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Pandemics introduce a paradox of time to the world. Whereas COVID-19 spreads rapidly, the development of vaccines and treatments is slow. Humanity has learned some lessons from past epidemics, but each outbreak presents unique challenges. Even when governments can replicate some policies derived from dealing with past health crises such as Ebola, SARS, or H1N1, responding to new viruses often requires new, creative measures.
Although there remains no framework to address the problem of equitable vaccine access during a severe global health threat, governments should be aware that it could be better to prioritize vaccine distribution in countries that need it the most. Pandemics generate universal demand for vaccines around the world, causing unavoidable shortages, cost increases, and hoarding of supplies. The Netflix approach, a procurement mechanism previously used by Australia to fight Hepatitis C, could decrease vaccine prices while simultaneously offering incentives to allocate the scarce product in an efficient manner and avoid the temptation of high-income countries to stockpile.
Challenges to developing a COVID-19 vaccine
The discovery of a vaccine candidate that may be effective against COVID-19 is only the first of many steps necessary to resolve the pandemic. A strategy to develop and deliver a COVID-19 vaccine consists of three phases: the development phase, the execution of clinical trials and registration with local regulatory agencies, and the implementation of a global access strategy.
While the lack of incentives in R&D is worse for overlooked diseases like ZIKA, when an outbreak reaches a pandemic status, it generates eager market demand for a vaccine. Therefore, the necessary approach is not focusing on how to fund the vaccine; rather it is ramping up vaccine manufacturing capacity and enforcing efficient delivery.
Additionally, countries must harmonize their regulatory processes and clinical trials so that promising vaccine candidates can move quickly through the approval process. Since regulations are another hurdle, stakeholders should define clear pathways. Clinical trials play a fundamental role in successfully moving vaccines from the discovery phase and into the hands of the communities who need them. Due to the lack of standardization and coordination across national regulatory authorities, almost 70 percent of a vaccine’s R&D costs are incurred in clinical development.
Several countries are improving their processes and approaching a harmonization of the approval process—such as EMA, AVAREF, and AMHR. Nevertheless, there is still room for improvement. Regulatory authorities must focus their processes on “less duplication and more coordination.”
Although some countries have already ratified and implemented the Pandemic Influenza Preparedness Framework, they have yet to implement any global governance framework to provide equitable availability of vaccines for non-influenza virus outbreaks. Furthermore, during the A/H1N1 pandemic, high-income countries negotiated large orders for the vaccine, hoarded supplies, and hindered access to low-income countries.
When it comes to COVID-19, once vaccines become available, governments and manufacturers will face a scalability problem. Though building the infrastructure to reach maximum manufacturing capacity can cost hundreds of millions of dollars, it should be a priority for vaccine producers. Availability and easy access to an effective vaccine are crucial elements to stop the spread of the virus.
Establishing maximum manufacturing capacity while conducting clinical trials can help mitigate the scalability issue, but it will not determine how to efficiently and fairly allocate the doses on a global scale. High-income countries might pay for the development and mass-production of the vaccine only to procure vaccine doses for their own populations.
It is very likely that there will be massive demand for the future vaccine, but not enough supplies to fulfill all of the purchase orders—at least for the first months after the vaccine becomes available. However, vaccines must not be sold only to the highest bidder. Such an outcome would result in a suboptimal allocation of an initially limited resource. Every country has the responsibility to protect its inhabitants; nonetheless, individual interest will not solve a global pandemic. Due to the conflict of these interests, governments will be in a prisoner’s dilemma. Therefore, if international leaders and vaccine manufacturers do not coordinate their efforts, the outcome will be worse for all.
The Netflix model
The Netflix approach is a mechanism that can solve potential supply issues by providing vaccines at affordable prices while ensuring its efficient delivery. One of the principal methods for companies to increase their profit is to set a high price for their products, hindering its general access. This strategy is possible for vaccines and other medicines because they enjoy patent protection and market exclusivity periods.
