Market-Shaping for Access to Safe,
Effective and Affordable Health
Commodities
Business Case
June2012
Contents
Page
Contents ................................................................................................................... 2
Acronyms ................................................................................................................. 3
Intervention Summary ............................................................................................. 4
What support will the UK provide? ......................................................................... 4
Why is UK support required?.................................................................................. 4
What are the expected results? .............................................................................. 5
Strategic Case .......................................................................................................... 7
A. Context and need for a DFID intervention .......................................................... 7
B. Impact and Outcome that we expect to achieve .............................................. 17
Appraisal Case ....................................................................................................... 19
A. What are the feasible options that address the need set out in the Strategic
case? .................................................................................................................... 19
B. Assessing the strength of the evidence base for each feasible option ............. 22
C. What are the costs and benefits of each feasible option? ................................ 25
D. What measures can be used to assess Value for Money for the intervention? 28
E. Summary Value for Money Statement for the preferred option ........................ 30
Commercial Case ................................................................................................... 31
A. Why is the proposed funding mechanism/form of arrangement the right one for
this intervention, with this development partner? .................................................. 31
B. Value for money through procurement ............................................................. 31
Financial Case ........................................................................................................ 33
A. What are the costs, how are they profiled and how will you ensure accurate
forecasting? .......................................................................................................... 33
B. How will it be funded: capital/programme/admin? ............................................ 33
C. How will funds be paid out? ............................................................................. 33
D. What is the assessment of financial risk and fraud? ........................................ 34
E. How will expenditure be monitored, reported, and accounted for? .................. 34
Management Case ................................................................................................. 35
A. What are the Management Arrangements for implementing the intervention? 35
B. What are the risks and how these will be managed? ....................................... 37
C. What conditions apply (for financial aid only)? ................................................. 42
D. How will progress and results be monitored, measured and evaluated? ......... 42
Logframe .............................................................................................................. 43
Annex: Cost Benefit Analysis .............................................................................. 44
Endnotes ................................................................................................................ 58
Acronyms
ACT
API
ART
ATM
cGMP
CHAI
CBA
CYP
DCVM
D4T
EID
EMT
EPs
EFV
FDC
FDF
FIND
GAVI
GAAP
GDPP
GFATM
GHG
GHI
GoI
HMG
HPV
IATT
IRR
LARC
LCND
LLIN
LPV
MAR
MDR
M&E
MOH
mRDT
NMCP
NPV
PEPFAR
PPPY
POC
PQ
RDT
RHSC
RMNH
RNTCP
ROI
SARPAM
SCMS
SLD
SRA
SRP
TDF
VfM
VL
ZDV
Artemisinin-combination therapies
Active pharmaceutical ingredient
Anti-retroviral therapy
Access to Medicine
Current Good Manufacturing Practice
Clinton Health Access Initiative
Cost Benefit Analysis
Couple Years Protection
Developing countries vaccines manufacturers
Stavudine
Early infant diagnosis
Executive Management Team
Emerging Powers
Efavirenz
Fixed dose combination
Final drug formulation
Foundation for Innovative New Diagnostics
Global Alliance for Vaccines and Immunisation
Generally Accepted Accounting Principles
Global Development Partnership Programme
Global Fund for AIDS, TB and Malaria
Greenhouse Gas
Global health initiative
Government of India
Her Majesty’s Government
Human Papillomavirus
Inter-Agency Task Team
Internal rate of return
Long-acting reversible contraceptives
Lower Cost New Diagnostics
Long-lasting insecticide treated nets
Lopinavir
Multilateral Aid Review
Multi-drug resistant
Monitoring and evaluation
Ministry of Health
Malaria rapid diagnostic test
National Malaria Control Programs
Net present value
(US) President’s Emergency Fund for AIDS Relief
Per person per year
Point of care
Pre-qualified
Rapid diagnostic test
Reproductive Health Supplies Coalition
Reproductive, Maternal and Newborn Health
Revised National TB Control Programme
Return on Investment
South Asia Regional Programme for Access to Medicines
Supply Chain Management Systems
Second-line drugs
Stringent Regulatory Authority
Structural Reform Plan
Tenofovir
Value for Money
Viral Load
Zidovudine
Intervention Summary
What support will the UK provide?
A range of DFID Departments will together contribute up to a maximum of £35m towards the
implementation of an integrated, coordinated portfolio of supply- and demand-side market-shaping
activities across a range of priority health commodities, such as antiretrovirals, antimalarials,
diagnostics, vaccines, contraceptives and TB treatments. The portfoliowill be implemented by the
Clinton Health Access Initiative (CHAI) supported by an accountable grant from DFID. Progress will be
monitored by an oversight structure that will assess results and risks and provide strategic guidance.
The structure will have at its apex anoversight committee, chaired at CEO level in CHAI and DG level
in DFID, that will host a high-level, bi-annual meeting. Based on performance, the committee will
discuss overall financing for the portfolio, including whether additional financial support is required. It
will also discuss prioritisation of commodities and markets, including new and emerging opportunities.
Other partners will be engaged to participate as necessary.Supporting this high-level discussion, will be
a range of relevant policy-, region- and country-specific oversight groups that will track results, risks
and discuss strategic direction and policies (particularly with regard to knowledge transfer and
capacity-building).
Why is UKsupport required?
The Strategic Case sets out the importance of better access to safe, effective and affordable
medicines, vaccines and other health commodities (such as diagnostics and contraceptives) for faster
progress towards the health and other MDGs. While access to medicines has always been a
constraining factor, there is a particular opportunity now becausenew research and innovative
technologies are being harnessed to produce more effective and affordable health commodities, bettersuited to resource-constrained settings, for the prevention, diagnosis and treatment of a wide range of
diseases and health conditions.
Access to medicines is hindered by a range of market and government failures across the complex
value chain that stretches from discovery, testing, approval, manufacture, regulation, procurement,
distribution and delivery. These includepoor demand forecasting, weak procurement practices, limited
incentives for manufacturers to invest in R&D and to scale up production, a lack of clear regulatory
pathways for suppliers and many more.
Donors (including the UK) and developing countries spend billions of dollars on health commodities
each year. Coordinated market-shaping on both the supply- and demand-side, such as facilitating the
entry of new generic suppliers, improving the process chemistry for priority compounds, aggregating
demand and using pro-active procurement tactics, can transform the functioning of markets to deliver
much lower prices, better quality products and greater security of supply, so allowing for greater
availability of quality assured essential medicines for the poor. Such market-shaping interventions have
contributed significantly to the 95% decline in prices for first-line antiretrovirals for HIV over the past
decade, and to 80% decline for Malaria treatment prices1. The same has been proven for diagnostics:
the Foundation for Innovative New Diagnostics (FIND) supported the development of
GeneXpertMTB/Rif which is able to rapidly diagnose TB and give indicators of drug resistance and for
which FIND has negotiated stepped price reductions for machines and commodities bought for
developing countries based on volumes. This is projected to increase access to diagnosis and
treatment for the poor and consequently to reduce transmission of the disease.
DFID’s approach to market-shaping for health commodities rests on a number of principles:
1. Interventions should be undertaken with the full support and buy-in of developing country
2.
3.
4.
5.
authorities, and in coordination with the relevant international stakeholders active in the
respective disease or commodity area
Supply- and demand- interventions need to be well coordinated and tailored to the specific
features of individual health commodity markets, based on robust market assessments.
Sustainability needs to be mainstreamed. This means working to build market-shaping
capacity whether in developing country Ministries of Health or else in global partnerships
and communities that seek to secure better market dynamics outcomes.
The approach should focus supplier engagement on key ‘emerging power’ suppliers, such
as India, China and South Africa, given their transformative market potential, as shown by
experience in Anti-Retroviral Therapy (ART) and other commodities.
Any market-shaping intervention should have sufficient scope to cover the priority health
commodities in which DFID invests significant resources – both through bilateral and
multilateral channels – as well as to complement the investments that DFID is making in
new product research and development..
DFID has already invested in access to medicines interventions following the above principles through
a grant to CHAI which, in conjunction with partners, has yielded substantial results in access to key
commodities. Overall, the grant’s work on first- and second-line ART will secure over US$700m in
savings on spend on HIV treatments from 2011-15. An independent review of the grant undertaken by
HLSP states that; ‘DFID support has helped to improve the affordability, availability and quality for
AIDS and Malaria drugs provided by Indian and other manufacturers, and increased capacity in African
countries to access these drugs. This has been done through negotiating pricing, increasing
competition through reducing entry barriers for new producers, facilitating reduction in costs through
improving production processes, and improving demand forecasting and the flow of market information
more generally. By helping to increase the number of people in poor countries who can access these
drugs, DFID support has directly contributed to achievement of MDG targets on communicable disease
and access to medicines.’
The UK has committed to increased investment in health commodities over the next few years – both
bilaterally and through multilateral channels such as the Global Fund for AIDS, TB and Malaria
(GFATM), the GAVI Alliance, UNITAID, and UNFPA– thus there are greater opportunities for UK
intervention in this area. Intervention now will not only increase the value for money of UK investments
in commodities, but will also result in sustainable price reductions for developing countries.
What are the expected results?
The intervention is expected to generate total global savings of US$1.5 billion by 2015, principally
through lower prices for key health commodities. This figure is based on a highly conservative
assumption of no global increase in access to key medicines. The total savings delivered rises to
US$2.6 billion based on a more dynamic trajectory of global access. A key driver of the savings will be
greater engagement of ‘emerging power’ pharmaceutical industries through 10 to 15 new priority health
commodities, approved by a Stringent Regulatory Authority (SRA) originating from India, China and
South Africa
This will be sufficient to allow 2.3 - 2.8 million additional patients to be reached with safe and
effective health commodities such as HIV, TB, and malaria treatments, as well as contraceptives.
Additionally, savings on new diagnostic products will allow for an additional 550,000 additional
patients to be tested for HIV, malaria, and TB.
Key outputs include a 45% reduction in prices (from a 2012 baseline) for WHO-preferred HIV first-line
and second-line HIV regimens, a 50% decrease in lowest price for quality assured MDR-TB treatment
and up to a 30% reduction in the cost per test result for Point of Care CD4 tests to assess eligibility for
HIV treatment initiation (over and above price reductions CHAI are expecting to gain through their
programme with UNITAID)and two new suppliers of TB molecular tests at 50% of current prices.
Additionally, the intervention will work towards a 35% decline in the prices of long-acting reversible
contraceptives (LARCs), a 30% price reduction in at least two vaccines supported by GAVI, significant
reductions in prices for malaria rapid diagnostic tests (mRDTs) and affordable prices for up to 5 more
new malaria treatments (e.g. injectable artesunate and new Artemisinin-Combination Therapies (ACTs)
e.g. DHAPQP and ASPY)
The Appraisal Case presents a cost-benefit analysis and return on investment analysis of the proposed
intervention. It finds that the Internal Rate of Return of the intervention is at least 228% (assuming no
increase in global access over the project period) and 305% (based on a dynamic trajectory) through to
2020. Further, and very rarely for a DFID grant, the proposed intervention also has a positive return on
investment. In other words, it more than pays for itself through savings on DFID’s spend on health
commodities. UK savings on spend on ART through GFATM and UNITAID alone are enough to give
the intervention aReturn on Investment (ROI) of at least 5% a year. Were spend through bilateral
programmes and savings on vaccines and other commodities to be included the ROI would be much
higher.
While it is difficult to assess the impact of increased access to affordable quality assured drugs, it is
clear that through increased access to medicines, this intervention will directly contribute to achieving
MDGs 4, 5 and 6 (Child health, maternal health and HIV, Malaria and other communicable diseases)
and to the essential drugs target of MDG 8 (Global partnerships). Further, since the UK’s investment in
these commodities both reduces poverty (by enabling people to live productive lives and by reducing
out of pocket spend on health), this intervention will indirectly contribute to MDG 1(Poverty reduction).
Strategic Case
A. Context and need for a DFID intervention
The need and the opportunity
Despite significant efforts and subsequent advances over the past few years, accelerated progress is
needed if the health MDGs are to be reached. There are still substantial gaps in access to services,
including:
 10m people in developing countries who require anti-retroviral therapy for HIV but who do not
receive it;2
 215m women globally who want to delay or avoid pregnancy but do not have access to
modern contraceptive methods;3
 65% of children under 5 years in sub-Saharan Africa do not sleep under an insecticide treated
net, and more than 75% of prescribed antimalarial drugs in many high malaria burden
countriesare ineffective, rather than the more effective artemisinin combination therapies.4
Addressing these gaps in access is increasingly feasible because innovative technologies and new
research are being harnessed to offer the prospect of more effective and affordable commodities.
These opportunities are summarised below by disease area:
HIV: International global health donors and developing country partnersenabled more than 6 million
people to receive treatment by 2010. Recent advances in HIV prevention may result in a declining
incidence of HIV infection. A recent study demonstrated that ART is 96% effective in preventing HIV
transmission in serodiscordant couples, emphasizing the potential benefits of diagnosing and treating
patients as early as possible5. However, modelled scenarios of resource need demonstrate the
unsustainability of scaling up ART at current costs (for both drugs and delivery) given the current
context limited domestic funds and declining external resources. If efficiencies can be made,
however, using improved testing technologies and optimising delivery channels to treat more
patients, significant progress could be achieved toward a reduction of both new infections and
mortality among infected patients.
TB:The advent of easy to use, potentially affordable tests to diagnose drug sensitive and multi-drug
resistant (MDR) TB has raised the potential for significant advances in the treatment and hence
reduced transmission of TB. Shortened regimens are currently being trialled for both drug sensitive
and drug resistant TB; the former may reduce the incidence of MDR TB through improved treatment
adherence. MDR TB is a largely unaddressed public health problem, with less than 5% of incident
cases being treated in quality assured programmes6. Improvements will only be possible if the costs
of testing and treating drug sensitive and MDR TB can be reduced and the products made more
accessible to local markets.
Malaria:A significantly improved treatment – Artesunate - has been identified for severe malaria, with
a 22.5-34.7% relative risk reduction in mortality over alternatives78. Furthermore, new co-formulated
ACT products (e.g., DHA-PPQ, AS-PY) and rapid diagnostics have recently been introduced for the
treatment of uncomplicated malaria; others are in the pipeline. These tools show potential for a
significant reduction in mortality, particularly among children, and lay the foundation to halt the
development and spread of drug resistant malaria globally.
Vaccines: A number of new and increasingly sophisticated vaccines became available in the last
decade—including the pneumococcal conjugate vaccine, the human papillomavirus (HPV) vaccine
and the rotavirus vaccine. In coming years, new vaccines (for example, dengue, hookworm,
leishmaniasis, malaria and improved TB) may also become available. Accelerating the global rollout
for these vaccines offers the potential for huge impact on child mortality rates.
Contraceptives:While long lasting contraceptives are considered more clinically effective compared
to other contraceptive methods, uptake has been slow due in large part to its high cost. Similar gains
as seen in ART markets are anticipated if a competitive sustainable market can be fostered. This
requires not only greater volumes of products at lower costs, generated through a competitive
generic market, but also products of internationally accepted quality. Opportunities in other
reproductive health commodities, such as female condoms, will also be explored.
While these examples have the potential to substantially reduce the burden of disease and
accelerate progress towards the MDGs, action needs to be taken to ensure that potential is realised.
