World Bank Training Program on
Managing Procurement and Logistics
of HIV/AIDS Drugs and Related
Supplies
Financing and Pricing
based on the World Bank document
Battling HIV/AIDS: A Decision Maker’s Guide to
the Procurement of Medicines and Related
Supplies World Bank, 2004
Abuja, Nigeria: 31 May 2005
1
Learning/Training Objectives
•
To understand how the pharmaceutical
supply chain works including
comprehension of who the components
and key players are
•
To understand price discrimination and
pricing differences both within and across
countries
•
To understand how international
programs have sought to implement
programs with the goal to allow countries
with widespread access to antiretroviral
medicines at the lowest possible prices
2
Learning/Training Objectives
• To understand how legal remedies
(including compulsory licensing, domestic
production, and bulk purchases) and
donations have contributed towards
reduced drug prices
• To acquire an understanding on how to
decode local pricing structures, where to
find domestic drug pricing information,
and on identifying important factors when
conducting any international price
comparisons
• To describe and understand how countries
can contribute towards low drug prices
3
Final/Ultimate Objectives
• To obtain the lowest possible prices with
a standard quality for the HIV/AIDS
related pharmaceuticals and medical
products
• To ensure adequate financing of these
products in order to improve the
affordability and financial sustainability
of the flow of products required by the
HIV/AIDS programs
4
The Pharmaceutical Supply
Chain
Introduction
• How do markets work in general and
how are prices formed?
• Here, we present a brief description of
three types of markets
¯ Perfect competition
¯ Monopoly
¯ Monopolistic competition
5
The Pharmaceutical Supply
Chain
Introduction
Prices - There is only one price for which
planned market demand is equal to
planned market supply, which is known
as equilibrium price or market clearing
price
• Shifts in demand and supply can
cause this equilibrium condition or
price level to shift
6
The Pharmaceutical Supply
Chain
Introduction
Perfect Competition
• Multiple small buyers and sellers in
the market - no one buyer or seller is
large enough
• Freedom of entry and exit into the
market
• Buyers and sellers have perfect
knowledge about market prices and
output
7
The Pharmaceutical Supply
Chain
Introduction
Perfect Competition
• The price of a good is ascertained
through regular interactions between
demand and supply
¯ Short-run
¯ Long-run
8
The Pharmaceutical Supply
Chain
Introduction
Monopolistic Competition
• Same conditions hold as for perfect
competition except that firms
produce differentiated products with
close substitutes
• Firms have a certain degree of
market power as they can raise
prices without losing all of their
customers
9
The Pharmaceutical Supply
Chain
Introduction
Monopoly
• There is only one firm in the industry
(the monopolist)
• There are many barriers to entry
• Monopolist maximizes profits in the
short-run
10
The Pharmaceutical Supply
Chain
Key Players
•
Manufactures
¯ Innovative Pharmaceutical Firms
¯ Generic Manufacturers
•
•
•
Wholesalers/Distributors
Retailers
Governmental & Non-Profit Sellers
11
Innovative Pharmaceutical Firms
Multinational companies: brand name drugs
•
Conduct their own R&D and own many
patent portfolios: however, also typically
spend more money on marketing and
administration than research and
development
•
Bayer, Boehringer Ingleheim, Bristol-Myers
Squibb, GlaxoSmithKine, Merck, Pfizer and
Schering-Plough
12
Generic Manufacturers
• Generic manufacturers that compete in the
production of off-patent drugs
• Produce drugs that are marketed under
approved non-proprietary and proprietary
names
• Major generic producing nations include
Brazil, China, India, South Africa and
Thailand
13
Description of Current System
Design
Drug Production
Manufacturer selling price, plus
transport, insurance + taxes
Manufacturer selling
price, plus transport,
insurance + taxes
Wholesaler
Wholesaler’s
price + tax
Public Purchaser
Retail Pharmacy
(Health minister, public hospitals, etc.)
