Vaccine Financing: Assessing Progress and Envisioning Future Directions

This is a joint post with Katie Stein.As the GAVI Alliance gears up for its pledging conference in June, a CGD panel reflected on progress and lessons learned in financing GAVI since 2001 and explored implications for the next decade. Speakers had first-hand experience in the design and implementation of the major vaccine financing instruments—Alice Albright, former CFO of GAVI; Michael Kremer, co-chair of CGD’s Advance Market Commitment (AMC) Working Group; Helen Evans and David Ferreira, GAVI; and Amie Batson, Deputy Assistant Administrator for Global Health at USAID. Key takeaways from the event are directly below, and a longer summary—with embedded video clips—is below that. You can also watch a full recording of the event here.Key Messages

1. IFFIm: leveraging and frontloading accomplished, marginal costs modest. The International Financing Facility for Immunization (IFFIm) has successfully leveraged and frontloaded funding for vaccination in low-income countries. Paid-in donor pledges amount to $500 million while GAVI has raised $3.5 billion on the markets at a cost close to raising sovereign debt in participating countries. IFFIm has generated a predictable trajectory of GAVI purchases that likely had a role in generating greater and more reliable vaccine supply at lower prices, while protecting low-income country vaccine financing from aid volatility related to the economic cycle.
2. AMC: delivered pneumococcal vaccines cheaply and quickly, demonstrating proof of concept. Under the Advanced Market Commitment (AMC), a long-term advance purchase contract was written resulting in a $3.50 pneumococcal vaccine (a 90% price drop relative to the U.S.), tailored to the significant low- and middle-income countries pneumonia disease burden and made available promptly in low-income countries. Going forward, GAVI could ask for a larger supply commitment upfront, consistent with predicted demand, and expand to new vaccine candidates.
3. Sources of financing: during 2000-2009, not all countries paid their “fair share.” Given that the elimination of vaccine-preventable diseases is a global public good benefitting all countries, GAVI would ideally be financed by each country according to the net benefits received from elimination. In an initial analysis of publicly available data, many G-20 countries are not contributing their “fair share” to GAVI, while others contribute substantially more.
4. GAVI’s 2011-15 strategy: market shaping and the “three-legged stool” of donor financing, country financing and vaccine price. With new vaccines, 4 million future child deaths could be averted by 2015. To accomplish this goal, GAVI needs donors and recipient countries to step up contributions and, in so doing, generate reductions in vaccine prices. GAVI’s funding strategy to 2015 focuses on diversifying sources of revenue and developing products that will enable and maximize donor and recipient country contributions. The strategy includes growing the IFFIm, raising matching funds from private sector sources, leveraging donor balance sheets, exploring options to leverage sovereign initiatives (perhaps in cooperation with IDA), and participating in G-20 discussions on innovative financing.
5. USAID view: committed with an enhanced focus on accountability for results and dollars spent. Current donors such as the U.S. are committed but facing increasing pressure to regularly demonstrate measurable results and use funding with integrity and transparency.