Experience highlights the risk that market and systems bottlenecks will stand in the way of rapid
progress. This risk is compounded by the challenging funding situation in global health (with recent
developments at the Global Fund for AIDS, TB and Malaria (GFATM) being one of the more widely
known and documented) that will threaten the finance available for health commodities. This situation
risks an erosion of the advances made in access to treatment over the past several years and limits
scope for scale-up.
The challenge
The challenge of making these new therapies widely accessible at affordable prices is highlycomplex. Effective access to medicines depends on a complex value chain that stretches from
discovery, testing, approval, manufacture, regulation, procurement, distribution and delivery before
reaching appropriate use. As the figure below shows, there are a number of characteristics that can
hinder or prevent the evolution of mature markets. These include:
 weak domestic purchasing power, and unpredictable and fragmented donor financing
 poor demand quantification at country level, and poor aggregation of demand at regional and
international levels
 poor product selection (often leading to highly fragmented product portfolios)
 weak procurement practices, with limited pooling or coordination across purchases and
purchasers
 limited availability and use of market information to inform buying
 uncertain routes to market for new products or suppliers (e.g. lack of clear regulatory
pathways)
 weak incentives for manufacturers to invest in current Good Manufacturing Practice (cGMP)
compliant facilities
 high barriers to market entrance for some products, compounded by uncertain demand and
high market development risks
Discover
Develop
& Test
• Low commercial incentives
• Limited product development
expertise in public sector
• Limited R&D/trial capacity in
developing countries
• Limited ID and Dev Country
expertise in private sector
Approve &
Register
Scale-up &
Manufacture
• Poor demand
data
• IP challenges
• Limited capacity
for some products
• Regulatory
• Unclear pathways
• Limited harmonisation
• Very limited capacity at country
level – approval, quality,
pharmacovigilence
Procure
Distribute
Prescribe &
Dispense
• Weak logistics,
infrastructure and
information
• Poor coverage
• Leakage
• Mark-ups
• Inefficiencies
• Low & variable
financing
• Multiple channels
• Poor quantification
• Poor use of pricing
info
• Non-transparent
Demand
& Use
• Affordability/ lack
of social financing
• Limited access
• Social barriers
• Poor information
• Low health
literacy
• Poor adherence
• EMLs/STGs
• Limited HR
• Informal sector
• Limited regulation
• Unethical
promotion
• Poor practice
Source: DFID Access to Medicines framework
Increasing coverage and appropriate use of commodities therefore requires a combination of
complementary interventions if impact is to be optimised. The value chain will only be as strong as its
weakest link. For example, the benefits of investment in new product development will be severely
compromised if market barriers limit manufacturing scale-up. Equally, the value of health systems
strengthening will be reduced if the supply of safe, affordable health commodities is inadequate.
Feasibility of intervention in market-shaping and rationale for UK support
Health commodities account for a large proportion of global health spending. For example, around
60% of GFATM expenditure and 65% -75% of Global Alliance for Vaccines and Immunisation (GAVI)
expenditure is on commodities. As a large contributor to these and other multilateral and bilateral
partnerships, the UK’s investment in health commodities is significant. These contributions to the
demand side, through better demand forecasting and assurances of purchase, help to strengthen
commodity markets 9 by attracting new manufacturing entrants and production scale-up. For
example, over the 2001-2010 period, GAVI (in which DFID accounts for about a third of total
financing) increased its supply base from five manufacturers to thirteen, including seven based in
emerging markets.10
The emerging powers are well placed to contribute to more effective utilisation of increased global
health spending, through their growing pharmaceutical industries. Healthcare companies from
emerging powers – particularly India and China – have played an important role in reducing prices
and improving access to vaccines, contraceptives, HIV/AIDS and malaria medicines for millions of
people worldwide. For example the Indian Serum Institute was involved in developing a new vaccine
- the MedAfriVac A meningitis vaccine - designed specifically for Africa’s meningitis affected
countries. Emerging powers are increasingly investing in research and development capacity to
identify new health technologies.
There is consensus that complementary interventions in shaping the structure and dynamics of
markets can secure much greater gains. For example, for first-line treatments for HIV, GFATM’s
willingness to fund the purchase of generic medicines, the establishment of the WHO PreQualification Programme, together with engagement of largely-Indian generic manufacturers to
produce new fixed-dose combination (FDCs) formulations contributed synergistically to the price per
person per year for first line combination therapy falling by over 95%11,12 It is unlikely that any one of
the interventions would have succeeded alone; GFATM’s willingness to procure was dependent on a
cheaper supply of quality assured drugs, while suppliers willingness to invest in manufacturing was
dependent on a firmer market The chart below illustrates the evolution of first-line ART prices over
the last decade.
Global Health Initiatives (GHIs) are developing strategies to move from a relatively passive “market
taking” position (ensuring efficient procurement within the current market structure) to an active
“market shaping” approach. In May 2011 the 23rd GFATM board meeting approved the
recommendations of the Market Dynamics Committee, which identified potential to avert costs
upward of $250m over 5 years, support better treatment outcomes and ensure commodity security
for high-risk products through strategic engagement in ART markets.1314 GAVI has approved a new
Supply and Procurement Strategy to seize opportunities for more active engagement in vaccine
markets.15In addition, UNITAID was established in 2006 with the specific remit to use market
interventions to improve access to treatment for HIV/AIDS, malaria and tuberculosis in developing
countries. UNITAID plays a unique role for these diseases by identifying specific market
shortcomings in the area of diagnosis, prevention and treatment.
However, what is clear is that successful market intervention cannot be secured by Global Health
Initiatives (GHIs) alone, as demonstrated by the ART example above. And indeed, many
opportunities for increased value for money gains through more active and strategic engagement
have been missed (Grace 2010).16 A number of the drivers of poor market functioning lie outside of
the remit or reach of such agencies. For example, while the GFATM made clear that it would fund the
purchase of high-quality ART, it was reliant on the WHO Pre-Qualification project to approve drugs.
And while WHO can pre-qualify products, it can’t provide direct technical assistance to potential
manufacturers to build capacity to meet regulatory requirements (i.e. reduce market entry barriers).
Source: MSF (2011) Untangling the Web of Antiretroviral Prices
The story of the market entry of generic Tenofovir (TDF) illustrates the way that market-shaping
interventions can add significant value. In 2007, most first-line ART comprised zidovudine (ZDV) and
stavudine (d4T) based regimens. In 2009 TDF became the preferred first line regimen in the WHO
Guidelines on the basis of lower toxicity, a better side effect profile and better efficacy (less
resistance). At that time, the Indian company, Matrix Laboratories (now Mylan Laboratories), was the
only generic producer to make Tenofovir (TDF), which raised concerns among countries about price
and supply security. Physicians in developing countries tended to be comfortable with the status quo.
CHAI, with its grant from DFID, worked on the demand side to assure countries of TDF’s therapeutic
superiority and that Matrix supply was of good quality. They worked on the supply side to assure
Matrix of sufficient demand from countries to expand production capacity and with other suppliers to
enter the market. Additionally, since 60-70% of the cost of ART is in the Active Pharmaceutical
Ingredient (API), CHAI also undertook work on process chemistry to reduce the cost of production
and to facilitate entry of new API and raw material suppliers into the market. The impact of this
engagement was to bring down the price for the leading Tenofovir-based regimen by over a third
saving several hundred million dollars. The chart below illustrates the evolution of prices and generic
suppliers of TDF.
Source: MSF (2011) Untangling the Web of Antiretroviral Prices
Even where progress has been rapid, such as in TDF market interventions, prices remain high in
relation to LIC health budgets and there is a significant challenge in rolling out Fixed Dose
Combinations (FDCs). Furthermore, progress with the market evolution for other product categories –
such as long-lasting insecticide treated nets (LLINs), MDR TB drugs, quality assured hormonal
contraceptives and some vaccines – has been less dramatic than for first-and second-line ART.
For these reasons, market-shaping forms a central part of the UK’s approach to access to medicines
(ATM). The chart below illustrates how it fits into DFID’s overall portfolio of ATM activities – that
seeks to promote innovation for new products, strengthen the enabling environment for the scale-up
of manufacturing, procurement and registration and strengthen the capacity of developing country
health systems to deliver safe, affordable and effective medicines and other health commodities to
their own populations.
Discover
Develop
& Test
Approve &
Register
Scale-up &
Manufacture
Procure
Distribute
Prescribe &
Dispense
Demand
& Use
Push Investment – e.g. PDPs
Innovation
Pull Mechanisms e.g. AMC
Regulatory Paths and Capacity e.g AMRH
TRIPS Flexibilities/Patent Pools/IP –
Enabling
Environment
Global Funds and Market dynamics/engagement - e.g. UNITAID, CHAI, GFATM, GAVI
Industry Good Practice - e.g. IGFAM
Affordable Medicines Facility Malaria
Southern Africa Regional Programme on Access to Medicines
Health
Systems
Medicines Transparency Alliance
Bilateral Country Programmes
Source: DFID Access to Medicines framework
Theory of change
The theory of change that guides DFID’s approach to market-shaping is that interventions on the
supply- and demand-side can complement other access to medicines interventions and act as a
powerful ‘accelerator’ to enhance access to safer, more effective and more affordable health
commodities. Thus inputs (investments in the market shaping process) lead to outputs (market
shaping interventions), lead to outcomes (global savings through reduced medicines prices and
improved availability of essential, quality assured medicines through, for example, engaging
emerging market suppliers) lead to impact (improved health outcomes and contributions to achieving
the MDGs by, inter alia, at least 2.3 million additional patients receiving effective health commodities)
Examples of market-shaping interventions in the theory of change are set out in the diagram. Supplyside activities include:
A. Optimising sourcing of API and other raw materials
B. Facilitating the entry of new suppliers (of both raw materials and finished product)
C. Working to find ways to improve production process chemistry – of both API, finished
products, formulations, etc.
D. Working to facilitate regulatory approvals (either internationally – US FDA, EMA, WHO PQ or
else, crucially, registration within developing countries17)
E. Optimising product design (e.g. formulations, tailoring for specific markets, like paediatrics)
F. Negotiating prices with suppliers based on anticipated demand
On the demand-side, examples of activities with developing countries, normative agencies and
Global Health Initiatives include:
G. Working to secure the inclusion of commodities in international (e.g. WHO) guidelines
H. Producing more robust forecasts of demand (including building developing country capacity in
I.
this area
Using innovative financial approaches (such as volume guarantees) to secure better
outcomes
J. Using the range of pro-active procurement tactics (at both the level of GHIs and developing
countries), such as market consolidation through product selection.
These market-shaping activities can be complemented by a range of complementary in-country
access interventions - the objective of which is not principally market-shaping - but which contribute
indirectly to healthier commodity markets. Examples include:
K.
L.
M.
N.
Strengthening of supply chains
Activities to support new product introduction into health systems
Health worker training
Supporting shifts in the prescribing behaviour of physicians
MARKET-SHAPING INTERVENTIONS
COMPLEMENTARY
IN-COUNTRY ACCESS
INTERVENTIONS
DEMAND-SIDE
SUPPLY-SIDE
SUPPLY AND DEMAND-SIDE:
INTERVENTIONS COORDINATED AND PRIORITISED
A
B
SUPPLIERS
OF ACTIVE
PHARMACEUTICAL
INGREDIENTS (API),
RAW MATERIALS
AND CHEMICALS
GLOBAL
HEALTH
PARTNERSHIPS
D
GENERIC
SUPPLIERS
C
ORIGINATOR
SUPPLIERS
E
OTHER
DONORS
F
H
J
DEVELOPING
COUNTRIES
I
REGULATORY AND
STANDARD-SETTING
G AGENCIES AND
FRAMEWORKS
K
M
HEALTH SYSTEMS
L
2
N
LESSONS LEARNED SHARED AT ALL LEVELS
A
B
C
Optimise Sourcing
Facilitate New
Entrants
Improve Process
Chemistry
D
E
F
Facilitate Regulatory
Approvals
Optimise Product
Design
Negotiate Prices
G
H
International
Guidelines
Inclusions
I
J
Demand
forecasting
Guaranteed
volumes
Modify
Procurement
K
S/C management
L
Product introduction
M
Health worker training
N
Prescribing behaviour
• Coordinated market-shaping leads to more suppliers, affordable and sustainable prices, supply
security, better quality standards, greater country capacity to forecast, procure and adopt.
• This results in improved access to safe, affordable and effective commodities and improved
health outcomes.
This comprehensive, integrated market-shaping approach isunderpinned by a number of principles:
Firstly, interventions should be undertaken with full support and buy-in of developing country
authorities, and in coordination with the relevant international stakeholder partnerships active in the
respective disease or commodity area
Second, supply- and demand- interventions need to be well coordinated and tailored to the specific
features of individual health commodity markets – based on robust market assessments.
Third, sustainability needs to be mainstreamed into all work. This means working to build marketshaping capacity – whether in developing country Ministries of Health or in global partnerships and
communities that seek to secure better market dynamics outcomes.
Fourth, the approach should focus supplier engagement on key ‘emerging power’ suppliers, such as
India, China and South Africa, given their transformative market potential, as shown by experience in
ART and other commodities.
Fifth, interventions should complement other interventions that DFID supports in market-shaping and
access to medicines. This includes investments in multilaterals such as UNITAID, GFATM and GAVI,
as well as in-country programmes such as the South Asia Regional Programme for Access to
Medicine (SARPAM).
Finally, any market-shaping intervention should have sufficient scope to cover the priority health
commodities in which DFID invests significant resources – both through bilateral and multilateral
channels – as well as offer the potential to seize opportunities for other commodities as they emerge.
DFID’s grant to the Clinton Health Access Initiative (CHAI) that began in 2008 has adopted this
integrated, market-shaping model. Through work across both sides of the market, this grant, in
conjunction with partners, has yielded substantial results in access to key commodities for HIV, TB
and Malaria. These results have been documented and validated in an independent review
undertaken by HLSP. The evaluation states that:
‘DFID support has helped to improve the affordability, availability and quality for AIDS and Malaria
drugs provided by Indian and other manufacturers, and increased capacity in African countries to
access these drugs. This has been done through negotiating pricing, increasing competition through
reducing entry barriers for new producers, facilitating reduction in costs through improving production
processes, and improving demand forecasting and the flow of market information more generally. By
helping to increase the number of people in poor countries who can access these drugs, DFID
support has directly contributed to achievement of MDG targets on communicable disease and
access to medicines.’
Results achieved by the existing CHAI grant include, but are not limited to:


CHAI was instrumental in bringing about the reduction of Lopinavir/ritonavir (LPV/r) from $600
per patient per year (pppy) to $400 pppy, a reduction of 33%, and moving the market away from a
single supply situation.

CHAI’supstream work to reduce the cost of production can be directly linked to the 33% price
reduction in leading Tenofovir-based first-line ART regimens.

Overall, the grant’s work on first- and second-line ART will secure over US$700m in savings
on spend on HIV treatments from 2011-15.
CHAI’s work in South Africa was one factor contributing to the expected savings of US $250300 million for South Africa in 2011 alone.

CHAI contributed to the increase in the number of pre-qualified artemisinin-combination
therapies (ACT) producers going from 2 to 6.
