An advance market commitment (AMC) is a promise to buy or subsidise a product if it is successfully developed. AMCs are typically offered by governments or private foundations to encourage the development of vaccines or treatments. In exchange, pharmaceutical companies commit to providing doses at a fixed price. This funding mechanism is used when the cost of research and development is too high to be worthwhile for the private sector without a guarantee of a certain quantity of purchases.
The idea of advance market commitments was developed by economists in the 2000s. This idea was applied to finance the pneumococcal conjugate vaccine. During the COVID-19 crisis, the COVAX AMC provided 1.8 billion vaccine doses to 87 low and middle-income countries. AMCs could be used to stimulate research on universal vaccines, which would contribute to pandemic preparedness. An AMC has also been launched for carbon-removal that meets certain technical specifications.
Description
In the case of vaccines, an advance market commitment is a contract between three types of parties: the sponsors, the recipient countries, and the firms. Inspired by his experiences in Kenya, where he contracted malaria, he then proposed the idea of a "vaccine purchase commitment" to encourage research on neglected diseases. In 2001, a report of the United Kingdom mentioned that a potential global fund to fight HIV/AIDS, malaria, and tuberculosis could also make advance purchase commitments. This idea continued to gain traction in 2004, when Michael Kremer and Rachel Glennerster published a book advocating for it. In 2006, the G8 was considering setting up an "advance market commitment", and this expression was used in an academic paper estimating the cost-effectiveness of the measure.
Applications
Pneumococcal disease
thumb|Coverage increased faster for pneumococcal vaccines than for rotavirus vaccines, which did not benefit from an AMC.
The first advance market commitment was launched in 2009 by GAVI, the World bank, WHO, UNICEF, five national governments, and the Gates Foundation. It targeted pneumococcal disease. According to a 2005 WHO estimate, at that time, pneumococcal disease killed 1.6 million people every year, mostly in the Global South. The AMC sponsors provided $1.5 billion to subsidise vaccine doses, In 2010, GSK and Pfizer each committed to supply 30 million doses each year. In 2020, the Serum Institute of India started producing a third vaccine at $2 per dose. The Gavi Pneumococcal Conjugate Vaccine AMC officially finished in 2020, with contracts with manufacturers lasting until 2029.
In 2021, development consulting firm Dalberg published a report evaluating the impact of the AMC.
COVID-19
thumb|alt="A person with a respiratory mask and UNICEF t-shirt is touching a shipment of Covid-19 vaccines, delivered to Vietnam in 2021 as part of the COVAX advance market commitment.|A shipment of vaccines delivered to Vietnam as part of the COVAX AMC
Pandemic preparedness
Carbon removal
In December 2021, an AMC for carbon-removal was first proposed in a Politico essay by economists Susan Athey, Rachel Glennerster, Christopher Snyder and Nan Ransohoff, the head of Stripe Climate.
In April 2022, Stripe launched Frontier Climate, an AMC, "to buy an initial $925M of permanent carbon removal between 2022 and 2030." Ransohoff, who leads the project, told The Atlantic that the carbon-removal market will probably need to reach $1 trillion per year.
Comparison to other incentives
Advance market agreements are a form of “pull incentive”, which refers to a class of innovation incentives where payments are conditioned on outputs or outcomes. Examples of pull mechanisms include advance market commitments, prizes, and patents. They contrast with “push incentives”, such as grants, where payments are made upfront based on R&D inputs.
Advance purchase agreements
Advance purchase agreements (APAs), like AMCs, are a tool to incentivize capacity and R&D by reducing demand uncertainty. APAs involve a sponsor pre-committing to buy a certain volume of a product at a pre-specified price. However, unlike AMCs, APAs are generally signed with specific manufacturers rather than being available to the entire market. The two concepts are often conflated, as some argue that the COVAX AMC is actually just a series of APAs. and the Ansari X Prize. While both prizes and AMCs condition payment on outcomes, AMC payments are linked to scale (as payments are linked to sales in the market) while prizes are not. Michael Kremer and Heidi Williams argue that the presence of this "market test" makes AMCs more valuable than prizes at generating innovations usable at scale.