Detailed NotesIFFIm: leveraging and frontloading accomplished, marginal costs modestAlice reflected on the International Finance Facility for Immunization (IFFIm). In her view, success was feasible because the IFFIm was limited in its ambitions and was able to launch with only a few initial governments. Recently, IFFIm has expanded to include new countries, suggesting that the gradual approach can work to build confidence and subsequently leverage. However, this also illustrates the critical importance of a core group of champion donors.The link to market shaping was also very appealing; historically, the vaccine market was volatile and unpredictable. With the advent of IFFIm, the future trajectory of GAVI purchases became clear to industry, perhaps resulting in greater and more reliable vaccine supply at lower prices. The rating of IFFIm bonds—even during the recession—has been maintained over time on the strength of the high credit quality of participating donors and the legally binding nature of donors’ commitments. IFFIm’s potential for replenishment make it an excellent long-term support for the organization as there is no cap on the debt that can be raised with the funding commitments. The instrument also protects GAVI spending from donor budgetary fluctuations.Finally, IFFIm has had a magnifying effect—pledges paid amount to $500 million while GAVI has raised $3.5 billion on the markets. The additional financial costs of IFFIm have been a debate in the field, yet IFFIm’s costs are close to the costs of raising sovereign debt. Alice concluded by sharing that, in retrospect, IFFIm should have simplified institutional arrangements and only accessed funding when needed. IFFIm’s external evaluation—commissioned by donors directly—will be released in 2011. In the meantime, you can find an overview of IFFIm’s performance in the second part of GAVI's evaluation.AMC: delivered pneumococcal vaccines cheaply and quickly and demonstrated proof of conceptMichael discussed the Advanced Market Commitment (AMC), first reminding participants that just 10 years ago there was little demand for vaccines tailored to developing country disease burdens and no mechanisms to ensure access to new vaccines once they were developed. When starting out on the AMC design, the working group faced a dilemma: should they choose a major technological challenge whose R&D was further up the pipeline or choose an easier target to test whether the AMC would work on a procedural level? In the end, donors opted for the second choice.The two big controversies on the AMC relate to price and quantity. On pricing, some have said it was priced too high and that industry would have gone for less. No one knows what would have been, but there is some indication that industry would not have done so as it could create political pressure for lower prices in upper-income countries. In any case, the cost per DALY is still relatively low ($100/DALY) and represents significant value for money. In terms of the quantity included in the AMC contract, there’s been a concern that a lot of the money went to a particular pharmaceutical company. Here we have to balance the health objective with the price objective—there is a well-documented shortage of supply looming given the projected demand for the pneumococcal vaccine. The AMC creates competition upfront and the contract builds in long-run supply. It is also important to note that the price is partially a function of the near-term vaccine choice.Bottom line—the AMC worked procedurally and a new vaccine got out more quickly than was historically the case. In terms of the future for AMC, Michael recommends we consider asking for a greater supply commitment upfront, consistent with predicted demand, and expand to new vaccine candidates. The AMC baseline evaluation study is here.AMC: judgment calls on the management of price and health objectivesAfter a question about the extent of competition created by the AMC, Michael argued that the “goodness” of competition for price reduction depends very much on the specifics of each industry. In the case of vaccines, where huge upfront investments are required for manufacturing capacity, it may be counterproductive to issue short-run annual contracts. If manufacturers install more capacity than needed, society will eventually pay the price. Long-run contracts, such as the AMC, have competition upfront, but don’t create incentives for excess installed capacity that might be inefficient. For this reason, Michael argues that the quantity purchased under the AMC should have been larger, and that a possibly unjustified worry about competition could result in insufficient supply just when countries have agreed to scale up the vaccine. In addition, just because suppliers assure $3.50 per dose does not mean that GAVI has to buy at this price if a cheaper alternative came on the market.David and Helen both added that ultimately these decisions are judgment calls. There is some evidence—even though there was an initial bump in vaccine prices after the creation of GAVI—that there are more vaccine suppliers today than before GAVI began to purchase, that vaccine prices have fallen as a result, and that new suppliers in emerging economies are coming on to the market. Another reason to limit the size of the procurement is that GAVI must co-finance from its non-AMC funds. As GAVI is in the middle of replenishment, it was necessary to maintain a level of funding commitment that was credible to the market.Sources of financing: during 2000-2009, not all countries paid their “fair share”I set the stage for the discussion of future challenges in vaccine financing, reflecting on the predominantly European and Australian composition of GAVI’s current funding. Given that the elimination of vaccine-preventable