The independent assessment also stresses the importance of the integrated, supply- and demandside model:
‘CHAI’s supply side work is often seen as the primary catalyst of cost savings, the denominator in the
Value for Money (VfM) equation of economy, efficiency and effectiveness. However, CHAI’sdemand
side work is also essential from a VfM perspective, for two reasons: i) making the demand side less
opaque is often the means by which to leverage supply side changes, especially for nascent or
rapidly scaling up markets, and ii) demand side work is needed to ensure that quality, low cost
medicines and health technologies are used appropriately by prescribers and patients; and only
through appropriate use will the health impact be seen.’
Demand-side activities have included supporting development of national treatment guidelines,
supporting country forecasting and procurement planning, helping to expedite commodity
registration, supporting new product introduction and strengthening supply chain management. The
independent evaluation notes several positive examples of CHAI having helped to build capacity in
this area noting that, ‘throughout its activities, CHAI has emphasised building capacity of local
partners. The statement of “they sit with us” was mentioned by many of the government officials in
both countries to describe the way CHAI works’. However, it also notes that, ‘there is some indication
that CHAI’s result-oriented approach may have compromised capacity-building efforts.’ Based on this
last point, the evaluation recommends more even and pro-active oversight of capacity-building
activities in any future partnership.
Alignment with UK Strategic Priorities
The proposed programme maps closely to a range of coalition government development policy
objectives. First of all, inadequate and over-priced access to medicines is an important driver of
poverty through loss of productivity while increasing household expenditures. Out-of-pocket spending
on health, including medicines, often drives or keeps households below the poverty line in lowincome countries. The 2011 MDG Gap Taskforce report18 found that in the public sector, generic
medicines are only available in 38% of facilities, and on average cost 250% more than the
international reference price. In the private sector, those same medicines are available in 63.3% of
facilities, but cost on average about 610% more than the international reference price. High prices
often render medicines unaffordable, with common treatment regimens costing a low-paid
government worker several days' wages.
More specifically, the results will contribute to a number of DFID objectives as set out below:
In terms of the focal areas in DFID’s business plan:




International commitments: Increasing reliable access to affordable quality health
commodities is a necessary component to meeting the health MDGs (SRP 1.2). Access to
medicines is an MDG indicator itself (Target 8.E: In cooperation with pharmaceutical
companies, provide access to affordable essential medicines in developing countries. Access
to medicines is also a necessary condition of progress on the health MDGs (MDGs 4, 5 and
6).
Value for money: The focus of this project is to increase value for money in global health
spending through increased transparency (SRP 2.0), strengthened accountability for access
to health commodity results (SRP 2.4) and reduced prices for key essential commodities
Wealth creation: The programme focuses on improving the competitiveness of
pharmaceutical markets, and increasing the engagement of the private sector, including
through appropriate market entry for quality assured suppliers from emerging powers into
developing countries
Role of women: Improved access to medicines is essential to improving reproductive,
maternal and neonatal health.19Since women are the main caregivers in most societies,
increasing the availability of lower cost medicines will save them time (since drugs should
become increasingly available at lower level facilities) and money. The programme will
specifically support work to improve the function of markets for contraceptive commodities
and has the potential to expand focus to other reproductive and maternal health commodities.
Additionally, this programme contributes to UK’s Emerging Powers (EPs) agenda as set out in the
Global Development Partnership Programme (GDPP) approach and strategy. Through
engagement with pharmaceutical companies in China, India and other countries as well as through
the positive regional impact of strengthened procurement and regulation in countries like South
Africa, there will be positive development impact in DFID priority countries and positive global impact
in terms of healthier markets for health commodities.
Improving value for money, results focus and transparency of multilateral spend were primary
objectives of DFID’s Multilateral Aid Review (MAR). Securing improvements in spend and market
shaping for health commodities, in particular through our contributions to GFATM, GAVI, UNITAID,
UNFPA and other agencies, were identified as priority areas for attention.
.
DFID’s Framework for Results for Reproductive, Maternal and Newborn Health (RMNH) states that
‘the UK will invest in continued innovation in products and support stronger procurement and supply
chains to prevent stock outs and increase availability of essential commodities (e.g. contraceptives,
medicines and supplies for maternity care). Increasing global and national market efficiencies make
quality products cheaper to developing countries and increase value for money.’
It further commits that ‘action at the international level will improve value for money for reproductive
health commodities. The UK will seek improved market efficiencies for the supply of quality and
affordable contraceptives, contributing to an estimated cost savings of £20 million a year.’
The Malaria Framework for Results states that ‘active engagement in markets – by improving
demand forecasting, working directly with suppliers to improve production processes and accelerate
market entry or by coordinating procurement – could achieve significant improvements in value for
money (better prices, supplier performance, product specification and market security.’
Finally, the Operational Plan of DFID’s Human Development Department commits to global support
for access to medicines to generate costs savings for key global health commodities.
Specific targets set out are global savings of: (i) over £20m p.a. for contraceptive implants and
injectables, equating to over 2 million pregnancies avoided and (ii) $140m for first line anti-retroviral
regimens and $100m for second line.
B. Impact and Outcome that we expect to achieve
Impact: The savings generated through the interventions are sufficient to allow 2.3 - 2.8 million
additional patients to be reached with safe and effective health commodities such as HIV, TB, and
malaria treatments, as well as contraceptives. Additionally, savings on new diagnostic products
would allow for an additional 550,000 additional patients to be tested for HIV, malaria, and TB.
Outcome: Outcomes are in two key areas; (i) global savings on total spend on medicines (in
countries with access to generic prices) and (ii) engagement of Chinese, Indian and South African
pharmaceutical industry in producing high-quality health commodities for developing countries. More
specifically, the outcomes are:
(i)
Net Present Value (NPV) of total global savings generated by the interventions planned
through to 2015 of US$1.45 billion by 2020 (based on the highly conservative assumption
of constant global access to key medicines). The NPV of savings rises to $2.53 billion
(based on baseline assumptions around the trajectory of global access).
(ii)
Between 10 to 15 new products, approved by a Stringent Regulatory Authority (SRA)
originating from India, China and South Africa
These results will be underpinned by a number of outputs to be delivered by 2015:
Optimal drugs for HIV and TB:
45% reduction in prices for WHO-preferred HIV first-line and second-line HIV regimens, including
specific focus on prices in priority hyper-endemic countries in Southern Africa
Up to 50% decrease in lowest price for quality assured MDR-TB treatment
Three additional SRA assured HIV and MDR-TB products supplied from Indian, Chinese and RSA
sources
Lower-priced, high-quality diagnostics:
Up to 30% reductions in the cost per test result received (over and above price reductions through
UNITAID interventions) for at least 2-3 Point of Care CD4 products to test for HIV treatment initiation
Scale up of usage of Point of Care (POC) testing for HIV in priority hyper-endemic countries in
Southern Africa
Increase in the number of suppliers of effective TB molecular tests distributing tests through the
private sector at affordable prices
3 new SRA-approved POCdiagnostic products from China or India
Lower-priced high-quality contraceptives and vaccines:
Reduction of more than 35% in the prices of long-acting reversible contraceptives (LARCs) in low
and middle income countries
A 30% price reduction in at least two vaccines supported by GAVI (including at least one from an
Indian or Chinese manufacturer).
Increased availability and supply of malaria diagnostics and treatments:
Significant reduction in prices for malaria Rapid Diagnostic Tests (RDTs) and up to 5 more new
malaria treatments (e.g. injectable artesunate and new ACT products e.g. DHAPQP and ASPY) from
Indian and Chinese manufacturers submitted to a Stringent Regulatory Authority (SRA).
These results are the outcome of outputs and activities with both producers and countries where the
drugs and commodities will be used. On the country side more robust demand forecasts, stronger
regulatory pathways, and improved product selection will send signals to producers to facilitate price
reductions, registration of products for regulatory approval, and investment in production. This
balance of supply and demand side will be monitored through agreed country- and policy-specific
project oversight arrangements. These arrangements will include monitoring of other crucial
outcomes, such as capacity-building.An appropriate capacity-building indicator will also be developed
as part of the ongoing monitoring and evaluation process.
Recognising the technical nature of the issues, as well as the challenges of better understanding
complex market dynamics and attributing impact to different interventions, an independent entity will
be retained to support both monitoring of progress and to provide a rigorous approach to evaluation
and lesson-learning.
Appraisal Case
A. What are the feasible options that address the need set out in the Strategic case?
The previous section set out the strategic case for DFID support for market shaping interventions
to enhance access to safer, more effective and more affordable health commodities. It also set
out a number of principles – such as country ownership, collaboration with global partners and
programmes, coordination between supply- and demand-side activities, ‘emerging power’
engagement, tailoring to individual commodity market conditions and mainstreaming of capacitybuilding – that are fundamental to success.
This section appraises options for delivering those interventions. It also assesses the costs and
benefits of the ‘do-nothing’ counterfactual. The following three options have been identified. They
are set out, together with an assessment of their feasibility below:
Option 1. The ‘no intervention’ counterfactual: Under this option, no market-shaping
intervention would be undertaken to complement UK investment in health commodities through
multilateral and bilateral channels.
Is this option feasible? This is a feasible option and will be appraised in the cost-benefit analysis
section below.
Option 2. Deliver individual commodity-specific supply- and demand-side interventions
through different organisations with specialist policy or in-country experience. All
interventions described in the portfolio would be carried out by one or more organisations with
relevant expertise. A mechanism would be put in place to coordinate and communicate across
different implementing entities. DFID would manage the different set of activities through
individual contracts.
Is this option feasible?: Market-shaping is a highly specialist and emerging area. There are
insufficient organisations with the specialist skills in the various commodities to make this option
implementable (although it is an objective of DFID’s market-shaping engagement to develop the
market-shaping landscape in this direction). Further, the capacity requirements and costs
associated with putting in placean effective mechanism to meet the principle of supply-demand
coordination are highly significant. It would also imply significant additional programme
management capacity within DFID to let and manage the different contracts. For these reasons,
Option 2 is not considered a feasible option to implement this intervention.
Option 3. Deliver supply- and demand-side interventions across the commodity range in
an integrated manner through a single market-shaping grant to the Clinton Health Access
Initiative (CHAI).
Feasibility: CHAI has the experience, technical capacity, presence on the supply- and demandside, track-record of results, commitment and shared objectives necessary to implement the
proposed intervention. CHAI’s capacity to implement the individual elements of the proposed
portfolio has been reviewed by an independent consultant and by DFID policy leads and incountry health advisers.Competency in key output areas is evidenced as follows:
HIV drugs – As demonstrated through their work on the previous DFID grant, CHAI has relied on
a network of collaborations and partnerships to progress HIV drug access, including working
extensively with the Indian generic industry. They worked in partnership with the Gates
Foundation, UNAIDS, WHO, and others in developing a set of drug and drug optimization
priorities that have become the basis for global drug optimization research and development and
for the UNAIDS Treatment 2.0 Drug optimization agenda. CHAI forged collaborations with major
drug procurers and funders including country governments, bilateral funders, implementers and
GHIs to coordinate procurement and drug selection opportunities to maximize impact. One
example is the creation of a concerted paediatric ART procurement system with the Inter-Agency
Task Team (IATT), GFATM, Supply Chain Management System (SCMS), and UNITAID to
compensate for possible market failures associated with a transition from the UNITAID program to
one funded by Global Fund. On the demand-side, CHAI continues to leverage its strong incountry presence as a convenor of implementing partners to facilitate decisions and transitions to
better drug regimens in country.
HIV spending efficiency – CHAI has worked with the support of UNAIDS and the Gates
Foundation, at the specific request of governments in several countries to analyse national
spending for HIV treatment. UNAIDS would like to expand this collaboration to advance the
Treatment 2.0 agenda into additional government programmes, upon request.
Malaria – In Malaria, CHAI actively collaborates with the WHO, GFATM, African Leaders Malaria
Alliance, Medicines for Malaria Venture, and Zagaya (Amyris’ non-profit arm). CHAI is also an
active member of the WHO led ACT Taskforce where they work with John Snow International, the
President’s Malaria Initiative (US), and UNICEF. CHAI also works with malaria drug suppliers;
where their partnerships parallel the partnerships with HIV drug suppliers in nature and strength.
TB drugs – CHAI’s work to improve the price and supply security for high quality MDR-TB drugs
relies on a network of key partnerships. CHAI has been and will continue to work in close
collaboration with the Global Drug Facility and Stop TB department at WHO, the Bill and Melinda
Gates Foundation, UNITAID, WHO-SEARO, India’s National TB Treatment Program, and other
stakeholders to pursue a range of market shaping efforts which include supporting and growing
volumes, expediting regulatory approvals, improving supplier selection, improving forecasting and
visibility and supporting accelerated case finding. Simultaneously, CHAI has engaged with key
suppliers on the demand side by leveraging existing relationships with ART manufactures who
also serve the MDR-TB drugs market, and continues to build newer associations with final drug
formulation (FDF) and active pharmaceutical ingredient (API) manufacturers in India and China.
Vaccines – CHAI’s vaccine pricing work is built upon foundational partnerships with key
stakeholders such as the Gates Foundation, GAVI and UNICEF. CHAI has worked in close
collaboration with these organizations across a range of initiatives, which, inter alia, include
negotiating lower prices of rotavirus vaccine and accelerated introduction of pneumococcal
vaccine in Ethiopia. CHAI has been engaging with major multinational as well as Developing
Countries Vaccines Manufacturers (DCVMs), and, would work towards building and strengthening
newer association with others.
Diagnostics – The diagnostics component of this intervention will be implemented in phases:
technology screening, product design and development, test evaluation, approval by normative
bodies, in-country pilots, in-country registrations, and product uptake. At each of the stages, CHAI
will engage with partners who have the necessary skills and experience. The list of partners is
evolving; currently, partners include: PATH (project design and evaluation); FIND (product
design); WHO and CDC (approval by normative bodies); Ministries of Health (in-country pilots,
registrations and product uptake); and the US President’s Emergency Fund for AIDS Relief
(PEPFAR), GFATM and USAID(for product uptake). Over the last five years, CHAI has developed
a relationship with most of these bodies that they can leverage for this project.
Contraceptives – DFID, USAID, and UNFPA support the Reproductive Health Supplies Coalition
(RHSC), a global partnership of public, private, and non-governmental organizations to bring
together diverse agencies and groups with critical roles in providing contraceptives and other
reproductive health supplies. These include multilateral and bilateral organizations, private
foundations, governments, civil society, and private-sector representatives. DFID and RHSC
have requested that CHAI be involved in developing RHSC’s capacity to use market shaping
approaches similar to CHAI’s approach in the HIV space to increase RHSC’s capacity to execute
these strategies independently. This work would coordinate closely with the Concept Foundation
which has been retained by the RHSC to improve the quality of RH commodities.
Option 3 will therefore be appraised in the cost-benefit analysis section below.
Option 4. Deliver supply- and demand-side interventions across the commodity range in
an integrated manner through a single market-shaping grant to a multilateral, or other,
agency.
Feasibility: For a range of other health issues, such as health financing, health workers, health
metrics, aid effectiveness for health and many more, multilateral agencies – frequently the WHO –
or partnerships take a global leadership role and have significant implementation capacity. In the
market-shaping space, the need for direct engagement with pharmaceutical companies rules
outdirect engagement of normative agencies like the WHO on conflict of interest grounds.
