitments to low- and middle-income countries. The majority of the doses such countries were able to contract by the end of last year came from one company, AstraZeneca, which has declared that it will not seek to make a profit from its sales during the pandemic.
The reason that so few firms signed up for the WHO’s scheme would seem to be simply, as earlier noted, that the Covax initiative has competed with other advance purchasers. Logically, either a specific advance purchase offer locks in a low price, less than or equal to what firms expect to get from alternative buyers now or in the future, or it locks in a higher price. In the first case, firms would have little reason to make an advance sale. In the second case, firms would have more reason to enter an advance contract, but why would countries? The main incentive for buyers to pay a premium appears to be to get ahead of others in claiming available vaccines. This explains the frenetic activity by rich countries to sign such contracts bilaterally, independent of Covax’s plans, and outcompeting its more publicly spirited initiative.
It seems likely that most firms simply did not find Covax’s terms attractive. Instead, vaccine developers have relied on advance sales to rich countries or expected future revenue from the open market, finding these adequate to justify their research and development costs. For an individual firm, advance sales provide protection against being competed out of the market once it develops a usable vaccine, for instance because its product may turn out to be less efficacious than a competitor’s. Advance sales can also be a cheap source of finance. While these are reasons for a firm to make advance sales, its choice to sell to one buyer and not another will depend largely on who offers what price.
The Covax AMC is intended to provide a way for richer countries to donate funds to support purchases for others that cannot afford them. But in practice, poorer countries relying on this initiative have been at a disadvantage because the rich countries are spending much more on themselves. It is like a race in which some drivers invest heavily in “fast and furious,” up-to-date cars, but also make small donations to allow other drivers to buy older, slower models that meet minimum entry requirements. The benefited drivers can participate in the race, but they don’t have much of a chance of winning.
Whether or not the advance sales made to rich countries have spurred research and development, they have certainly determined who gets what. By making advance contracts with multiple firms, richer nations have not merely guaranteed themselves early supplies, but also imposed constraints on how much is left to be sold on the open market to other countries. Advance purchasing has, ironically, become a tool for competitive vaccine nationalism rather than a way of advancing the common good.
If advance purchases, and the Covax AMC specifically, have played little or no role in spurring innovation in this pandemic, what would be a better alternative? One option we have suggested elsewhere is public funding for developing or buying out a vaccine formula, allowing any resulting intellectual property to be freely shared. This would enable generic manufacturers to lower prices and increase supply. But whatever the approach taken, it is essential to scale up supply and make vaccines available for all of the world’s people. As the ongoing circulation of the disease elsewhere may make variants of the virus more likely to emerge, failing to do so is not only grossly inequitable, but is even damaging to rich countries’ own interests.