The Netflix approach rewards the successful development of a vaccine by increasing or ensuring future revenue. Through a flat-fee pricing scheme, it has allowed countries to reduce the price of vaccines and offer high availability. Under this approach, the country pays a lump-sum to the manufacturer in exchange for an unlimited supply of doses to treat all of their patients.
One of the benefits of this approach is that the sooner the disease is controlled and eradicated, the more profitable the model becomes for the manufacturer. The subscription-based pricing offers the economic incentives for companies to proactively enhance treatment rates, improve the vaccine’s effectiveness, and attempt to eradicate the virus as quickly as possible in order to minimize the production cost of fighting a prolonged vaccination campaign. This approach has already been implemented in two different styles where it proved its potential to save money and treat more patients.
In 2015, the Australian government paid a lump sum for five years in exchange for an unlimited supply of Hepatitus C drugs. Through the Netflix model, the government was able to provide medication for an additional 93,400 patients, and saved the Australian government approximately $4.92 billion. In Louisiana, the state paid the same flat fee for over five years. In the first years, they received more HCV drugs than they had paid for (at market value). Whereas in the final years when the diseased population was smaller than it was at the outset, the state still paid the same amount of money as they did initially, but received fewer drugs, therefore balancing out the cumulative costs.
However, this mechanism can only be applied when specific characteristics are present. To begin, the infected patients must be identifiable. Second, the reduction of the disease must be a public health objective. Finally, the virus must be highly contagious so that early treatment will produce public health gains and cost reductions in the long run. Additionally, in order to avoid the overuse of a given drug, the disease must be potentially eradicable. Since all of these characteristics apply to the current COVID-19 crisis, the Netflix model would be a great mechanism to procure the vaccines.
Solving the Prisoner’s Dilemma
The Netflix mechanism also offers a solution to the prisoner’s dilemma. In most competitive scenarios, countries are projected to hoard vaccine supplies to ensure stock for domestic demand, however the Netflix approach could incentivize countries and major pharmaceutical suppliers to cooperate and avoid a suboptimal vaccine allocation.
To demonstrate the logic of the Netflix model, the payoff matrix below—derived from the original prisoner’s dilemma matrix— demonstrates the results based on different scenarios with and without the Netflix mechanism in play. It should be noted that the numbers used in the table are logic-based representations of the perceived payoff in terms of percentage of the population vaccinated in order to understand the model. They are not actual calculations or fact-based projections and should not be interpreted as realistic outcomes. As we explain in each of the scenario descriptions, and as with the logic of the prisoner dilemma matrix, several of these scenario’s would never be able to fully play out to their full extent which exemplifies the futility of other scenario considerations beyond the reality of pure market competition and the Netflix model.
The importance of understanding herd immunity
The principle of herd immunity is “a concept used for vaccination, in which a population can be protected from a certain virus if a threshold of vaccination is reached […] With herd immunity, the vast majority of a population are vaccinated, lowering the overall amount of virus able to spread in the whole population. As a result, not every single person needs to be vaccinated to be protected.” The percentage of people who need to be vaccinated in order to achieve herd immunity varies with each disease. Whereas measles required 95 percent, the threshold for polio is 80 percent. The percentage required for COVID-19 is still being discussed. For the scenarios described here we estimate that, to achieve a herd immunity, a minimum 70 percent vaccination rate must be reached. Hence, we can assume that countries and pharmaceuticals will be incentivized to secure enough vaccines to, at a minimum, achieve herd immunity.
Scenario 1: Countries (for the sake of our example, high-income country A and low-income country B) will immediately enter into a bidding war by trying to preemptively acquire the maximum number of vaccines for their citizens in a zero-sum game. In response to this high demand, the price will increase, reducing the purchasing power of all countries. Companies will sell fewer doses at much higher prices, resulting in their inventory ultimately going to the highest bidders and hindering access for everyone. Manufacturers will be monetarily incentivized to control the demand by suppling vaccines more slowly and keeping the price higher to maximize profitability. For the purpose of this example, competing high- and low-income countries achieve the worst possible outcome among the various scenarios, vaccinating only 20 percent of their respective populations. Moreover, the price surge will further worsen the situation for low-income countries, as their lack of financial resources will limit their vaccine intake. A similar scenario has already happened with health resources like ventilators, so it can be assumed that such behavior would be replicated with the release of a vaccine.