UNITAID was established in 2006 to drive access to diagnostics and medicines for HIV, TB and
Malaria through specific market-shaping interventions. It is a financing, rather than an
implementing, entity so it also delivers projects through implementing partners, such as CHAI, if
selected for funding. However, in this case UNITAID could not support a broad-based portfolio
such as the one proposed due to the boundaries of its mandate – for example, it does not cover
immunisation or reproductive health. While several multilaterals, such as GAVI and GFATM, have
taken steps to more pro-actively shape markets in recent years and build their internal capacity,
they do not have (and should not have) the mandate, capacity or reach to implement this sort of
portfolio of activities. Following analysis and consultation with key partners and stakeholders
active in this area, it is assessed that there is no other organisation than CHAI able to execute a
comprehensive, integrated portfolio such as that proposed effectively. This option is therefore
not considered to be a feasible approach to implementing this intervention.
B. Assessing the strength of the evidence base for each feasible option
The quality of evidence for each of the three options is rated in the table below:
Option
Evidence rating
There is strong evidence, based on analysis and evaluations, that a
1. The “do
passive approach by the global health community to commodity
nothing”
markets leads to missed opportunities and sub-optimal outcomes in
counterfactua
terms of prices, supply security and access. Comparative analysis
l
can be made across different disease and commodity areas for
varying market-shaping efforts.
There is strong evidence (including from the evaluation undertaken
3. Deliver
of the existing DFID grant) that CHAI interventions have been
supply- and
effective in accelerating access to safe, effective and affordable
demand-side
health commodities through activities such as supplier engagement,
interventions
price negotiations and enhanced demand forecasting.
through CHAI
Climate and Environment Appraisal
A climate and environment appraisal of each of the two feasible options was undertaken. This
included analysis against the criteria set out below.A summary of the results of this analysis is
provided in the following section that identifies expected negative impacts and positive
impacts/opportunities.
Feasibility
Criteria
1
2
3
Description
Weighting
Integrates environmental and climate change issues as part of market
shaping activities.
Promotes good environmental management and minimises
environmental impacts throughout the value chain of health
commodities.
Raises awareness of the impacts of climate and environmental change
on infectious disease transmission
2
3
3
Note: each CSC is weighted 1 to 5, where 1 is least important and 5 is most important based on the relative
importance of each criterion to the success of the intervention.
Option 1 – The ‘no intervention’ counterfactual
Negative impacts: without market shaping to complement UK investment in health commodities
there is a high risk that opportunities will be missed in terms of improving prices, supply and
access. This will reduce secondary impacts including improved health and increased wealth and
further limit indirect benefits such as a reduction in vulnerability to climate change and better
environmental management. Furthermore, opportunities will be missed to help: 1) raise
environmental standards and management within the pharmaceutical sector and the whole value
chain; and 2) raise awareness of climate and environmental change impacts on health and
susceptibility to infectious diseases.
Positive impacts/benefits: few tangible benefits of the counterfactual were identified and
insufficient information is available to assess the potential benefit of environmentally poor
suppliers not entering the market.
Option 3 – Deliver supply-side and demand-side interventions across the commodity range
in an integrated manner through a single market-shaping grant to CHAI
a)Impact of intervention on the climate and environment
The intervention is likely to be associated with a number of direct and indirect negative impacts
on climate change, environmental degradation and community resilience. These include the
following.

Increase in greenhouse gas (GHG) emissions. These may result fromoffice based
activities and increased travel and transport. To mitigate these CHAI seeks to minimise this
through its working practices. GHG emissions already arise from transport of health
commodities and storage of vaccines, rapid diagnostic kits and drugs, and may increase as
more commodities become available. Insufficient information is available to fully assess the
incremental impact of this intervention, but the implementation of environmental policies will
help reduce these impacts.

Research, development and manufacturing impactson the environment. Facilitating the
entry of new suppliers (of raw materials and finished product) from emerging powers (e.g.
China, India) as part of supply-side market shaping activities carries the potential risk of
increasing environmental impacts. These include air and water pollution;
noise;pharmaceutical manufacturing and packaging waste production (including biosafety
hazards); and resource use (e.g. energy and water) from pharmaceutical plants. These will be
significant in countries where environmental regulations are in their infancy and/or poorly
enforced. Similarly, the pharmaceutical industry is associated with low manufacturing
efficiency, in part due to the complex chemistries required to make medicines. It is often
resource intensive and waste output is high,20 although this is something the project seeks to
change. Insufficient information is available to appropriately assess the significance of these
impacts in part given the different locations of the new suppliers. However, this impact can be
reduced by ensuring, as part of the projects due diligence that suppliers have certified
environmental management systems in place that meet national and international standards.
The intervention has a number of potentialindirect positive impacts/opportunities resulting from
significant improvements in access to safe, effective and affordable medicines, vaccines and other
health commodities (e.g. diagnostics and contraceptives). These include:

The opportunity to raise the standard of environmental management in the pharmaceutical
sector. Not only is there an opportunity for CHAI to raise the profile of environmental and
climate change issues through its network of collaborations and partnerships, but also to
ensure manufacturers either have, or are working to have, environmental management
systems that meet national and international standards.

Access to reproductive health can reduce environmental impacts. A community’s ability to
mitigate or respond to climate change is significantly increased if women are able to plan their
families21, as women play a unique role in the stewardship of natural resources22. In general,
access to family planning results in lower fertility rates and hence lower population pressure
on natural resources.
Impact of climate change and environment degradation on the intervention
The success of global responses to malaria, TB, HIV and other infectious diseases can be
undermined if other root causes such as climate change, growing poverty and environmental
degradation are not considered. Climate variability and change, environmental degradation have
the potential to expand the geographical range of vectors and therefore the risk of “vector-borne”
diseases.Drought, famine and flooding can lead to outbreaks of disease and migration and force
“climate refugees” to move into endemic regions where poor nutrition can further reduce their
immunity.
While this has negative health consequences, it may enhance the impact of the interventions,
since increased numbers of cases will benefit from reduced commodity prices. Climate change
can however have negative effects on the intervention by hamperingdistribution of and physical
access to medicines and/or make it more difficult to target the “most vulnerable” groups.
Summary of Climate and Environment Assessment
Option 1: “No intervention” has been rated as no/low positive and negative impacts as a result of
missed opportunities for the environment/climate change.
Option 3: “Deliver interventions across the commodity range through a single market-shaping
grant to CHAI” has the potential for medium/low opportunities for climate change and the
environment if climate and environmental measures are mainstreamed throughout the
intervention. Medium/low negative impacts are also identified with this option although these are
manageable risks that can be easily mitigated with few residual impacts.
Final Categorisation of Options
Option
Climate change and environment
negative impacts and risks
1
C
3
B/C
Definition of Categories:
A
High potential risk / opportunity
B
Medium / manageable potential risk / opportunity
C
No / Low potential impact / opportunity
D
Core contribution to a Multilateral Organisation
Climate change and environment
positive impacts and opportunities
C
B/C
C. What are the costs and benefits of each feasible option?
Cost-benefit analysis (CBA) has been applied to compare the value for money of the proposed
portfolio of activities against the ‘do nothing’ counterfactual. The CBA was undertaken on each
component individually and then aggregated to allow for the whole portfolio to be assessed.
Unusually for a proposed DFID grant, a Return on Investment (ROI) approach was also applied
to assess the portfolio. This narrower measure allows for an assessment of the impact of the
intervention on DFID’s own budget – rather than the wider global, developmental and economic
impacts as covered by CBA. This analytical approach is based on the savings that the intervention
achieves on DFID’s own spend on health commodities (through its contributions to multilaterals
like GFATM, UNITAID, GAVI, UNFPA and others).The full CBA and ROI analysis is set out in a
more detailed annex. The methodology and results are set out below.
Assessing Benefits: Counterfactual market dynamics have been set up for the different
commodities. The graph below shows the counterfactual/baseline trajectory for the focal first- and
second-line HIV regimens. (These activities would be supported under Component A.1 which is
the largest component and accounts for around a quarter of the grant by inputs.)The
counterfactual assumes that a number of factors will reduce prices for HIV regimens in the
absence of this intervention. These factors include rising demand and implementation of more
pro-active market-shaping activities by key purchasers such as GFATM and large countries.
Based on these trends, the rate of decline of prices is expected to be moderate (in the absence of
the CHAI activities that have driven declines over the past few years.) leaving prices for the WHOpreferred tenofovir-based first-line regimen 23% lower in 2015 than at the end of 2011. For
second-line drugs, the counterfactual is expected to result in a 14% reduction in prices to 2015. In
terms of the CBA, these are conservative assumptions. Prices for high-demand ART for which no
market-shaping interventions have been undertaken in the past few years (e.g., zidovudine,
stavudine) have remained broadly constant.
A.1. Maximizing Value for Money and Ensuring Sustainable Supply of HIV Treatment
Figure 1: Graph to Show Price Reductions for HIV Regimens
*Prices quoted before 2011 are Low Income Averages and CHAI Ceiling Prices respectively
**2nd line prices before 2011 use TDF+3TC+LPV/r, rather than TDF+3TC+ATV/r for future prices because ATV/r is a
relatively new product
The graph above also shows the intervention trajectory. The combination of supply- and demandside activities targeting new product uptake, cost reduction for new/existing ART and long-term
market sustainability would accelerate price reductions leading to 47% and 39% lower prices, as
compared to the 2012 baseline, for first- and second-line regimens respectively. Prices for firstline drugs would be 31% lower in the intervention case, and second-line prices 29% lower, as
compared to the counterfactual. Additional benefits (which are not monetised) include greater
national capacity and more effective programme decision-making (in key countries).
The graphs assume that prices remain constant post-2015 which is when the proposed
intervention ends. The prices are rolled forward to 2020 since the impact of the intervention is
captured in to the future and these impacts need to be captured in the CBA.
Based on the assumed price dynamics, a financial stream of benefits can be calculated by
multiplying savings per patient per year by the total number of patients on treatment. This
calculation depends on assumptions about overall patients on treatment (in generically-accessible
countries). Two scenarios were established. The first assumes a linear scale-up of patients with
access to ART based on historical trends (and within that a switching towards the preferred
tenofovir-based therapies). The second (highly) ‘conservative’ scenario assumes patients on ART
remaining constant at its 2010 (and within that total a similar switching towards tenofovir-based
therapies).
The table below sets out the benefit streams. Under the linear scale-up, $310 million of savings
are achieved by 2015 and $1,450m by 2020. Under the conservative scenario, $182 million is
saved by 2015 and $704 million by 2020.
2012
2013
2014
2015
2016
2017
2018
2019
2020
Linear scaleup savings
$167.M
$48.2M
$95.5M
$150.2M
$176.1M
$202.0M
$227.9M
$253.8M
$279.7M
Conservative
Savings
$12.7M
$31.8M
$56.9M
$81.1M
$88.8M
$96.6M
$104.3M
$112.0M
$119.7M
The above methodology has been applied to the extent possible across all the components of the
intervention. (For some components – where commodities are newer, forecasts are unreliable and
pricing information less available – it has not been possible to undertake CBA; it is probable
therefore that benefits have been underestimated)
Costing
Under Option 3, $56M (£35M) will be required to fund all proposed activities over three years. The
component by component breakdown is set out in the Financial Case. (Costs are presented in US
dollars to allow for consistency with the benefit analysis.)
D. What measures can be used to assess Value for Money for the intervention?
The individual components of the proposed portfolio have been reviewed extensively – both by an
independent consultant as well as by DFID’s own policy and country-level teams..
Net Present Value/Internal Rate of Return
Using a 3.5% discount rate (as recommended for global public goods), the NPV of projectable
savings from the portfoliois estimated to be $1.44-2.53bn1 for the period 2012-2020.This is likely
to be an underestimate since CHAI are currently only able to project the savings for a subset of
components. CHAI’s work in low-cost diagnostics, vaccines, mRDTsand malaria treatment are all
expected to generate additional substantial savings. The table below presents, by component,the
investment required over the life of the grant (2012-2015); the NPV of savings over the same
period; and the NPV of savings in the longer term (2012-2020).
During the project lifetime (2012-2015), these savings, combined with the costs of the associated
interventions (a total of $27.55m) yield an internal rate of return (IRR) of441% on the
‘conservative’ scenario and an IRRof585% for the ‘linear scale-up’, and 443% and 586%
respectively through to 2020. When the full costs of the project ($56.05m) are included, the IRR is
220% and 305% respectively by 2015, rising to 228% and 310% by 2020; this calculation
excludes additional savings from the remaining components with un-calculated benefits.
Summary of NPV Calculation
Cost of
investment
(2012-2015)
Project
HIV Treatment
(A.1)
POC CD4 (A.2)
HIV Spending
(A.3)
MDR-TB (B.1)
Low-cost new
diagnostics (C.1)
LARCs (D.1)
Savings (2012-2015)
(NPV)
Linear
Conservative
scale-up
Conservative
Linear
scale-up
$11.11
$7.10
$153.2M
$99.7M
$267.3M
$99.7M
$561.4M
$426.9M
$1,156.8M
$426.0M
$4.87
$3.23
$73.0M
$39.0M
$177.0M
$39.0M
$361.3M
$54.9M
$849.8M
$54.9M
$6.55
$1.25
Not Calculated
Not
Calculated
Not Calculated
Not Calculated
$14.6M
$14.6M
$68.6M
$68.6M
Not Calculated
Not
Calculated
Not
Calculated
Not
Calculated
Not
Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
0
0
0
Vaccines (D.2)
$2.54
mRDTs (E.1)
Malaria
Treatments (E.2)
Sharing Lessons
Learned
Global applied
overhead
IRR2
NPV
$5.71
Not Calculated
1
Savings
(NPV)
Not Calculated
$4.58
Not Calculated
$2.20
$6.92
2012-2020
2012-2020
0
228% (Conservative) – 310% (Linear scale-up)
$1.45 Billion - $2.53 Billion
Based on the ‘conservative’ and ‘linear scale-up’ scenarios for ART access respectively
2Excludes
savings from 6 areas that have not be estimated
Return on Investment
As noted above, a Return on Investment (ROI) approach has also been applied to selected
components of the proposed intervention.
The methodology used was to identify the share of total expected savings on commodities for key
multilaterals – based on their expected volume and distribution of future spending. Next, the total
share attributable back to the DFID budget could be calculated based on assumptions of UK
contributions. The chart below sets out the findings of this analysis.
It is estimated that (based on the linear scale-up scenario) the programme will, up to 2020,in NPV
terms, save $59.2m from DFID’s spend on first-line ART (through GFATM which accounts for a
third of all patients on treatment in generically-accessible countries and will save $19.7 million in
spend on second-line ART (through UNITAID which accounts for 60% of adults on second-line
treatment).
The direct savings to the DFID budget from the ART work alone exceed the total costs of
investment of the whole portfolio and mean the intervention has a positive ROI. Based on the
savings associated with the ART component alone, the annual ROI of the whole portfolio is 3%
over the period 2012-2020. Assessing the ART component alone as a self-standing intervention
gives and ROI of 24% a year.
Component area
First-line Regimens
Second-line Regimens
Total HIV savings
ROI analysis
Total Savings (Linear
scale-up)
$1,304.1M
$145.6M
$1,449.8M
Savings on UK
spend
$73.4M
$24.7M
$98.1M
Sensitivity Analysis
A number of stress test were applied to the analysis above. Given the high returns, the
intervention is robust to sensitivity analysis. Applying an 8% discount rate reduces the NPV to a
range of $1.11-1.94bn. Even if only 10% of the expected savings are achieved, the intervention
still has a positive NPV (of $95-204m) (at a 3.5% discount rate). The breakeven price reduction for
the intervention is that the portfolio delivers just 4% of the forecast savings. In concrete terms, this
would mean the intervention accounting for a US$2 decrease in the price of the preferred first-line
regimen and a US$4 reduction in the price of second-line treatments.
