Unlock the Editor’s Digest for Free: Transformative Innovations in Life Sciences for Low- and Middle-Income Countries
Roula Khalaf, Editor of the FT, handpicks her favorite stories in this weekly newsletter.
Prashant Yadav, a senior fellow at the Center for Global Development and affiliate professor at Insead, sheds light on the challenges faced by low- and middle-income countries when it comes to accessing groundbreaking innovations in life sciences. Such innovations, ranging from novel treatments and diagnostics to digital health tools, often remain out of reach due to various factors, including unpredictable demand, fragmented and uncertain funding, regulatory uncertainties, and political instability.
Unfortunately, limited ability to pay means that companies cannot charge higher prices to offset these risks, leading to underinvestment in production capacity and limiting access to life-saving innovations. While donors can play a role in filling these gaps, they do not systematically decrease the risk for global companies to serve these markets better.
One potential solution to this problem is the use of “volume guarantees.” This involves providing a manufacturer with an assured minimum order volume over a designated period in exchange for better pricing and guaranteed supply. This model has already been successful in expanding access to contraceptive implants and vaccines for diseases such as rotavirus, diphtheria, pertussis, tetanus, hepatitis B, and hib.
In 2016, MedAccess was created by the UK’s international development agency and CDC (now British International Investment) to further advance this approach. With a funding of $200 million, MedAccess provides volume guarantees across a range of products to support risks that companies or health agencies are unable to bear. Under the leadership of CEO Michael Anderson, MedAccess has recruited key staff and established the necessary structures for implementation.
Accelerating Uptake of Mosquito Nets: A Case Study
One area where volume guarantees have proven successful is the distribution of mosquito bed nets to combat malaria. While these nets have been widely used with the support of organizations such as the Global Fund and the US President’s Malaria Initiative, the emergence of resistance to the basic pyrethroid insecticide used in the nets posed a significant risk to control efforts. The development of a new generation of nets with innovative insecticide coatings offered a potential solution, but limited demand made scaling up production and reducing prices challenging for manufacturers like BASF.
To address this issue, MedAccess considered global and national policies, financing, and regulation to assess the likelihood of approval, recommendation, and use of these new nets. In 2019, MedAccess and the Bill & Melinda Gates Foundation provided BASF with a four-year volume guarantee to purchase a specified volume of innovative nets that combine pyrethroid and chlorfenapyr insecticides. In return, BASF agreed to reduce prices by two-fifths. The successful implementation of this volume guarantee led to the delivery of these new nets in countries like Mali, improving access to effective malaria prevention tools.
Vaccines: Overcoming Approval Uncertainties
Another example where volume guarantees have played a crucial role is in the approval and distribution of the RTS,S malaria vaccine. Despite three decades of development by GSK and support from global health funders, European regulators approved the vaccine in 2015, but the WHO remained hesitant and recommended only a pilot program in a few countries. Without a more comprehensive endorsement and funding commitment from donors like Gavi, GSK faced significant risks that could have halted production.
To mitigate these risks, MedAccess provided a guarantee to cover new types of risk, including regulatory approval and associated funding. MedAccess offered Gavi a $56 million guarantee to underwrite its support, allowing GSK to continue manufacturing while awaiting a final WHO decision. In October 2021, the WHO recommended wider use of the vaccine in children across sub-Saharan Africa, leading Gavi to establish a funding mechanism and significantly expand deployment.
An Unusual Growth Dilemma
With more than 10 volume guarantees underwritten over five years, MedAccess has successfully increased patient access to life-saving innovations through partnerships with life science companies and global health funders. However, CEO Michael Anderson recognizes the risks associated with expanding too quickly to a broader range of products and markets. There is a concern that over-reliance on volume guarantees could create a moral hazard, where companies seek risk underwriting before undertaking any initiatives in lower-income countries. Anderson emphasizes that MedAccess’s goal is not to expand its own market share but to ensure the market works well.
To navigate these challenges, MedAccess has developed tools to assess the public health and market implications of potential deals. However, achieving consensus and alignment with partners on which deals to prioritize remains a challenge. Declining a potential customer’s request is difficult, even for a social enterprise.
Key Questions Raised
As MedAccess expands into additional therapeutic areas, it must address multiple forms of risk, including countries failing to meet payment obligations, rapid adoption of new interventions, regulatory changes, and disruptions in the supply chain. Determining which risks to avoid and which can be contracted upon is crucial, as is finding effective ways to mitigate these risks. MedAccess currently values its volume guarantee exposure as a derivative financial instrument at fair value. Assessing this fair value requires considering the different risk profiles of volume guarantees being called.
For those interested in a teaching note accompanying this case study, please contact [email protected].
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