How Advance Market Commitments Can Improve Science

The Gates Foundation spends money to save lives. One route has been a $1.5 billion bet to create Gavi, The Vaccine Alliance. In 2007, Gavi piloted the use of an Advance Market Commitment (AMC) to purchase pneumococcal vaccines for children in the developing world. By 2019, the program was a resounding success, having vaccinated more than 760 million children and prevented more than 13 million deaths.

It was a simple idea: create a market-making purchase order for the vaccine and let companies compete to fulfill the order, while simultaneously working with countries and NGO partners on distribution. It worked.

But the biggest return on investment is perhaps still to come. By prototyping and proving the AMC model, Gavi has laid the groundwork for a new philanthropic mechanism to take hold of market forces around the world. And others are finally starting to build on it. Driven by the urgency of the world’s most pressing challenges, like COVID-19 and the climate crisis, an expanding circle of philanthropists, economists, and entrepreneurs are advocating for and implementing new applications. The mechanism holds particular promise for reducing the costs of scientific tooling and equipment, as well as ensuring their equitable distribution.  

From Theory to Practice

The AMC is a triumph of modern economic theory. In 2000, the economist Michael Kremer proposed the concept as a way to encourage the research, development, and distribution of vaccines for diseases afflicting low-income countries. They recognized the power of “pull” funding to mitigate some of the market distortions that kept pharmaceutical companies from supplying these countries. Setting a price cap protected the countries from pharmaceutical companies trying to exert unchecked market power, and guaranteeing a price floor reduced the risk to the companies that countries wouldn’t maintain purchasing power. The idea eventually found a champion with the Gates Foundation, who proudly cite it as their best investment.

At the start of the COVID-19 pandemic, Kremer and others publicly called on the U.S government to create an AMC for a vaccine. Their “go big” proposal was an AMC of $70B to guarantee the purchase of new vaccines, suggesting this would kickstart the manufacturing capacity to pursue 15 to 20 candidates in parallel. Given the inherent challenges of vaccine development, moving full-speed on that many candidates increases the likelihood that at least one will make it over the finish line in short order. The details of the mechanism they proposed included both “pull” and “push” aspects: the large purchase order for vaccine delivery — the pull — and partial reimbursement for unused production capacity — the push.

Ultimately, Operation Warp Speed didn’t go as big as the team proposed, but the pre-purchase mechanism was used to good effect, especially in terms of bringing Pfizer’s vaccine to the U.S. Gavi itself responded with an initial $2B AMC to try to ensure equitable access to any COVID-19 vaccines.

The moral of the story from an economic and philanthropic perspective is clear: AMCs are one of the biggest and best tools in the toolbox, and we need to figure out how else to use them. In the past few years, we’ve also learned the model can be applied outside of vaccines, and that it doesn’t take billions to be effective. 

The payments company Stripe proved the model can work at smaller scales by jumpstarting the market for negative carbon emissions technology. As part of the company’s pursuit to address their carbon footprint, they made a commitment to purchase $1M worth of negative emissions products. They announced this intention in August of 2019 when the market for such products was nascent, if not non-existent. By May 2020, after receiving 24 applications, they announced the first four contracts, each for $250,000. The projects range from Climeworks, which is capturing CO2 directly from the air and storing it in basalt rock formations, to Charm Industrial, which has pioneered an approach to carbon storage that injects bio-oil into salt caverns. For most of the projects, this was their first form of revenue and an important step on their path to building companies and systems that scale. This effort set the stage for Elon Musk’s new $100M Carbon Removal XPRIZE.

We’ve done variations of this model ourselves for advancing ocean technology. The S.E.E. Initiative was a pioneering non-profit program that provided Trident Underwater Drones to citizen scientists, researchers and conservation groups around the world. It was backed by the Gordon & Betty Moore Foundation, Rolex, the Avatar Alliance Foundation, and others and has changed the trajectory of hundreds of research programs around the world. It’s working for coral monitoring tech, too. Hampered by limited real-time data at depth, coral scientists struggle to know when reefs are under threat from warming oceans. Aqualink purchased hundreds of real-time temperature monitoring buoys and has sent them to site managers and scientists around the world, giving everyone a better way to track marine heatwaves.

Better Tools for Science

Markets aren’t perfect. They have blindspots, failures, and externalities that create problems for human and planetary health. It’s precisely this arena of public goods — immunization, conservation, science — where we can expect more novel applications of AMCs. And we should hope for more, especially in regards to speeding up scientific research. 

Scientific equipment is expensive. A significant portion of grant budgets are used to acquire tools and technology. Labs are routinely built and stocked with hundreds of thousands of dollars of equipment and materials, sometimes millions. And costs matter. They determine who can do research. They influence priority of discovery, which dictates career progression. Barriers abound: by university, by country, or even by professional association. The wall of science’s ivory tower is built by expensive equipment.

AMCs represent an enormous opportunity to affect the costs of scientific tools and their equitable distribution. Here’s a short and specific example to add color to this vision, taken from my own field of ocean science and technology: 

The CTD instrument is the backbone of oceanography. It measures conductivity (a proxy for salinity), temperature, and depth (via water pressure). CTD “casts” involve the deployment up and down the water column, giving us a picture of ocean composition and the movement of currents. Despite the tool’s importance to understanding and predicting ocean conditions — the driving force of weather and climate — it remains expensive and unwieldy. There are, of course, different offerings and degrees, but most still require the support of a research grant. 

Like many scientific instruments, the current manufacturers charge a hefty markup (where the sales price is many multiples higher than the cost of producing the goods) because the demand from scientists constitutes a relatively small market. It’s supply and demand — Econ 101. There’s been a flurry of new DIY approaches to building these scientific tools, but the ease-of-use and manufacturing polish need further development. Their efforts are right-intentioned, though. Increasing access to this technology will allow more researchers to utilize it, especially early-career scientists and those working at under-resourced institutions. It also opens up the possibility for novel citizen science models and distributed monitoring infrastructure. Improving access would translate into greater resolution of changing ocean conditions and phenomena — a true public good. Humanity would be better off.

A $5M AMC for a low-cost CTD device would drive development from both traditional manufacturers and startups. Even a $2.5M commitment might be enough. This could permanently and positively change the landscape of ocean sensing and research, a small price to pay given the budgets of federal research agencies or some of the new ocean foundations. 

The model stands in stark contrast to the existing tools of philanthropy, which have traditionally operated by distributing grants, awarding prizes, and recently “impact” investing into purpose-aligned companies. The AMC spurs action by imitating one of the most powerful actors in the capitalist system: the customer. The bigger the purchase order, the faster companies will line up to serve. 

It should be emphasized that AMCs are not silver bullets. They were only part of the COVID-19 playbook. They work as a powerful force to ensure production is stable, distribution is equitable, and companies have a financial incentive to produce. But they are only effective as part of a bigger strategy.

Ultimately, the success of Gavi was based on more than just funding. It was the network of participation — the cooperation among countries, experts, and NGOs. If AMCs are going to find further use, cooperation will be central to its success. New, possibly unlikely, alliances will need to be made. This starts with an awareness of the idea. AMCs are here, they work, and we need more of them.