It is also important to stress that the CBA analysis is conservative throughout – not just in terms of
the assumptions but also in that it excludes significant potential areas for savings, such as
vaccines, where the analytics are not sufficiently robust. However, huge opportunities for price
reductions exist for new, emerging and possible future vaccines such as Japanese Encephalitis,
Typhoid, Hexavalentand Cholera. As an example, the anticipated annual demand in developing
countries for Hexavalent vaccines (combining Diphtheria, Tetanus, Pertussis, Hepatitis B, Polio,
and Hib) would be over 200 million doses in the 2015-2020 period. Based on very preliminary
discussions with suppliers, it is anticipated that market-shaping interventions for this vaccine alone
could generate very significant savings over the programme period. Given the UK’s high level of
investment in vaccines, this would bring important savings to DFID’s own budget as well.
E. Summary Value for Money Statement for the preferred option
The value for money arguments for this intervention are compelling at several levels.
First of all, the health commodities to which this programme will promote access are highly costeffective. WHO estimates of cost-effectiveness of selected commodities are:
- Immunisation: Recent studies indicate that through scaling up vaccine development
and delivery over the next 10 years across 72 countries could prevent the deaths of 6.4
million children, ultimately saving more than $151b in treatment costs and producing
$231b in economic benefits23.
- Family Planning: DFID’s recent framework document on family planning cites family
planning as a ‘best buy’ in global health and development, due to its low cost and far
reaching benefits24. Estimates indicate that by meeting the global unmet need for
family planning,savings of $5.1bn that would otherwise be required for maternal and
newborn care can be made25.
- ACTs: DFID analysis indicates that the cost per life saved for children under age 5
treated for malaria with ACTs is between $171 and $20926,,making ACT an extremely
cost effective regimen for uncomplicated paediatric malaria27
- ART: Current research suggests that the long term economic benefits of providing
treatment to patients in need will be largely offset, if not completely exceed, program
costs within 10 years of investment. Specifically, they estimate that monetary benefits
range from 81% to 287% of program costs over this timeframe 28
Secondly, market-shaping interventions can have dramatic ‘accelerating’ effects to reduce the
prices of health commodities and enhance access. The proposed portfolio has a net present value
of $1.5bn based on very conservative assumptions and $2.6bn based on an assumption of a
continued trend in the scale-up of patients with access to ART. These NPVs are associated with
Internal Rates of Return of 330% and 440% respectively.
Thirdly, in addition to the wider global and developmental impacts measured in the NPV, this
intervention has a more direct VFM impact on DFID’s own budget. Through savings on DFID’s
spend on ART alone through GFATM and UNITAID, the intervention will pay for itself – generating
a Return on Investment of at least 5% a year.
Commercial Case
A. Why is the proposed funding mechanism/form of arrangement the right one for this
intervention, with this development partner?
The Appraisal section has set out the case that Option 3 (Deliver supply- and demand-side
interventions across the commodity range in an integrated manner through a single market-shaping
grant to CHAI) is the only feasible option for effectively delivering the proposed intervention, and
principles, set out in the Strategic Case. The Appraisal Case also established that Option 3 offers
highly-compelling value for money.
Based on this context, DFID proposes to use an accountable grant to support the interventions. In
addition to the above, and in line with the How To Note of March 2010, an accountable grant has
been assessed as the appropriate arrangement since:
1. CHAI is a not for profit organisation.
2. The request for support for the activities was initiated by CHAI rather than DFID
3. The proposal and this accompanying Business Case demonstrate that the proposal and the
proposed approach achieves value for money and maximum impact.
B. Value for money through procurement
CHAI’s founding objective is essentially value for money - specifically in global health commodities –
as a means to enhance access. This value for money objective is mainstreamed into all levels of its
operations. CHAI’s lean management team and small back-office teams both in-country and at the
headquarters level, keep salaries and policies in line with its budget constraints. As a result of this
approach, CHAI offers a solid value for money proposition and is able to efficiently and effectively
handle procurements across a broad spectrum of commodities and countries.
At the management level, CHAI has a tight core of senior-level executives supported by a broader
network of regional and program managers that oversee the operations of CHAI’s programs around
the world. This flat management structure is set up to ensure comprehensive monitoring and
guidance to CHAI’s programs, while keeping costs low. All of CHAI’s management have taken
significant pay cuts from their previous private sector roles to be a part of CHAI; as such, CHAI’s
salary levels are well below industry averages29. A recent survey by InsideNGO found CHAI to be in
the 25th percentile for ex-pat salaries for analyst, specialist, technical/senior associate, programme
manager, and deputy country director level positions. For coordinators, senior programme managers,
and country directors, CHAI ranked at the 50th percentile. Despite these salary levels, CHAI’s
reputation, achievements and ambitious goals allow it to attract the highest levels of skilled
professionals with significant experience in both private and public sectors; many of whom are
considered experts in their fields by the international community. Bringing this level of expertise to
bear on AIDS, TB, malaria, and other programme areas without the high costs that are typically
associated with it represents a high degree of value for money.
CHAI continues to keep its costs down through its policies, which emphasize lower cost alternatives
to typical operating expenses. For example, CHAI’s travel policy states that only economy class
airfares will be reimbursed and that whenever possible, travel arrangements should be made 14-21
days in advance in order to minimize costs. Similarly for hotels, CHAI’s policy ensures that country
teams negotiate reasonable hotel rates in advance. If negotiated rates are not available, staff are
expected to perform due diligence to identify moderately priced accommodations. CHAI also keeps
costs low for other expenses, relying largely on Skype for long distance calls and employing a large
team of highly trained volunteers, most of whom bring several years of experience in the private
sector, to support its small staff both in-country and at headquarters.
In parallel to ensuring its cost effectiveness through organizational policies, CHAI recognizes the
sacrifices that its staff has made to be a part of its mission and is striving to achieve a balance
between cost savings and attracting/retaining the talent that it needs to thrive.
Financial Case
A. What are the costs, how are they profiled and how will you ensure accurate forecasting?
Components
Maximizing Value for Money and Ensuring
Sustainable Supply of HIV Treatment (Grant
A.1)
Accelerating Introduction and Scale Up of
Point-Of-Care HIV Diagnostics (Grant A.2)
Maximising Value for Money of HIV Spending
for Universal Access to ART (Grant A.3)
Improving Pricing and Supply Security for High
Quality MDR-TB Drugs (Grant B.1)
Accelerating Market Entry of Highly Accurate
and Lower Cost New Diagnostic Products
(Grant C.1)
Increasing Access to Long-Acting
Contraceptives (Grant D.1)
Improving Vaccine Market Dynamics for Price
Negotiations (Grant D.2)
Ensuring Rapid and Sustainable Scale up of
Supply of Malaria Rapid Diagnostic Tests
(Grant E.1)
Ensuring Rapid and Sustainable Scale up of
Supply of Quality Malaria Treatments (Grant
E.2)
Sharing lessons learned and new market
assessments e.g. for family planning
commodities, therapeutic feeding or other
products
Total Costs
(US$ millions)
Total Costs
(GBPmillions)
$11.11M
£6.94M
$7.10M
£4.43M
$4.87M
£3.04M
$3.23M
£2.02M
$6.55M
£4.10M
$1.25M
£0.78M
$2.54M
£1.59M
$5.71M
£3.56M
$4.58M
£2.86M
$2.20M
£1.37M
Global Applied Overhead
$6.92M
£4.32M
TOTAL
$56.05M
£34.99M
B. How will it be funded: capital/programme/admin?
This project will be funded over three years from programme funds from a range of DFID
Departments as follows:
Human Development Department
DFID India (from GDPP)
£15 million
£11 million
Additional resources up to a total maximum of £9m may also be provided towards implementation of
the work plan from DFID South Africa (£1.5-2m) and DFID China (£3-5m) (both from GDPP) as well
as from DFID Uganda (all subject to further consultation and approval). There are no contingent or
actual liabilities. No other donor will co-finance the work plan itself. However, a number of other
funders will support the objectives of different components in different ways – either through CHAI or
other modalities. Important funders of CHAI include the Gates Foundation, the Children’s Investment
Fund Foundation (CIFF), ELMA Philanthropies, UNITAID and the Norwegian, Swedish and
Australian bilateral aid agencies.
C. How will funds be paid out?
Funds will be paid out through a DFID Accountable Grant to CHAI using DFID’s standard template.
Payment will be Quarterly. CHAI has requested payment of some or all of the quarterly tranches in
advance. DFID procedures allow for this. HDD will work with FCPD, CHAI and others to identify
mutually satisfactory arrangements.
The financial management of the project will be led by the Health Services Team (HST) in DFID in
London, which will manage all claims for reimbursement. HSTwill coordinate contributions from other
DFID Departments. Payment timing across financial years will be forecast annually to meet DFID
requirements.
D. What is the assessment of financial risk and fraud?
Low. CHAI has a strong track-record of sound financial management of the 2008-2012 grant from
DFID as well as in managing resources from other agencies, such as GFATM and UNITAID. CHAI
has a set of internal control mechanisms that mitigate the risk of fraud and other financial risks. Since
the vast majority of programme funds will be managed from CHAI’s Boston Headquarters, CHAI will
be able to closely monitor grant funds. Additionally, the relatively small portion of funds that will be
administered by the Country teams will be subject to review on a monthly basis that will involve the
monthly reconciliation of cash reports and bank statements. Internal audits will be conducted
periodically to ensure that funds are utilized and accounted appropriately.
Moreover, since the bulk of expenditures under the Accountable grant will consist of salaries and
benefits, CHAI’s centralized payroll system will provide transparency and accountability with respect
to compensation payments made to programme personnel. These payments will be reviewed on a
monthly basis by both programme managers and CHAI Headquarters finance staff to ensure that the
funds have been appropriately charged to the grant. This fact together with Internal controls, provide
a considerable degree of reassurance that the financial risks for this programme will be low and
manageable.
E. How will expenditure be monitored, reported, and accounted for?
Financial records will be maintained in adherence to United States’ Generally Accepted Accounting
Principles (US GAAP). Rigorous monitoring and accounting of expenditure will be facilitated by a
dedicated project structure in the CHAI financial management system. Internal monthly reviews of all
expenditure will be conducted by project and finance personnel to ensure compliance with
programme arrangements. Moreover, CHAI maintains a set of codified financial policies and
procedures that will govern how programme funds are utilized and accounted.
Detailed financial reports (Statements of Expenditure) will be provided to DFID on a quarterly basis in
line with the Accountable Grant agreement. The reports will be submitted along with requests for
disbursements (quarterly invoices). The reports will be reviewed and certified in attestation of their
veracity and completeness by a CHAI officer with certification authority.
Any assets procured under this programme will be treated in accordance with DFID procedures, and
declared to the DFID programme manager. An asset inventory register will be maintained for
equipment whose purchase price meets the DFID capitalization threshold. If assets remain at the end
of the programme, a disposal strategy shall be arranged in consultation with the DFID Programme
Manager.
CHAI will submit annual audited accounts for each of the financial years covered by the Accountable
Grant. These will be certified by an independent firm of professional auditors and will show DFID’s
grant as a separate item of income.
Management Case
A. What are the Management Arrangements for implementing the intervention?
CHAI will be responsible for implementing the agreed portfolio of activities. The key focal point within
CHAI will be the Executive Vice President for Access Programs who will coordinate with CHAI Country
Directors and other Executive Vice Presidents as appropriate.
Guided by the lessons learned in the implementation and independent evaluation of DFID’s first grant
to CHAI, measures will be put in place to ensure strong DFID oversight of operational management of
the project. A partnership monitoring structure (as specified as Output 7 in the logframe) will be put in
place to monitor results and risks, provide strategic guidance and identify new opportunities. The
structure will aim to ensure that all country-level activities (both supply- and demand-side) are aligned
with country government priorities, are coordinated with other development partner activities and
mainstream capacity-building objectives. It will also ensure that, at the global policy level, activities
undertaken under the grant, are embedded within relevant global frameworks and coordinated with the
activities of other development partners and relevant stakeholders. The structure will also seek to
ensure that, at all levels, opportunities for learning and innovation are maximised.
The respective focal points within DFID and CHAI for management of the grant will be the Senior Policy
Advisor, Market Dynamics and International Engagement, Human Development Department, DFID and
the Director, Director of Institutional Relationships & Reporting, CHAI. The partnership monitoring
structure (PMS) will have three levels:
- At the apex a high-level oversight committee, chaired at CEO level in CHAI and DG level in DFID.
Other partners (such as key financiers of CHAI like the Gates Foundation and the ELMA Foundation,
will also be engaged to participate as necessary. This meeting will discuss programme results (against
logframe objectives), risks and issues for strategic guidance. DFID country offices from emerging
powers will be represented in this oversight committee.
- Progress on the individual, commodity-specific components of the portfolio will also be reported on a
six-monthly basis against the specific indicators set out in the components themselves. Within DFID,
the counterparts will be disease-specific policy leads within Policy Division. Wherever possible,
reporting and oversight will be integrated within existing forums with an interest in market dynamics.
For example, in the area of contraceptives, this will be the Reproductive Health Supplies Coalition
(RHSC). Similarly, the work on Efficiency and Effectiveness of spending on HIV will be overseen by the
UNAIDS-led group concerned with implementation of the Strategic Investment Framework. Work on
vaccines will coordinate with GAVI’s emerging Supply and Procurement Strategy activities.
- Finally, at the country-level, on both the supply- and demand-sides, CHAI will report to DFID incountry health advisers on progress, with the level of regularity to be agreed in county and reporting on
a bi-annual or annual basis being optimal. Where appropriate this reporting will engage other relevant
stakeholders, such as country governments and other development partners. A key focus of
discussions will be to ensure appropriate focus on, indicators of, and approaches to, capacity-building.
Where possible, this reporting will be aligned with existing donor-government access to medicines
forums. For example, in China, the reporting will be integrated into the Government-Development
Partner Working Group on Global Health.
The table belowwill guide the organisation of oversight of country-level demand-side activities. The
table sets out the distribution of activities in the proposed portfolio geographically and by commodity
area. The oversight structure will ensure that all these demand-side activities are adequately covered.
Wherever in-country activities are on-going, a DFID focal point will be identified. The focal point for
activities in Southern African countries will be DFID’s regional health adviser for access to medicines
based in Pretoria (in coordination with DFID country health advisers where appropriate). Where DFID
does not have a health-specific presence, such as Cambodia or Cameroon, progress will be reported
directly to the Senior Policy Adviser in Policy Division, London. Where additional demand-side activities
are agreed following discussions (as an example, demand activities for LARCs may emerge), incountry oversight and coordination arrangements will be put in place.
A plan for management of oversight will be agreed within the first three months of implementation.
