Advance Market Commitments Financial Implications & Risk Model Overview & Analysis Results

Copyright © 2006 by Applied Strategies Consulting. All rights reserved.

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Advance Market CommitmentsFinancial Implications & Risk ModelOverview & Analysis Results

November 9, 2006London, England

2AMC-FIRM_Overview & Analysis_London_09Nov06

AMC-FIRMContents

Analysis Methodology & Model Framework

Pneumococcal Vaccine Analysis Results


Advance Market CommitmentsSupplier Perspective

The goal of vaccine suppliers is to recoup their substantial investment in vaccine development within a reasonable timeframe

To make credible investment decisions, suppliers utilize industry best practices that:

– Clearly define the investment opportunities

– Identify the timing and risks of development

– Explicitly assess the costs (e.g., development, manufacturing)

– Analyze numerous competitive market scenarios

– Consider all investments in the context of their overall portfolio

Suppliers will employ this methodology when considering an AMC


Suppliers have a well established decision-making process for development investment

– Suppliers make a Go/No Go decision at each development step

– Each Go/No Go decision is made with forward looking value analysis

Each supplier will evaluatean AMC based on the information availableat the time ofthe currentdecision

Supplier PerspectiveDevelopment Strategy and Market Value Relationship

Success

No Go

Go

FailSuccess

FailSuccess

FailSuccess

Fail

No Go

Go No Go

Go

Development Strategy

High

Low

NPV (Exp. Revenues -Exp. Costs)

Market Value

$0

CumulativeDev. Cost,

at Time of Failure


Supplier PerspectiveMarket Value and Competition Relationship

In addition to their own success or failure, each supplier must account for the possibility of other new suppliers successfully reaching the market, e.g.,

Supplier A Success

PA

Supplier A Failure

Go

No Go

SupplierA

‘A’ Value Given ‘B’ and ‘C’ also succeed

‘A’ Value Given ‘B’ also succeeds

‘A’ Value Given ‘C’ also succeeds

‘A’ Value Given ‘B’ and ‘C’failed

‘A’ Cost of Failure

$0

PotentialMarket Scenarios

Competitor C Success

PC

Competitor C Failure

Competitor C Success

PC

Competitor C Failure

Competitor B Success

PB

Competitor B Failure


AMC ModelAnalysis Frame

The AMC model is designed to explore the level of AMC funding required to provide a neutral or better return on investment given multiple outcomes

The AMC needs to be sized to support

multiple supplier outcomes

Success

Fail

Success

Fail

Success

Fail

Success

Fail

Success

Fail

Success

Fail

Success

Fail

Supplier A Supplier B Supplier C

50%

50%

50%

50%

50%

50%

20%

20%

20%

20%

Probability

5%

20%

5%

20%

5%

20%

5%

20%

Outcome

A, B, C

A, B

A, C

A

B, C

B

C

-

Illustrative


AMC ModelGeneral Structure

AMCFinancial Implications

& Risk Model

FinancialAnalysis

Parameters

Supplier & Product Profile

Data

AMCContractTerms

Country(“Market”)

Data

Analysis Inputs

Analysis Outputs

Vaccine Need& Potential Market

Forecasts

VaccineProduct

Availability

Capacity & Supply

Forecasts

HealthImpactReports

FinancialReports

(Suppliers, Funders & Countries)


DetermineVaccine

Need

DeterminePotential

Vaccine Market

DeterminePotential

Vaccine Demand

DeterminePotential

Vaccine Capacity

DefineAMC Terms

DetermineSupply/Demand

DetermineSupplier, Funder

& CountryFinancials

AMC Investment

AMC Price

Post-AMC Price

f {vaccine price, country co-pay, country willingness to pay, country financial sustainability, AMC investment}

f {# of suppliers, vaccine availability, supplier capacity plan}

f {vaccine need, vaccine coverage rate}

f {population cohort, doses/fully compliant person}

f {vaccine availability, country adoption timing, time to peak coverage}

iterate

AMC ModelAnalysis Components

f {supplier costs, capacity utilized, supplier discount rate, funder/country discount rate}