disease represents a global public good from which all countries will benefit, I presented what “fair share” financing would look like. Ideally, we would measure “fair share” based on the net benefits that each country will receive from elimination. I might do this later as part of work-in-progress on a commitment to vaccination score, modeled on CGD’s Commitment to Development Index. For now, I looked at the question from the perspective of ability to pay, measured as a country’s share of global GDP adjusted by population size. Among current GAVI donors, the UK and Italy are contributing much more to GAVI than their share in the global economy. On the opposite end of the spectrum, the U.S. is contributing much less than their fair share. In the future, we’ll want to consider the emerging economies in the G-20 that would likely be the largest beneficiaries from elimination.GAVI’s 2011-15 strategy: market shaping and the “three-legged stool” of donor financing, country financing and vaccine priceHelen discussed GAVI’s new strategy for 2011-15 and the opportunities and challenges going forward. GAVI’s 28-member board from public and private sector organization wanted an aspirational strategy, building on results of the GAVI2 evaluation including a focus on strategic objectives and performance indicators.A key component of GAVI’s business model is market shaping. Prior to GAVI, manufacturers saw few opportunities in vaccines and no serious purchasing capacity. GAVI has changed both sides of the market equation. Thanks to IFFIm and AMC, GAVI has secured a significant level of donor funds, so they represent a significant purchasing power. On the demand side, they are now buying vaccines for half or more of the annual birth cohort in developing countries. Now GAVI needs to be cleverer on where the levers lie in market shaping. This can move GAVI from market-watching to active market shaping with two clear objectives: to ensure adequate supply to meet demand and to minimize cost of vaccines to GAVI and countries. A new strategy for supply and procurement will go to the GAVI Board in 2011. On the AMC, GAVI has clearly been market shaping. The $3.50 vaccine represents significant achievement (a 90% price drop) and tailored vaccine available promptly.GAVI’s third strategic goal is on increased predictability and improved sustainably relating to recipient government financing. Co-financing of new vaccines has always been a GAVI policy; however earlier versions were more about commitment than significant country funding. But, sustainability is about more than co-financing for the vaccines—it’s about country ownership of health as a development driver and vaccines as a key investment within that approach. This will take us beyond Ministries of Health to dialogue with Ministries of Finance and to other political leadership.What can GAVI deliver in phase 3? With new vaccines, 4 million future deaths could be averted by 2015, but they need donors and countries to step up contributions and for vaccine prices fall. The Norwegians call this a three-legged stool: donor money, lowering prices, and country contributions. These are our big challenges going forward.The new UK Multilateral Aid Review plots organizations by organizational strength and their contribution to development. GAVI was one of nine organizations that received the highest score, of “very good.” This is an enormous collective achievement. The aid landscape has changed and there is a need to focus more on emerging economies as key players financially and in terms of vaccine production.David laid out GAVI’s funding strategy going forward on diversifying sources of revenue and developing products that will enable and maximize donor contributions. The strategy includes growing the IFFIm, raising matching funds from private sector sources, leveraging donor balance sheets, exploring options to leverage sovereign initiatives (perhaps in cooperation with IDA), and participating in G-20 discussions on innovative financing.USAID view: committed, enhanced focus on accountability for results and dollars spentAmie ended with reflections on why donors such as the U.S. are committed to GAVI. Immunizations and vaccines are big game-changers that will help us achieve child mortality goals among other goals. Vaccination is a compelling story and the value for money is significant—7 million lives could be saved over the next 10 years. Amie praised the strategic approach that was brought to this domain. It’s about shaping the product—how can we help drive R&D for products that can immediately be used in developing countries? How can we shorten the period of time between when a vaccine becomes available in U.S. and when it is available in developing countries? How do we improve access and scale-up in-countries?Amie went on to explain that GAVI has a community of partners and this is the power of the organization. There is a loyal base of donors that are exceptionally important, but also important to diversify donors going forward. It’s also the stakeholder base, which is a mixed blessing on the Board—there are different agendas and what we are trying to achieve not always the same, but it also makes GAVI more robust.GAVI will also need to ensure they are on top of areas of interest for donors. Donors are focused on country accountability (measured in results), country co-financing, and integrity of funds. How can GAVI harness creativity around vaccines and information flows? How do you build health systems strengthening in a way that also is delivering results? How do you create the right chain of events that ends in the vaccination of children? GAVI needs to clearly define its comparative advantage.The Global Health Technologies Coalition kindly co-sponsored a reception following the panel.