Geographic Distribution
Grant Component
Cambodia Cameroon Ethiopia India
Kenya Liberia Malawi Mozambique Nigeria Rwanda
South
Africa
Swaziland Tanzania Uganda Zambia
Zimbabw
e
HIV Treatment
Point-Of-Care HIV
Diagnostics*
Value for Money of HIV
Spend
MDR-TB Drugs
This project will directly benefit other High Burden Countries beyond India, though CHAI do not anticipate further in country demand roles
New Diagnostic Products
Long-Acting Contraceptives
CHAI do not anticipate an in country role for this project
Vaccine Market Dynamics
Malaria Rapid Diagnostic
Tests
Quality Malaria Treatments**
In addition to the above, CHAI are in the process of identifying 1 to 3 additional countries to engage with
Key:
Direct DFID Funded
Engagement
Funding from other donors, leveraging DFID
support for Supply projects and Demand work in
other countries
B. What are the risks and how these will be managed?
Steps have been taken to ensure that risks are fully identified and mitigated through a systematic
approach to program management and risk identification and resolution. The oversight structure
outlined in Section C below will be used to manage risks. Several overarching risks were identified in
the independent evaluation of the first grant. The same independent consultant also reviewed the
proposed portfolio and identified programme and implementation risks. Some risks that were included
in the first grant to CHAI were not borne out during programme implementation. Key among these was
the risk of adverse reaction from the UK pharmaceutical industry. The earlier grant to CHAI had
identified potential for opposition from originator pharmaceutical companies. However, this did not
materialise. In fact, there is now a clearer consensus than in 2008 among originator companies that
generic companies have a central role in enhancing access to their products (for example through
technology transfer). We have therefore not included this risk here.
The remaining risks can be classed into six categories, with associated mitigating actions as follows:-
1. Market leverage (CHAI may not have the same degree of leverage to move the market in the
absence of a procurement role as it had with UNITAID): CHAI has certainly achieved significant
market leverage through the UNITAID programme for some commodities. However, this is only one
tool. Good evidence exists that it can continue to have real leverage as this role phases out, and
CHAI are actively refining their approach to maximizing leverage through the addition of new tools
or a refinement of existing ones, such as the procurement consortium approach.
Probability of risk: Medium.
Impact after mitigating actions: Limited. While there remains a risk that new or refined tools relating to
procurement may not be quite as effective as the leverage CHAI had with UNITAID, they are
nevertheless likely to make a substantial contribution to price reductions. This will be aided by the
advocacy of the commission on life saving commodities. Furthermore, demand side activities are only
one component of the intervention, supply side activities are likely to result in increased competition
and hence reduced prices.
2. Supply-side engagements (refusal of key manufacturers to engage in discussions and
negotiations or preference to work with others): CHAI works with all suppliers who are willing to
make appropriate commitments to quality and cost. Thus, suppliers are incentivised to engage with
CHAI, as they are working with the knowledge that the decision to accept input from CHAI is their
option, but also that their competitors will also have access to the same information and assistance
that they do. Suppliers are also free to work with other providers of support if they prefer. This
underlines the importance of coordination with other players as well as the need for engagement
with multiple suppliers. This increases the probability of success, even if one or more suppliers
choose not to work with, or fail to succeed in a collaboration with CHAI
Probability of risk: Low.
Impact after mitigating actions: Very limited. It is clearly preferable that as many suppliers as possible
engage with CHAI; however, even if a few choose not to, CHAI’s work with those that do will mean that
they can increase manufacturing efficiencies and so reduce prices. This will give them an advantage
over their competitors, which is likely to prompt them to ask for CHAI to work with them or to get similar
support from elsewhere.
3. Demand-side engagements (inability to obtain commitments from partner governments to
support programs and facilitate policy changes where appropriate): To meet objectives and
build sustainable programs on the ground, CHAI works in close partnership with governments from
the start of any programme development. The proposed policy ensures that there is buy-in at each
phase and that all partners are committed to working together towards the stated goals.
Probability of risk: Medium, particularly where procurement decisions are not based on costeffectiveness.
Impact after mitigating actions: Low to medium. It is difficult to assess, a priori, how many partner
governments are influenced by factors other than cost effectiveness and for which products. The
engagement of other stakeholders in-country can further mitigate against this risk by increasing pricing
transparency of medicines and ensuring that procurement supported by donor agencies is evidence
based.
4. New products (new products may not establish superiority (or non-inferiority where prices
are lower) to existing regimens): This is a large risk routinely faced by pharmaceutical
companies. This strongly supports a portfolio approach to both optimisation of existing products in
parallel with the development of new products.
Probability of risk: High,
Impact after mitigating actions: Low. The mixed portfolio will ensure that the optimisation of existing
products contributes to pharmaceutical budget savings
5. Global engagements (potential for overlapping activities and role redundancy): This is an ongoing challenge in the public health arena, and CHAI aims to minimize overlap and redundancy by
working through collaborative partnerships. The oversight structure proposed for this programme
will ensure that all activities are coordinated and aligned with common frameworks and
communities. It should also be noted that there are some activities where some level of duplication
or complementary approaches to the same outcome are more productive than a single approach.
An example is the benefit to using multiple forecasting methodologies in some cases to validate the
results of any one forecast.
Probability of risk: Low,
Impact after mitigating actions: Very low.
6. Capacity: Establishing a pipeline of new, low-cost diagnostics is a new area for CHAI requiring
new expertise and partnerships. Similarly engaging in an expanded range of commodities and in
new countries, requires an appropriate skills mix and number of staff in a timely manner. CHAI
has already begun to engage and develop relationships with low-cost diagnostic developers and
has developed a collaboration with PATH to ensure that complementary skill sets are available for
this project without a need always to recruit new staff.
Probability of risk: Medium to high,
Impact after mitigating actions: Low
These above risk types apply differently to different components of the intervention. The following table
shows, by component, the types of risks that are most likely to affect each areas of work, the probability
and likely impact of each risk, specific mitigating actions and the residual impact after mitigation (1
indicates low probability or impact, 5 is high). As part of the grant oversight structure a systematic risk
matrix will be developed and monitored on an on-going basis.
No
Proposal
area
A.1 HIV
Medicines
A.2 POC CD4
Principal Risk Probability Impact Mitigating Actions
Residual
Type
1-5
1-5
Impact
Market
2
4
CHAI has succeeded in facilitating reductions
2
leverage
in the price of key first-line products (e.g.,
TDF, EFV, and complementary FDCs) despite
the fact that first-line procurement is not part
of the UNITAID program. New tools will be
developed and existing ones refined.
Market
3
4
CHAI has successfully facilitated price
2
leverage
A.3 HIV
Spending
Demand-side 3
engagements
3
B.1 MDR-TB
Drugs
Supply-side
engagements
2
3
Demand-side
engagements
4
3
Global
engagements
2
2
C.1 Low-cost
Supply-side
diagnostics engagements
3
2
New products
5
4
Capacity
4
4
reductions for diagnostics in the absence of a
large procurement program. In addition, CHAI
is actively seeking new partnerships that
would augment its leverage in the market and
has just been funded to execute a diagnostics
procurement program similar to the drugs
programme under UNITAID.
CHAI has been asked by governments to
support MoHs to drive the change proposed in
this project. CHAI will select 3-5 countries
where the political leadership is strong,
decision makers have prioritized this work,
and where its teams have strong relationships
needed to achieve success. CHAI will link into
coordination mechanisms facilitated by
UNAIDS in country to ensure alignment with
country operationalisation of the strategic
investment framework and treatment 2.0
approach.
MDR-TB suppliers have already expressed
initial interest in the project and India’s NTP
seems open to discussing the possibility of
volume consolidation. CHAI will leverage this
and its strong relationships with TB suppliers
to advance this activities under this project
The Government of India (GoI) may not be
receptive to CHAI’s efforts to increase the size
of PQ’ed orders for MDR-TB drugs. CHAI has
worked closely with GOI in the past to
advance access goals and is well positioned
to effect similar changes in TB. The GoI is the
largest and most organized single program
that could achieve that goal however, it will be
critical that CHAI also quantify and consolidate
demand in other large programs to ensure that
maximum global benefit is achieved from the
project..
CHAI has been supporting GDF and
participated in the 2012 Joint Donor Review
Mission for India’s TB program. CHAI will
continue to build on these collaborations, joint
forums, and share lessons learned from its
efforts
CHAI will leverage its previous supply-side
work including price reductions for various
diagnostics including CD4, VL, EID, and HIV
rapid tests. New, promising suppliers have
already been identified. To increase market
leverage, CHAI is also applying for
complementary funding to support POC
adoption (including the proposal for Grant A.2)
and commodity procurement.
To guide product design CHAI has on-theground access to design requirements and
preferences via its countries across Africa,
Asia and the Caribbean that can be shared
directly to suppliers.
Establishing a pipeline of new, low-cost
diagnostics is a new area for CHAI requiring
new expertise and partnerships; there is a risk
1
1
2
1
1
2
2
Demand-side
engagement
4
3
Global
collaborations
2
2
D.1 LARCs
Supply-side
engagement
3
4
D.2 Vaccines
Supply-side
engagement
3
4
Global
engagements
2
2
mRDTs
Demand-side
engagements
3
4
E.2 Malaria
drugs
Supply-side
engagements
2
3
Demand-side
4
4
E.1
in securing these steps in a timely
manner.CHAI has already begun to engage
and develop relationships with low-cost
diagnostic developers in order to lay a
foundation on which to build this project. CHAI
has also actively developed a collaboration
with PATH, as they feel that PATH and CHAI
have very complementary skill sets and focus
areas for furthering this project. The
collaboration is developing very strongly, and
CHAI and PATH are working on a
complementary proposal to UNITAID to
support related work.
CHAI will draw from its relevant experiences
and existing relationships with countries and
governments from its Pima pilot project
CHAI will continue to partner closely with
PATH, FIND, and CDC to leverage their
expertise in product development and
commercialization.
Based on initial discussions, Merck and Bayer
have expressed interest in establishing an
agreement to negotiate reduced pricing if
donors are willing to increase funding and
RHSC is able to provide improve demand side
forecast sand ordering procedures.
CHAI will build on its previous work with the
Gates Foundation, GAVI, and UNICEF over
the past 16 months to engage with suppliers,
which have led to price reductions for
rotavirus vaccine by two-thirds. CHAI
recognizes that that vaccine markets are
substantially different from those for drugs.
Therefore, CHAI will build on its existing
capacity in analyzing markets for health
commodities and is already adapting
strategies to meet the specific needs and risks
of the vaccine market. CHAI will also leverage
its strong relationships with multinational
vaccines suppliers through its initial work.
CHAI will continue to partner closely with
GAVI and UNICEF on its market analyses to
ensure its work is fully complementary
CHAI has targeted its efforts in four focal
countries where it has a strong programmatic
presence and strong relationships with
partners and governments. CHAI will build on
its efforts providing technical assistance to
countries for AMFm and it success achieved
through the RDT scale up pilot in Swaziland
CHAI has long standing relationships with key
generic suppliers based on its work with ACT
suppliers (as well as with suppliers of other
products including ART) and has facilitated
significant price reductions. CHAI is already
engaging with suppliers developing products
of interest and will leverage its previous
experiences to advance this work.
CHAI intends to build on the progress made
2
1
2
3
1
2
2
2
engagements
CHAI
Global
engagements
2
2
Capacity
4
4
thus far in Uganda and Nigeria and select 2-4
additional where it has a strong programmatic
presence and deep relationships with
governments and partners.
CHAI will continue to coordinate closely with
GFATM, RBM, WHO and other major
stakeholders to ensure that market stability
activities are efficiently executed
Potential inability to retain and recruit industry
respected employees. CHAI has been and will
continue to refine and update our value
proposition to industry experts to be able to
continue to recruit, and to better retain subject
matter experts. This remains a subject that
CHAI is reviewing; however the success of its
recruitment to date and its continuing efforts to
retain the organization’s highest performers
bodes well in this regard.
1
2
C. What conditions apply (for financial aid only)?Not applicable
D. How will progress and results be monitored, measured and evaluated?
A project of this scale and reach, with multiple, complementary components requires three different
evidence-generating processes to provide information for different programme needs, namely
monitoring, evaluation and an assessment of the broader impacts. The logframe provides the
overarching umbrella for the first two of these. However, a separate articulation of lessons learnt and
means of capturing them will be required for the third.
1) Monitoring
An on-going monitoring process, incorporating the logframe indicators, is required to provide the
implementing team indications of what is working and where additional effort is required. Each project
component has its own monitoring and evaluation framework integrated into design, additional to this,
however a number of key commodity prices and procurement volumes in implementing countries will
also need to be monitored. These are set out Annex:Cost-Benefit Analysis. The implementing team
may also define additional monitoring indicators and processes to provide them with a higher level of
management information.
2) Evaluation
The logframe also provides a basis for an evaluation of outputs to inform both the implementers and
DFID of whether the project is on track to meet its stated targets. The monitoring information noted
above will provide the base data and contextual information for at least an annual evaluation (more
frequently if required) . This will be the foundation for policy and programme discussions within the
partnership monitoring structure set out in the Management Arrangements section above.
3) Assessment of Impacts
An assessment of the broader impacts of the project is also required to capture the synergies from an
integrated approach and also to capture lessons from the implementation process. This will be
designed during the inception phase of the programme and will aim to capture not only whether the
project has achieved its intended impacts, but also what was required to achieve them and whether the
impacts were broader than expected and sustainable. Thus it will include questions about the
impactthat the project has had on prices for the targeted commodities in countries not directly involved
in the implementation; the level of stakeholder engagement at country level and the factors involved in
sustaining it; the degree to which implementation has used existing health system and other processes
compared with new process that have been set up in countries; and challenges that remain
unaddressed
Representatives from DFID and CHAI will form a steering committee to contract with independent
groups on an on-going basis to review, evaluate and assess the impact of individual programs
throughout the whole period of the proposed grant. The role of the steering group will be both formative
(e.g. review of progress against objectives contributing to periodic reviews and supporting the
partnership monitoring structure) as well as assessing impact, using more objective quasi-experimental
measures as much as possible to explore complex dynamics and attribution as well as to learn
lessons. This process will engage stakeholders both within DFID and outside. Due to the fact that a
large proportion of the proposed program of work is due to have greatest impact towards the end of the
grant period, it can be expected that there will be a scale up of progress and results during the life of
the grant. The resources for these evaluations will come from the lesson-learning/new product
evaluation line of the budget. It should also be noted however that this may limit CHAI’s ability to
explore new product opportunities and these competing pressures will have to be managed throughout
the grant.
Logframe: Quest number of logframe for this intervention: 3506436
Annex: Cost Benefit Analysis
Introduction
This Annex serves as technical background to the Cost-Benefit Analysis (and Return on
Investment analysis) set out in the Appraisal Case of the Business Case.
Cost-benefit analysis (CBA) has been applied to compare the value for money of the
proposed portfolio of activities against the ‘do nothing’ counterfactual. The CBA was
undertaken on each component individually and then aggregated to allow for the whole
portfolio to be assessed. However it is worth noting that by evaluating each component
separately the CBA does not measure the synergistic benefits of the entire programme of
work as a whole. The benefits of this project are far greater than merely the sum of their parts
as barriers at both a supply and demand level to medicines and diagnostics are substantially
decreased.
Unusually for a proposed DFID grant, a Return on Investment (ROI) approach was also
applied to assess the portfolio. This narrower measure allows for an assessment of the
impact of the intervention on DFID’s own budget – rather than the wider global,
developmental and economic impacts as covered by CBA. This analytical approach is based
on the savings that the intervention achieves on DFID’s own spend on health commodities
(through its contributions to multilaterals like GFATM, UNITAID, GAVI, UNFPA and others).