AMC ModelData Input Quality

Each Vaccine Program Team was responsible for ensuring the credibility of their analysis inputs

– Credibility was achieved through transparent data gathering processes and multiple external expert reviews

The AMC model was responsible for:

– Applying the data in accordance with industry best practice

– Providing sensitivity analysis on key input data


Consistently evaluate all AMC vaccine candidates

– Ensure common methodology and data gathering processes

Explore the financial implications of an AMC by providing insight on:

– Size of AMC required to create a competitive market capable of supporting multiple suppliers, both multinational and emerging

– AMC terms that provide the most robust market support

Given AMC size and vaccine price assumptions, determine:

– AMC duration

– Donor cost

– Health impact

AMC ModelAnalysis Objectives


AMC-FIRMContents

Analysis Methodology & Model Framework

Pneumococcal Vaccine Analysis Results


Pneumo Vaccine Analysis Minimum Vaccine Product Profile Requirements

Efficacy vs. vaccine-type invasive disease >80%

– Provides coverage against at least 50% of pneumococcal serotypes causing local invasive disease

Administered concurrently with DTP

Local and systemic reactions as or less common than following DTwP vaccine

Shelf life 24 months

Liquid formulation preferred over lyophilized; separate injection acceptable


Pneumococcal Vaccine Analysis Potential Vaccine Demand

Assumes initial vaccine is available to GAVI-eligible countries in 2010

Assumes no vaccine supply or price constraints

Countries assigned to one of three adoption categories based on multiple criteria

Earlist Possible Year to AdoptionPilot Base Case

0123456789

10

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

# o

f V

F-E

lig

ible

Co

un

trie

s

Early Adopter Early Majority Adopter Late Adopter

Potential Vaccine DemandBase Case

0

50

100

150

200

250

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Mil

lio

n D

os

es


Pneumococcal Vaccine Analysis Supplier Product Profile Assumptions

Global #1 Global #2 Emerging

Product Technology 10-valent 13-valent Multivalent Conjugate

Product Dosing 3 3 3

Product Dosing Schedule EPI Schedule EPI Schedule EPI Schedule

Product Presentation1 or 2-Dose Vials Possible

Single Dose Syringe orMulti-Dose Vials

Single or Multi-Dose Vials

Product Efficacy Assumed High Worldwide Assumed High Worldwide Assumed High in GF-Eligible

Product Wastage Factor 10% 10% 10%

Product Health Impact (deaths averted) 7 per 1000 7 per 1000 7 per 1000

Estimated Cost of Goods Sold*

Estimated Licensure Date* 2008 2010 2015

Estimated GAVI-Eligible Country Availability* 2010 2012 2015

Product Preference Ranking (#1 high) 1 2 3

Source: PneumoADIP AMC Investment Case, 13Sep05* PneumoADIP estimates for analysis purposes

Base CaseAssumptions

Potential Suppliers

<----------------------------------------$1.00 - $2.00/dose---------------------------------------->


Pneumococcal Vaccine Analysis Supplier Timeline & Return Assumptions

Assume Global Supplier #1 and #2 are developing for industrialized markets, therefore, do not require an AMC return on investment– Assume post-licensure R&D is in developing countries on behalf of AMC,

therefore, requires 100% return through AMC mechanism

Assume Emerging Supplier enters development because of AMC, but intends to market to both private and public markets– Assume supplier requires a 80% return on investment through the AMCcc

Supplier

Global #1

Global #2 0%

Emerging

Preclinical Phase 3 % Amount of Development Investment Requiring an AMC ReturnPhase 1 LicensurePhase 2 Post-Licensure R&D

100%

80% 80% 80% 80% 100%

0% 0% 0%

100%0%0%

20212013 2014 2015 20162009 2010 20222017 2018 2019 20202011 20122005 2006 2007 2008