Scenario 2: If countries were to agree to implement a collaborative procurement strategy and force an initial distribution at artificially low prices, high-income countries will have more purchasing power to buy the majority of the doses and will be incentivized to hoard the vaccine supplies to try and reach 100 percent immunity for their populations. This will result in disproportionate supply and lead to the same bidding war described in the market competition scenario (Scenario 1). Furthermore, manufacturer’s will be biased toward prioritizing orders for their most important (highest dollar value) clients—the high-income countries—perpetuating the problem. Even if some high-income countries achieved herd immunity, the low-income countries will have insufficient supplies to vaccinate their populations. Not only is this a concerning human rights issue, but in today’s inextricably interconnected world, the high-income populations may not retain herd immunity as immigration, trade, and travel will continue to spread the virus between countries and the global population.
Scenario 3: In the scenario that manufacturers were able to provide an accessible price without the necessity of applying a pooled procurement strategy (as was the case in Scenario 2), ensuing market competition will generate massive competition to ensure the first vaccines. With lower prices, more countries will be able to afford the vaccines, and thus, the issue of scarcity will arise and worsen the global outcome without improving fairness. While it may seem unrealistic that a low-income country would ever achieve 100 percent vaccination while high-income countries had a poorer outcome, consider that the low prices of a cheaper vaccine would allow low-income countries to compete more effectively with high-income countries. This could result in a small, low-income country, like Bhutan, ending up with a 100 percent vaccination rate while a much larger, high-income country like the United States, may struggle to vaccinate the entirety of its population as it scrambles to find a sufficient number of available vaccines on the global market.
So, the question is: How can we incentivize countries to coordinate in order to deter a global bidding war or mass hoarding that would result in market scarcity? The last scenario provides a potential pathway to achieve cooperation based on the positive results seen in previous implementations of the Netflix model.
Scenario 4: The global cooperation demonstrated by the Netflix model is possible, but it will require the capacity to enforce cooperation and deter the natural desire to compete. The Netflix approach allows the largest number of countries, and the largest global population, to be protected through achieving herd immunity at the fastest rate by solving the following issues:
- The flat-rate payment structure of a Netflix-type contract avoids the possibility of generating a bidding war that would cause an increase in prices.
- The model also guards against scarcity by first allowing countries and manufacturers to aim for the minimum number of vaccines needed to achieve domestic herd immunity across all countries, before moving toward 100 percent vaccination.
- It also incentivizes manufacturers to vaccinate as many people as fast as possible in order to cut down on the future costs of dealing with a prolonged health crisis and having to provide additional vaccines after the previously negotiated flat-rate payment scheme. This will, in turn, incentivize pharmaceutical companies to achieve maximum production capacity as quickly as possible, whereas the prolonged response described in the other scenarios may not. Hence, while manufacturers will always try to retain their highest value clients, they will still have an economic incentive to deliver vaccines to low-income countries if, by doing so, they can achieve a herd immunization effect that could lower their global vaccine requirement and reduce their overall cost to fulfill their contracts.
For the purpose of the example, we assume that high- and low-income countries will be able to equally vaccinate 70 percent of their respective populations, resulting in global herd immunity more rapidly than any of the alternative scenarios.
Nonetheless, there is no precedent of two or more countries applying the Netflix model at the same time. Therefore, with this multi-country implementation, the question is: which organization has the power to make this optimal, mutually beneficial scenario a reality?
Ezequiel Carman is an Argentine lawyer and global health and trade policy consultant. Previously, he served as a legal advisor for the Ministry of Justice of Buenos Aires and as an assistant professor in international public law at Universidad Católica. Most recently, he worked as a research assistant for the O’Neill Institute for National and Global Health Law.
You can connect with him on LinkedIn or via email at: ecc98@georgetown.edu