Assessing Benefits
A bottom-up, component-by-component, approach has been used to identify benefits.
Counterfactual market dynamics have been set up for the different commodities. This section
will go through each component in turn to set out the parameters, expectations and dynamics
for each health commodity.
A.1. Maximizing Value for Money and Ensuring Sustainable Supply of HIV Treatment
The graph below shows the counterfactual/baseline trajectory for the focal first- and secondline HIV regimens. (These activities would be supported under Component A.1 which is the
largest component and accounts for around a quarter of the grant by inputs.)
The counterfactual assumes that a number of factors will reduce prices for HIV regimens in
the absence of this intervention. These factors include rising demand and implementation of
more pro-active market-shaping activities by key purchasers such as GFATM and large
countries. Based on these trends, the rate of decline of prices is expected to moderate (in the
absence of additional CHAI activities that have driven declines over the past few years.)
leaving prices for the WHO-preferred tenofovir-based first-line regimen 23% lower in 2015
than at the end of 2011. For second-line drugs, namely Atazanavir/ritonavir and
tenofovir/lamivudine,the counterfactual is expected to result in a 14% reduction in prices to
2015. In terms of the CBA, these are conservative assumptions. Prices for high-demand
ARVs for which no market-shaping interventions have been undertaken in the past few years
(e.g., zidovudine, stavudine) have remained broadly constant3.
3
See MSF (2011),‘Untangling the Web of Antiretroviral Prices’ for recent price dynamics of ARTs
Figure 2: Graph to Show Price Reductions for HIV Regimens
*Prices quoted before 2011 are Low Income Averages and CHAI Ceiling Prices respectively
**2nd line prices before 2011 use TDF+3TC+LPV/r, rather than TDF+3TC+ATV/r for future prices
because ATV/r is a relatively new product
The graph above also shows the intervention trajectory. The combination of supply- and
demand-side activities targeting new product uptake, cost reduction for new/existing ART and
long-term market sustainability would accelerate price reductions leading to 47% and 39%
lower prices, as compared to the 2012 baseline, for first- and second-line regimens
respectively. Prices for first-line drugs would be 31% lower in the intervention case, and
second-line prices 29% lower, as compared to the counterfactual. Additional benefits (which
are not monetised) include greater national capacity and more effective programme decisionmaking (in key countries).
The graphs assume that prices remain constant post-2015 which is when the proposed
intervention ends. The prices are rolled forward to 2020 since the impact of the intervention is
captured in to the future and these impacts need to be captured in the CBA.
Based on the assumed price dynamics, a financial stream of benefits can be calculated by
multiplying savings per patient per year by the total number of patients on treatment. This
calculation depends on assumptions about overall patients on treatment (in genericallyaccessible countries). Two scenarios were established. The first assumes a linear scale-up of
patients with access to ART based on historical trends (and within that a switching towards
the preferred tenofovir-based therapies). The second (highly) ‘conservative’ scenario
assumes patients on ART remaining constant at its 2010 (and within that total a similar
switching towards tenofovir-based therapies).
The table below sets out the benefit streams. Under the linear scale-up, $310 million of
savings are achieved by 2015 and $1,449m by 2020. Under the conservative scenario, $182
million is saved by 2015 and $704 million by 2020.
2012
2013
2014
2015
2016
2017
2018
2019
2020
Linear scaleup savings
$16.7M
$48.2M
$95.5M
$150.2M
$176.1M
$202.0M
$227.9M
$253.8M
$279.7M
Conservative
Savings
$12.7M
$31.8M
$56.9M
$81.1M
$88.8M
$96.6M
$104.3M
$112.0M
$119.7M
A.2. Accelerating Introduction and Scale Up of Point-Of-Care HIV Diagnostics
Figure 3: Percentage reduction in global access pricing for POC HIV
Diagnostics
Counterfactual: A ~3.5% annual price reduction is estimated through to the end of the grant
in 2015. This assumption is based on historical pricing trends witnessed with Becton
Dickinson conventional CD4 products in the absence of market-shaping work.
Intervention: It is estimated that price reductions can be primarily achieved by focusing on
reducing the costs of key commodity components. Based on CHAI analytical data it is
assumed that these costs amount to $7.65 per test in 2011, with a 10% reduction from the
baseline achievable by the end of 2012, 20% in 2013, rising to a 30% reduction in 2014.
The additional anticipated benefits of this work would be:
• Lower prices for at least 2-3 POC CD4 products (globally) allowing earlier initiation of
ART and better outcomes for patients (in 5-7 countries)
• Greater efficiency in ART service delivery for national programs (in 5-7 countries)
• More sustainable market (for POC suppliers) and greater supply security
Figure 4: Graph to Show Anticipated CD4 Tests Required (Conventional V POC)
In addition, significant cost savings will be achieved through the adoption of POC CD4 testing
as a replacement for traditional forms of CD4 testing and a subsequent reduction in wastage.
Estimations across seven proposed focus countries suggest that demand for POC CD4
testing will reach 5.6 million by 2015 and as high as 12.8 million by 2020. CHAI data on POC
testing from 3 pilot countries suggests that the wastage rates associated with CD4 testing are
consistently around 45%4, as compared to a repeatedly demonstrated zero wastage with CD4
POC testing5. With the consequent reduction in levels of repeat testing, not only will the
unmet needfor CD4 tests be substantially reduced, but the cost per test result received will be
reduced by 30% to 60%.
Further the analysis considers that these savings are only achievable under the intervention
proposed, as they are contingent on combining CHAI’s unique strengths working closely with
suppliers to accelerate the roll out of products and in partnership with governments to ensure
efficient and effective deployment in country. UNITAID is also currently beginning to finance
interventions in this area with similar objectives. DFID-supported activities will be
complementary and reinforce progress towards targets.
The potential savings from this work component are significant, coming as they do from two
potential sources (pricing savings and wastage savings). Even if we are to assume that POC
CD4 testing has a far higher wastage rate than the 0% found in pilot tests, for example 5%
wastage, the cumulative savings are anticipated to total $118 million by 2015, rising to $538
million by 2020. The breakdown is set out in the table below. As a sensitivity analysis we
have also calculated a much higher POC CD4 wastage rate of 15% and found that the
savings would still be significant totalling $97m by 2015 and $445 by 2010.
2012
2013
2014
2015
2016
2017
2018
2019
2020
Pricing
Savings
$0.7M
$2.9M
$6.5M
$8.3M
$10.3M
$12.4M
$14.7M
$17.0M
$19.2
M
Wastage
Savings
(at 5%)
$9.8M
$20.5M
$30.5M
$39.1M
$48.6M
$58.5M
$69.2M
$80.2M
$90.1
M
4
The time from test to result means that results are not always communicated to patients
A.3. Maximising Value for Money of HIV Spending for Universal Access to ARVs
Figure 5: Graph to show reduction in non-commodity unit costs in 5 focus countries
Counterfactual: A very limited level of savings is projected to occur without CHAI
intervention. These savings would be mainly driven by laboratory cost reduction in South
Africa as result of the predicted revision of guidelines and forms. In addition, some savings
(far smaller in scale) should be achieved in personnel costs in Zambia over the next few
years
Intervention: Although the potential scale of savings in this area is huge across 5 focus
countries, the savings anticipated are based on CHAI’s assumptions on what savings per
patient per year are achievable in each country (broken out by categories in ARTs, Labs,
Personnel, and Other). The savings achievable in this area have been broken down into
conservative and high end to give a better idea of the levels of savings that could be achieved
here. Both levels represent significant potential levels of savings.
The additional anticipated benefits of this work would be:
• Decreased unit cost of ART service delivery through earlier patient commencement
on treatment, reductions in new HIV infections, greater national capacity to
manage HIV spending and programmatic response (in 3-5 countries)
• Potential to catalyze similar changes in other countries using newly developed
tools/benchmarks
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total Savings
(Low)
$5.5M
$12.8M
$14.7M
$16.5M
$18.4M
$20.3M
$22.1M
$24.0M
$25.8M
Total Savings
(High)
$12.9M
$30.0M
$34.3M
$38.6M
$42.9M
$47.3M
$51.6M
$55.9M
$60.2M
B.1. Improving Pricing and Supply Security for High Quality MDR-TB Drugs
Figure 6: Graph to show Reduction in Spend for Quality Assured TB treatment
Counterfactual: The above graph is relatively conservative because it assumes that India
will exit the SRA-approved market in 2015 without further intervention and that the number of
patients on these drugs in the rest of the world will not increase from 2010 levels. We are
working on the assumption that India would leave the SRA approved product market in favour
of the Indian market, consequently the country would not stop buying MDR drugs, but the
shift would have global implications due to the volume of demand India represents.Despite
this, the long term historical price trend for Cycloserine and Kanamycin, the two drugs
included in this analysis, has been increasing significantly.6 In 2010 and 2011 tenders, the
price was more or less stable despite volumes increasing nearly two fold with the inclusion of
India's order for 11,550 MDR patient courses. Therefore, it could be argued that in a “do
nothing” counter factual, the price of Quality Assured TB treatment would not only not
improve, but might even increase. As such, we have assumed that pricing as flat at baseline
is likely the most conservative and realistic outcome.
Intervention: The key benefitof intervention in this field is not price savings, but instead to
ensure the long term stability of the market (post 2015) and a healthy API base. If left to
natural forces there may be additional entrants and short term price gains; at best these gains
would likely be reversed by India's market exit in 2015 and the resulting sharp drop in
demand in SRA approved products. In addition, we believe that cost savings are possible
through the provision of assistance to formulators currently in the regulatory pipeline to
ensure that they become qualified in a shorter time frame, which should result in the
realisation of modest price improvements.
The anticipated benefits of this work would be:
6Cs 321%, Km 617% between 2001 and 2011; Source: MSF March 2011.
•
•
•
Lower prices for 2 high-quality second line drugs (SLDs) (in India) and future
reductions for other high burden countries leading to better patient outcomes and
decreased spread of resistance
More attractive and sustainable market (for SLD suppliers) and greater supply security
Potential price reductions for additional SLDs
As a result of the above, the estimated financial savings for this work are relatively modest
and this reflects the importance of ensuring stability in the market long term following India’s
anticipated departure from the market by the end of 2014.
Savings
(India)
Savings
(RoW)
2012
2013
2014
2015
2016
2017
2018
2019
2020
$7.0M
$10.7M
$16.0M
-
-
-
-
-
-
$1.6M
$2.4M
$4.0M
$4.0M
$4.0M
$4.0M
$4.0M
$4.0M
$4.0M
C.1. Accelerating Market Entry of Highly Accurate and Lower Cost New Diagnostic
Products
Counterfactual: No price reductions anticipated
Intervention: CHAI anticipates price reductions for Lower Cost New Diagnostics (LCND),
with the scale to be determined following initial discussions with suppliers in Q2 2012.These
would not include the three tests discussed earlier and would be products from Indian and
Chinese manufacturers.
The anticipated benefits of this work would be:
• Launch of at least 3 new high-quality, low-cost tests (CD4, EID, viral load, TB, or
malaria) leading to higher patient retention, decreased spread of resistance
(assuming treatment available for diagnosed patients), better outcomes for
patients (in Resource Limited Settings) and further price reductions for diagnostic
commodities
• More attractive, sustainable market for (diagnostic technology suppliers) and greater
supply security
• Greater attention to servicing customers such as public laboratories and Governments
by including repair and replacement services, clear and low pricing on
commodities and a focus on point commercialisation activities
Given the uncertainties around pricing and priority commodities, no financial benefits are
currently attributed to this component.
D.1. Increasing Access to Long-Acting Contraceptives
Figure 7: Graph to show Percentage Reduction in Purchase Price of LARCs
Counterfactual: Withan average price of Jadelle at $22 and Implanon at $20/implant in
2010, we have assumed that the Implanon price has fallen to $18/unit in 2012 based on
information from Merck. In this scenario it is further assumed that Implanon pricing will fall to
$16.50/unit once 4.5M women are on Implanon in developing countries, which is based on
the proposed Merck deal. In our forecast we estimate that this will occur in 2014.
Intervention: A price reduction of ~29% on average is estimated between Implanon and
Jadelle and/or greater use of equally effective LARCs.
The anticipated benefits of this work would be:
• Lower prices for Implanon and Jadelle leading to fewer unwanted pregnancies,
maternal deaths, and better health outcomes for women of childbearing age.
• Maternal and newborn health services savings from fewer abortions, pregnancyrelated deaths and disabilities, and infant deaths
• New capacity for demand-side coalition
• Further cost savings and outcomes improvements in longer-term
Based on these market dynamics, annual global savings of US$9m are achievable by 2015,
rising to US$17m in 2020. However, since the analytics do not support attribution to CHAI
engagement, these savings are not added to the total benefits associated with this
intervention.
D.2. Improving Vaccine Market Dynamics for Price Negotiations
Counterfactual: No price reductions anticipated
Option 3: At least 30% price reduction from 2 suppliers for GAVI-eligible countries in 2015
The anticipated benefits of this work would be:
•
•
•
•
Accelerated entry of new and affordable vaccines leading to reductions in vaccinepreventable illness and death among children and adults
More attractive market for suppliers of new vaccines
Potential for increased financial support for GAVI and additional strategic investments
for additional marketplace improvements
Greater capacity (market-shaping knowledge and skills) for key actors in the field
(e.g., GAVI) to enable leveraged impact and sustainability
Based on these market dynamics, very high annual global savings are achievable. However,
since the analytics do not support attribution to CHAI engagement, these savings are not
added to the total benefits associated with this intervention.
E.1 Ensuring Rapid and Sustainable Scale up of Supply of Malaria Rapid Diagnostic
Tests (mRDT)
Counterfactual: No price reductions anticipated
Intervention: CHAI anticipates an over 50% reduction in irrational use of ACTs in our four
focal countries, based on experience from an effective deployment of RDTs in Senegal7,
as well as price reductions and greater market share for India/ Chinese suppliers in 2013.
Alongside supply-side interventions, CHAI will be working closely with National Malaria
Control Programs (NMCPs), WHO and in country partners to address barriers to appropriate
usage of and adherence to malaria RDTs. Some examples of in-country work include:
1. Ensure clear national policies are developed, especially in regards to confirmatory
diagnosis and management of RDT negative patients
2. Develop and disseminate job aids with the national treatment algorithms
3. Identify additional barriers to uptake of and adherence to RDTs through qualitative
and quantitative surveys
4. Test solutions to non-adherence through Operational Research studies
5. Incorporate messages about malaria diagnosis into planned IEC/BCC campaigns
The anticipated benefits of this work would be:
•
•
•
•
Better health outcomes for patients with febrile illnesses in public health sector (in 4
focal countries)
Improved planning and targeting of resources for national programs leading to
stronger management capacity of NMCPs
Lower pricing for high-quality mRDTs (globally)
Contributions to global public health knowledge (e.g., operational research
publications, best practices
Based on these market dynamics, very high annual global savings are achievable. However,
since the analytics do not support attribution to CHAI engagement, these savings are not
added to the total benefits associated with this intervention.