Pneumococcal Vaccine Analysis Probability of Licensure

OutcomeProbabilities

LicenseeOutcome

Global #1Licensure

Global #2Licensure

EmergingLicensure

S

F

S

F

S

F

p = 0.71

p = 0.29

p = 0.30

p = 0.70

p = 0.27

p = 0.73

S

F

p = 0.27

p = 073

S

F

S

Fp = 0.30

p = 0.70

p = 0.27

p = 0.73

S

F

p = 0.27

p = 0.73

0.0575

0.1555

0.1342

0.3628

0.0235

0.0635

0.0548

0.1482

1, 2, E

1, 2

1, E

1

2, E

2

E

none

Outcome Probability

3 products ~6%

2 products 31%

1 product 48%

0 product 15%

There is an 85% chance of 1 or more products achieving licensure


Pneumococcal Vaccine Analysis AMC Terms Analysis

Inputs Outputs Given All Three Suppliers Successful

AMC Price/Dose

($)

Maximum AMC

Investment($B)

AMCDuration

(yrs)

DonorNPV($M)

Supplier NPV[Risk-Adjusted NPV]

Total Deaths Averted Through

2030(M)

G#1($M)

G#2($M)

ES($M)

3.00 2.0 13 (890)94

[74]36

[10]38

[(0.2)]

5.4

4.00 1.5 10 (745)136

[116]64

[21]20

[0.8]

5.00 1.5 9 (760)172

[141]89

[28]15

[0.9]

6.00 1.3 8 (710)182

[148]98

[32]5

[0.6]

7.00 1.1 7 (620)161

[157]89

[36]10

[0.8]

Given:Country Co-pay: $1.00/dosePost-AMC Price: $2.00/dose

Donor Discount Rate: 5.8%Supplier Discount Rate: 10%


Pneumococcal Vaccine Analysis Scenario Analyses

Scenario Pneumo Assumptions

Slower Demand Case 1 & 2

Early Adopters: no change Mid-Adopters: +1 year delay Late-Adopters: +2 years delay

Early Adopters: +1 year delay Mid-Adopters: +2 year delay Late-Adopters: +3 years delay

Higher COGs Case 1 & 2 25% greater than Base Case 50% greater than Base case

Vaccine Availability Delay

Supplier 1 & 2− No change

Supplier 3− Base Case: 2015− Alt. Case: 2017

Zero Country Co-Pay Re-assessed time to adoption on a country-by-country basis to

reflect earlier adoption by mid- and late-adopters

Earlier Vaccine Availability Supplier #1 available 2009 vs. 2010 in base case

Alternative Discount Rate Change supplier discount rate from 10% to 12%

Based on these scenario analyses, an AMC investment of $1.5B is expected to achieve the AMC objectives.


Pneumococcal Vaccine Analysis AMC Terms Recommendation

AMCPrice/Dose

($)

AMC Investment

($B)

Outputs Given All Three Suppliers Successful

AMCDuration

(yrs)

DonorNPV($M)

Supplier NPV[Risk-Adjusted NPV]

Total Deaths Averted Through

2030(M)

G#1($M)

G#2($M)

ES($M)

5.00 - 7.00 1.5 9 (860)216

[188]118[39]

30[11]

5.4

Donor Discount Rate: 5.8%Supplier Discount Rate: 10%

Given:Country Co-pay: $1.00/dosePost-AMC Price: $2.00/dose


Pneumococcal Vaccine AnalysisAnticipated AMC Benefits

Provides motivation for multiple suppliers to invest in the capacity required to meet demand in low-income countries

– Mitigates delay in developing world vaccination – a delay that historically has been 15 years or more

Encourages emerging manufacturers to invest in vaccine development and supply, creating a more competitive market and additional downward price pressure

Enables countries to make more informed adoption decisions given greater predictability of country cost implications, both during and after the AMC funding period

– Increases confidence in affordability and sustainability assumptions

Creates market for more efficient vaccine technologies to capture share in an established and profitable market


Pneumococcal Vaccine Analysis Potential Deaths Averted

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.4520

06

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

An

nu

al D

eath

s A

vert

ed (

M)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Cu

mu

lative Death

s Averted

(M)

Given an AMC investment of $1.5B, pneumococcal vaccination could result in approximately 5.4 million deaths averted by 2030

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Advance Market Commitments Financial Implications & Risk Model Overview & Analysis Results

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