Can innovative financing tools raise funds for the COVID-19 response?

WASHINGTON — As the development of tests, treatments, and a vaccine for COVID-19 has rapidly expanded, there have been growing efforts to explore innovative financing mechanisms to help fund them in ways that would guarantee access and ensure that products suited for the world’s lowest-income countries can move forward.

There are a number of innovative financing tools that have been used in the past that financing and global health experts are considering adapting for the coronavirus response, including advance market commitments, the potential to raise private funds through vaccine bonds, or using government guarantees.

An advance market commitment is essentially a contract where an entity, typically acting on behalf of a group of countries, promises to purchase a certain quantity of a vaccine at a set price. It is designed to guarantee a market and expedite the development and distribution of a product.

In 2009, an AMC was used to create a market for a pneumococcal vaccine that targeted strains found in low-income countries, helping to accelerate manufacturing and lock in a low price. In that case Gavi, the Global Vaccine Alliance, committed to purchasing the vaccine, which was close to being through trials, and by the end of 2018 it had purchased more than 860 million doses of the vaccine through the AMC.

Another tool that has been floated is a vaccine bond, which enables the long-term contributions of donors to be used immediately to raise private funds. This has been done before through the International Finance Facility for Immunization, which was created to support Gavi. A recent Brookings Institution post indicated that the mechanism could be used to fund some of the Coalition for Epidemic Preparedness Initiative’s vaccine development efforts.

Social investment pioneer Ronald Cohen, chairman of the Global Steering Group for Impact Investment, is proposing the creation of a new financing vehicle that would pair an AMC for COVID-19 testing, with a guarantee facility that would help defray the risks of building out manufacturing capacity.

In this proposal, in addition to helping companies de-risk the cost of innovation through the AMC, they would also get a government or donor-backed guarantee that would help raise funds to fund the infrastructure for mass production, Cohen told Devex.

He is proposing that the mechanism be created by countries of all income levels, who would commit some $10 billion to back testing innovation and production. Thus far, Cohen has received interest from philanthropists and other organizations that “are very interested in the idea of participating in these advance market commitments,” he said.

“We have the playbook,” he said. “Half the playbook is from the Ebola crisis and AMCs in 2009 but if we want to tap seriously into entrepreneurial innovation we need another half of the playbook that also de-risks the investment side.”

The government guarantees for manufacturing capacity would enable pension funds and other investors to provide the funding knowing that their money is safe and that they could make up to 10% returns depending on how well the final product delivers and how the terms of the guarantee are structured, he said.

While in high-income countries, funding would go to research and development and production, in emerging markets and low-income countries, the funds would go primarily to creating manufacturing capacity so they could produce their own tests under license, Cohen said.

That depends in part on ensuring that the companies that develop the tests are prepared to license them, but Cohen said he believes that in most European countries at least it would be an easy condition to put into contracts. It would also be important to have a clear process for setting prices, likely managed by a United Nations organization or other multilateral entity.

The difference between how the program would function in high- versus low-income countries is that in the lowest-income countries, the funds for the guarantees would likely come from an outside guarantor such as a multilateral organization or a bilateral donor, whereas it would come from governments in high-income countries.

While such a mechanism might work, there are some factors that need to be considered and lessons that can be learned from past experiences.

The mechanism could be effective if it ensured that the tests met the needs of low-income countries, especially if market incentives alone wouldn’t lead to the creation of those tests, said Amanda Glassman, executive vice president at the Center for Global Development.

In this case though, there may be the necessary market incentives because a rapid, easily deployed test ideal for low-income countries would likely be in demand everywhere, she said. The concern instead may be ensuring sufficient supply.

There is also some debate about whether investing in local manufacturing of commodities and medicines makes sense, Glassman said. From a public health standpoint, what you want is a low-cost, highly effective product that you can use as soon as possible, which may mean that buying from a Chinese or Indian manufacturer is more effective, she said. On the other hand, if supply chains and shipping is disrupted, it could change the calculus, Glassman added.

The key to the success of an AMC for testing is that it assesses the value of the test to different geographies, uses that information to determine tiered pricing, and ensures that it has appropriate characteristics for those environments, said Kalipso Chalkidou, director of global health policy at CGD.

An AMC is also being considered for a COVID-19 vaccine and it too would need to assess the value of the vaccine to different countries, in this case using the World Health Organization target product profile to determine tiered pricing, she said. That would result in a deal where countries would pay for the vaccine only if it meets clinical effectiveness and safety benchmarks along with a country's needs in how it is rolled out, and if it meets a certain price.

It could be that a vaccine may need to have a higher efficacy for low-income countries to make it worth it for them to buy, and it is important to ensure that they “don’t wrap up money in a vaccine with limited health benefit for them,” Glassman said.

The market conditions surrounding this AMC are quite different from those in 2009 where there wasn’t a clear market for the pneumococcal vaccine, she said. In this case there isn’t a question about the market for a COVID-19 vaccine, and all the candidates are at a much earlier stage.

But in the COVID-19 context an AMC could be useful to consolidate demand on behalf of low-income countries so there is a guaranteed market, Glassman said.

While there is a market for vaccines, there is still some commercial uncertainty, because no one knows how the virus will behave or what the situation will be when a vaccine is ready to go to market, Chalkidou said. There is a precedent for past diseases, including SARS, where a market never materialized, she said.

“We do need to crowd in private money, it is almost unthinkable to do this relying solely on grants,” Chalkidou said, adding that the challenge is getting the private sector to engage but not end up in a situation where there could be “profiteering.”

But there is a way to strike that balance for a COVID-19 vaccine, she said, a solution that might include an AMC mediated by Gavi for low-income countries and different pricing for middle-income countries that have large markets and a greater ability to play.

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