E.2. Ensuring Rapid and Sustainable Scale up of Supply of Quality Malaria Treatments
Counterfactual: No price reductions anticipated
7
Major Reduction in Anti-Malarial Drug Consumption inSenegal after Nation-Wide Introduction of Malaria Rapid
Diagnostic Tests; PLoS ONE, April 2011
Intervention: It is anticipated that more than 17M patients can be treated with more effective
ACTs globally in 2015, with between 375 thousand to 885 thousand patients on artesunate in
4 focal countries in 2015, resulting in ~35 thousand lives saved. It is also intended to achieve
SRA/WHO dossier submission from 6-7 supply sources for ACTs, new malaria treatments
and artesunate by 2015.The anticipated benefits of this work would be:
•
•
•
Better health outcomes for patients with malaria and prevention of drug resistance in
countries which are sensitive and containment in countries where resistance
currently exists (in 4-6 countries), fewer inpatient admissions and drug
administration needs for severe malaria
More attractive, sustainable market for suppliers of ACT, artesunate, and other new
treatments) and greater supply security
Potential for expanded business opportunity for Indian/Chinese generic suppliers,
supporting developing country economies
Based on these market dynamics, significant market impact, access gains and global savings
are achievable. However, since the analytics do not support attribution to CHAI engagement,
these savings are not added to the total benefits associated with this intervention.
Costing
The cost of the intervention is $63.1M (£39.4M) over three years. Details are set out in the
table below.
Components
Summary of Costs* by Option
Total Costs
Total Costs under
under
intervention
counterfactual
Maximizing Value for Money and
$0
$12.68M
Ensuring Sustainable Supply of HIV
Treatment (Grant A.1)
Accelerating Introduction and Scale Up of
$0
$8.16M
Point-Of-Care HIV Diagnostics (Grant
A.2)
Maximising Value for Money of HIV
$0
$5.60M
Spending for Universal Access to ARVs
(Grant A.3)
Improving Pricing and Supply Security for
$0
$3.72M
High Quality MDR-TB Drugs (Grant B.1)
Accelerating Market Entry of Highly
$0
$7.35M
Accurate and Lower Cost New Diagnostic
Products (Grant C.1)
Increasing Access to Long-Acting
$0
$1.43M
Contraceptives (Grant D.1)
Improving Vaccine Market Dynamics for
$0
$2.92M
Price Negotiations (Grant D.2)
Ensuring Rapid and Sustainable Scale up
$0
$6.40M
of Supply of Malaria Rapid Diagnostic
Tests (Grant E.1)
Ensuring Rapid and Sustainable Scale up
$0
$5.26M
of Supply of Quality Malaria Treatments
(Grant E.2)
Sharing Lessons and Market
$0
$2.53M
Assessments
TOTAL
$0
$56.05M
*Assumes overhead of 15% on all project direct costs and 5% on subcontracts
The individual components of the proposed portfolio have been reviewed – both by an
independent consultant as well as by DFID’s own policy and country-level teams.
Net Present Value/Internal Rate of Return
Using a 3.5% discount rate (as recommended for global public goods), the NPV of
projectable savings from the portfoliois estimated to be $1.45-2.53bn8 for the period 20122020.This is likely to be an underestimate since CHAI are currently only able to project the
savings for a subset of components. CHAI’s work in low-cost diagnostics, vaccines,
mRDTsand malaria treatment are all expected to generate additional substantial savings. The
table below presents, by component,the investment required over the life of the grant (20122015); the NPV of savings over the same period; and the NPV of savings in the longer term
(2012-2020).
During the project lifetime (2012-2015), these savings, combined with the costs of the
associated interventions (a total of $27.55m) yield an internal rate of return (IRR) of441% on
the ‘conservative’ scenario and an IRRof585% for the ‘linear scale-up’, and 443% and 586%
respectively through to 2020. When the full costs of the project ($56.05m) are included, the
IRR is 220% and 305% respectivelyby 2015, rising to 228% and 310% by 2020; this
calculation excludes additional savings from the remaining components with un-calculated
benefits.
Project
HIV Treatment
(A.1)
POC CD4 (A.2)
HIV Spending
(A.3)
MDR-TB (B.1)
Low-cost new
diagnostics (C.1)
LARCs (D.1)
Summary of NPV Calculation
Cost of
investment
Savings (2012-2015)
(2012-2015)
(NPV)
Linear
Conservative
scale-up
Conservative
Linear
scale-up
$11.11
$7.10
$153.2M
$99.7M
$267.3M
$99.7M
$561.4M
$426.9M
$1,156.8M
$426.0M
$4.87
$3.23
$73.0M
$39.0M
$177.0M
$39.0M
$361.3M
$54.9M
$849.8M
$54.9M
$6.55
$1.25
Not Calculated
Not
Calculated
Not Calculated
Not Calculated
$14.6M
$14.6M
$68.6M
$68.6M
Not Calculated
Not
Calculated
Not
Calculated
Not
Calculated
Not
Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
Not Calculated
0
0
0
Vaccines (D.2)
$2.54
mRDTs (E.1)
Malaria
Treatments (E.2)
Sharing Lessons
Learned
Global applied
overhead
IRR9
NPV
$5.71
Not Calculated
8Based
Savings
(NPV)
Not Calculated
$4.58
Not Calculated
$2.20
$6.92
2012-2020
2012-2020
0
228% (Conservative) – 310% (Linear scale-up)
$1.45 Billion - $2.53 Billion
on the ‘conservative’ and ‘linear scale-up’ scenarios for ART access respectively
savings from 6 areas that have not be estimated
9Excludes
Return on Investment
As noted above, a Return on Investment (ROI) approach has also been applied to selected
components of the proposed intervention.
The methodology used was to identify the share of total expected savings on commodities for
key multilaterals – based on their expected volume and distribution of future spending. Next,
the total share attributable back to the DFID budget could be calculated based on
assumptions of UK contributions. The chart below sets out the findings of this analysis.
It is estimated that (based on the linear scale-up scenario) the programme will, up to 2020,in
discounted savings terms, save $59.2m from DFID’s spend on first-line ART (through GFATM
which accounts for a third of all patients on treatment in generically-accessible countries and
will save $19.7 million in spend on second-line ART (through which accounts for 60% of
adults on second-line treatment).
The direct savings to the DFID budget from the ART work alone exceed the total costs of
investment of the whole portfolio and mean the intervention has a positive ROI. Based on the
savings associated with the ART component alone, the annual ROI of the whole portfolio is
3% over the period 2012-2020. Assessing the ART component alone as a self-standing
intervention gives and ROI of 24% a year.
Component area
First-line Regimens
Second-line Regimens
Total HIV savings
ROI analysis
Total Nominal Savings
(Linear scale-up)
$1,304.1M
$145.6M
$1,449.8M
Nominal Savings on UK
spend
$73.4M
$24.7M
$98.1M
Sensitivity Analysis
A number of stress test were applied to the analysis above. Given the high returns, the
intervention is robust to sensitivity analysis. Applying an 8% discount rate reduces the NPV to
a range of $1.11-1.94bn. Even if only 10% of the expected savings are achieved, the
intervention still has a positive NPV (of $95-204m) (at a 3.5% discount rate). The breakeven
price reduction for the intervention is that the portfolio delivers just 3.7%of the forecast
savings. In concrete terms, this would mean the intervention accounting for a US$2 decrease
in the price of the preferred first-line regimen and a US$4 reduction in the price of second-line
treatments.
It is also important to stress that the CBA analysis is conservative throughout – not just in
terms of the assumptions but also in that it excludes significant potential areas for savings,
such as vaccines, where the analytics are not sufficiently robust. However, huge opportunities
for price reductions exist for new, emerging and future vaccines such as Japanese
Encephalitis, Typhoid, Hexavalent, Malaria and Cholera. As an example, the anticipated
annual demand in developing countries for Hexavalent vaccines (combining Diphtheria,
Tetanus, Pertussis, Hepatitis B, Polio, and Hib) would be over 200 million doses in the 20152020 period. The potential demand for a new malaria vaccine could be 90 million does over
the same time frame. Based on very preliminary discussions with suppliers, it is anticipated
that market-shaping interventions for these two vaccines alone could generate almost $195M
in savings over the programme period. Given the UK’s high level of investment in vaccines,
this would generate very significant savings to DFID’s own budget as well.
Monitoring requirements
To track progress a number of prices and other information will be required. These include:
- HIV treatment (Output Indicator 1.1, 1.2):
o Price at baseline and prices monitored every 6 months for ART in genericaccessible countries
o Price differential between existing 1L/2L regimen prices ($169 pppy for 1L
and $409 pppy for 2L in 2011) and new negotiated price
o Expected number of patients requiring drugs from WHO estimates
o Actual sales of drugs to intervention countries
-
MDR-TB drugs (Output Indicator 1.3):
o Price at baseline and prices monitored every 6 months for MDR-TB
regimens in MDR TB high burden countries
o Price differential between existing quality-assured MDR-TB price ($0.64/Cs
unit, $2.60/Km unit, $1.45/PAS unit in 2011) and new negotiated price
o Expected number of patients requiring drugs from WHO estimates of need
and of diagnosed patients
o Actual sales of drugs to intervention countries
-
POC CD4 tests (Output Indicator 2.1):
o Price at baseline and prices monitored every 6 months for intervention POC
CD4 tests delivered in focal countries
o Price differential between existing POC CD4 tests ($11.81 per Pima test in
2011) and new negotiated price.
o Wastage rates for conventional and new POC CD4 tests in intervention
countries, to generate wastage accounts based on prices
o Trend in volumes of intervention and conventional tests procured in
intervention countries
-
HIV spending (Output Indicator 3.1):
o Unit cost per person per year (pppy) of HIV service delivery (e.g., ARVs,
laboratory costs, personnel, other) at baseline and monitored every 6
months for intervention POC CD4 tests delivered in focal countries
o Numbers of patients treated with ARVs in focal countries
-
LARCs (Output Indicator 4.1):
o Price at baseline (average of Jadelle at $22/implant and Implanon at
$20/implant in 2011) and prices monitored every 6 months for intervention
LARCs delivered in focal countries
o Expected number of patients requiring LARCs from WHO estimates
o Actual sales of drugs to intervention countries
-
Vaccines (Output Indicator 5.1, 5.2):
o Price at baseline and prices monitored every 6 months for vaccines given in
GAVI countries
o Wastage rates for conventional and new POC CD4 tests in intervention
countries, to generate wastage accounts based on prices
o Expected number of patients requiring vaccines from WHO estimates
o Actual sales of vaccines to intervention countries
-
mRDT (Output Indicator 6.1, 6.2):
o
o
o
o
-
Price at baseline and prices monitored every 6 months for mRDT
Wastage rates for RDTs and of ACTs (based on appropriate use of drugs)
at baseline and in 2015 (methods to be determined)
Expected number of patients requiring mRDT and ACT from WHO
estimates
Actual sales of RDTs to intervention countries
Malaria ACTs and injectable artesunate:
o Number of price agreements for ACT signed with suppliers
o rice at baseline and prices at 2015 for ACT in focal countries
o Number of injectable artesunate doses delivered
o Estimated number of lives saved based on number of patients given
injectable artesunate and mortality rates
Endnotes
1Global
Fund (2010) Press Release: Agreements Reduce Prices of Malaria Medicines by up to 80%.
http://www.theglobalfund.org/en/mediacenter/pressreleases/Agreements_reduce_prices_of_malaria_medicine
s_by_up_to_80__/
2 DFID (2011) “Towards Zero Infections: The UK’s position paper on HIV in the developing world”
3 DFID (2010). “Choices for Women: planned pregnancies, safe births and healthy newborns. The UK’s
Framework for Results for improving reproductive, maternal and newborn health in the developing world.”
4 DFID (2010).”Breaking the Cycle: saving lives and protecting the future.The UK’s framework for results for
malaria in the developing world.”
5 Cohen MS, et al. Prevention of HIV-1 infection with early antiretroviral therapy. NEJM. 2011;365(6):493-505.
6Nathanson E et al. (2010) MDR tuberculosis–critical steps for prevention and control. N Engl J Med 363: 1050–
1058
7SEAQUAMAT Group. Artesunate versus quinine for treatment of severe falciparum malaria: a randomised trial.
Lancet.2005; 366:717-25.
8AQUAMAT.Artesunate versus quinine in the treatment of severe falciparum malaria: a randomized trial.
Lancet.2010; 376(9753): 1647-1657.
9
Grace, C (2010) “A Value for Money Perspective Applied to GHI Market Shaping Activities”. DFID HDRC.
10
GAVI (fortcoming) “Shaping Vaccine Markets”
11
MedecinsSansFrontieres (2011). “Untangling the Web of Antiretroviral Price Reductions. 11th Edition”
12
Grace, C (2010)
13
Results for Development (2011) “Market Dynamics Study: Phase II Report for the Global Fund Market
Dynamics Committee (MDC)”
14
Results for Development (2011) “Market Dynamics Study: Phase II Report for the Global Fund Market
Dynamics Committee (MDC)”
15
GAVI Supply Task Team (unpublished) “Vaccine Supply and Procurement Strategy - Inception Report”
16
ibid
17Narsai, K (2010). “Impact of Regulatory Requirements on Medicines Access in African Countries”.
Pharmaceutical Industry Association of South Africa (2010)reports that, while experiences vary by region, over
60% of companies have experienced registration timeframes for some products excess of 2 years, with more
than a quarter of companies experiencing processes taking 3 years and more. A majority of respondents also
noted that they had actively taken decisions not to register products in some African countries because
prospective returns did not merit the costs of complying with national registration and current good
manufacturing practice (cGMP) inspection requirements.
18http://www.undp.org/content/undp/en/home/librarypage/mdg/the_mdg_gap_taskforcereport2011/
19
See WHO (2011). Priority Medicines for Mothers and Children 2011:
http://www.who.int/medicines/publications/emp_mar2011.1/en/index.html
20 Hagen, J (2009) “Take Your Medicine,” www.worldpharmaceuticals.net
21 Roberts, A and Imanguli N (2010) “Sexual and Reproductive Health and Rights of Women and Youth in the
Context of Climate Change” http://advocatesforyouth.org/climatechange?tmpl=component&print=1&page
22UNDP (2010) “Gender, Climate Change and Community-Based Adaptation”
23 Ozawa S. During the ‘decade of vaccines,’ the lives of 6.4 children valued at $231 billion could be saved.
Health Affairs. 2011;30(6):1010-20. http://www.healthaffairs.org/press/2011_06_10.php
24DFID. Choices for women: planned pregnancies, safe births, and healthy newborns. December 2010.
http://www.dfid.gov.uk/Documents/prd/RMNH-framework-for-results.pdf
25 Singh S et al (a). Adding it Up: the costs and benefits of investing in family planning and maternal and newborn
health. Guttmacher Institute and UNFPA; 2009.
26DFID.Breaking the cycle: saving lives and protecting the
future.http://www.dfid.gov.uk/Documents/publications1/prd/malaria-framework-for-results.pdf
27Davis W, Clarke P, Siba P, et al. (2011) Cost-effectiveness of artemisinin combination therapy for
uncomplicated malaria in children: data from Papua New Guinea. Bulletin of the World Health
Organization 2011;89:211-220. doi: 10.2471/BLT.10.084103
28Resch S, Korenromp E, Stover J, Blakley M, Krubiner C, et al. (2011) Economic Returns to Investment in AIDS
Treatment in Low and Middle Income Countries.PLoS ONE 6(10): e25310. doi:10.1371/journal.pone.0025310
29
Senior level salaries are set out, alongside other financial information, in the IRS 990 form available at:
http://www.clintonhealthaccess.org/files/CHAI_2010_Form_990.pdf