From the archives: How to start an advance market commitment

A practical guide from the founders of Frontier

Don’t miss Issue 15, which we released two weeks ago. We have had hundreds of applications for Invisible College, our week-long residential seminar in Cambridge in August. Applications close at the end of today if you want to add yours, or know someone who does.

Here is an article by Stripe Climate’s Nan Ransohoff. You can read it on our website here.

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In 2007, a group of governments and philanthropists pledged $1.5 billion to accelerate the development of vaccines against Streptococcus pneumoniae infections – pneumococcal vaccines – to prevent one of the most common causes of death in children in poor countries. 

They did this with an advance market commitment. Advance market commitments, or AMCs, are promises to buy or subsidize something in the future, if someone can invent and produce it. Their purpose is to guarantee enough future demand (in this case nearly two billion dollars) to encourage suppliers (in this case pharmaceutical companies) to try to build something that should exist, but doesn’t (in this case a pneumococcal vaccine for people in poor countries). 

There have been two notable AMCs for vaccines.

That first AMC was launched by Gavi, a public-private partnership largely funded by the UK government and the Bill and Melinda Gates Foundation. And it worked. By 2011, Pfizer and GlaxoSmithKline had developed a vaccine that met the target specifications, and both had signed contracts to start producing the vaccine at large volumes. By 2020, the Serum Institute of India had as well. Hundreds of millions of vaccine doses were purchased and distributed throughout the world, accelerating the development and distribution of the vaccine by five years, saving an estimated 700,000 lives.

A second AMC, launched as part of Operation Warp Speed in 2020, comprised US-guaranteed purchase orders for 900 million vaccine doses against Covid-19. The concern from pharmaceutical companies was: what if we spend time and money developing a Covid-19 vaccine, but someone else gets there first and the market for ours disappears? With these guarantees, even if Covid-19 had been addressed by the time some of these vaccines were authorized, the vaccines would still be purchased. The companies could invest in vaccines they knew their competitors were developing too, safe in the knowledge that their investments would not be totally lost if they weren’t first.

In 2022, I helped launch another AMC, Frontier, modeled after the vaccine AMCs. This time, the AMC was to pay carbon removal companies $925 million to permanently remove carbon from the air. While carbon removal and vaccines do not have identical market dynamics, they face a similar challenge: uncertainty about whether there will be customers who will pay for a product if it can be developed. 

AMCs can send a strong and immediate signal that there is a market for a product, and do so without picking winning technologies at the start. They might help us solve many other important problems. And yet there have only been a handful to date. Fortunately, that’s starting to change. In May 2023, the University of Chicago announced a Market Shaping Accelerator with a focus on the global challenges of climate change, biosecurity, and pandemic preparedness. In July 2023, the US government announced that it would consider demand-side interventions, such as AMCs, to accelerate the development of hydrogen fuels, which can be used for transportation, electricity generation, and energy storage. 

There could be more still. This piece is written for those starting or considering starting an AMC. It draws on my experience from Frontier, and attempts to describe what it was like for us to go from theory to practice. This piece tries to abstract a generalizable approach that may be helpful to others, without glossing over the messiness of reality and the imperfectness of our solution.

My goals for this piece are twofold:

1. To make highly motivated people working on important global problems aware of another potential solution available to them.

2. To help individuals who already want to start an AMC (or are seriously considering it) save time in doing so. 

To help make this piece even more tactical, attached is a worksheet. If you fill it out and send it to my colleagues and me at Frontier, we’ll read it and help if we can. 

You can read the ret of the piece here.