Patient
Retail price
+ sales tax
14
Source: World Bank Technical Guide: Training program on HIV/AIDS Drugs, 2003
Pricing
Equity Pricing
An equitable price structure may take the following form:
•
‘Market’ pricing by manufacturers in different markets,
according to the ability to pay
•
Voluntary out-licensing and generic competition
•
Subsidization of drugs by international programs or
donors
•
Compulsory licensing and generic competition
15
Pricing
Price Discrimination
• First degree – charging whatever the
market will bear
• Second degree – quantity or versioning
• Third degree – separate markets and
customer groups
16
Pricing
Explanation of Pricing Differences
Pricing Differences Within Countries
•
Patent protecting drug
–
•
Once patent expires, generic manufacturers
can enter market
Some companies produce only “Copy”
molecules already developed (no R&D
costs)
–
Prices 35% cheaper
g
17
Pricing
Explanation of Pricing Differences
There are pricing differences within and
across countries
Pricing Differences Within Countries (cont.)
Amount of state intervention

–
Originator antiretroviral drugs and generic
locally manufactured drugs coexisting
Marketing, sales, and volume
•
–
Companies can sell high volume of drugs at
discounted prices
18
Pricing
Explanation of Pricing Differences
Pricing Differences Across Countries
Differences in living standards
•
–
Clear relationship between Gross National
Product and drug prices
Regulatory systems and tax levels
•
–
–
Price differences not uniform due to federal
regulation
Over the counter price differences due to
regulation in pharmacy markets
19
Pricing
Explanation of Pricing Differences
Pricing Differences Across Countries
Differences in purchasing power
•
–
Comparison – Purchasing Power Parity based
on Gross Domestic Product and Health
Purchasing Power Parity
Optional Exercise #1
20
Additional Strategies
International Programs
Accelerating Access Initiative
•
The Initiative was launched in 1997 between three
pharmaceutical companies, the United Nations and
health officials in Chile, Cote d’Ivoire, Uganda and
Vietnam
•
In each country, clearing house for placing orders
and receiving antiretroviral drugs
•
In 2001, Accelerating Access Initiative became
responsibility of World Health Organization
21
Additional Strategies
Accelerating Access Initiative
• Despite reductions in drug prices, prices
offered by companies participating in the
Initiative are still more than double the prices
of generic companies
• As a result few patients are gaining access to
antiretroviral therapy – less than 1% of the
HIV-positive population is receiving
antiretroviral therapy
22Δ
Additional Strategies
Legal Remedies
Compulsory Licensing
•
•
•
•
•
•
Country may request patent holder permission to begin
domestic manufacturing
Local government could ask domestic firm to
manufacture generic version of drug in domestic country
Exporting firm could agree to manufacture drug in
domestic country
Decrease in drug prices
Case of India
Case of Brazil
23
Additional Strategies
Legal Remedies
Compulsory Licensing
Examples of Voluntary Licensing
•
Boehringer Ingelheim licensed Aspen
Pharmacare to produce nevirapine
and GlaxoSmithKline agreed to
license three antiretroviral drugs to
Aspen Pharmacare
24
Additional Strategies
Other Remedies
Domestic Production
•
Local production of antiretroviral drugs
•
Examples: Brazil, India, Thailand
25
Additional Strategies
Other Remedies
Bulk Purchases
•
Bulk purchasing can lower drug prices
•
Reduction in the risk of capital equipment
investment
•
Economies of scale
•
Reduced market and distribution costs
•
Improved production planning from better
demand forecasting
Optional Exercise #3
Optional Exercise #4
26
Additional Strategies
Donations
Two main types of donations
•
Form of money
•
Form of drugs
For example, in 2000, Pfizer announced it
would provide Diflucan free of charge to
AIDS patients diagnosed with cryptococcal
meningitis
•
However it is to be noted that there are
several problems with drug donation,
mainly from restrictions on type of use,
and from strict reporting.
27
Reducing Drug Prices
“Prices are an important factor, especially in
developing countries, since while in
developed countries pharmaceuticals are
largely publicly funded through
reimbursement and insurance schemes, in
developing countries, typically 50%-95%
of drugs are paid by the patients
themselves. Thus in developing countries,
prices of medicines have direct
implications for access”
28
(HIV/AIDS Antiretroviral Newsletter, December 2002, Issue No. 8, WHO)
α β
Illustrative Case Study:
Brazil
Strategies Used
•
Brazil is the first developing country to have
implemented a large-scale universal antiretroviral
therapy distribution program
•
The public health system provides free
antiretroviral therapy to approximately 125,000
patients
•
The savings from out-patient and hospital costs
outweigh the costs of implementation by more
than US $200 million
29
Illustrative Case Study: Brazil
Factors that Contribute to Success
•
1971 Law suspending intellectual property
rights
•
Large scale experimentation without legal
restrictions
•
Domestic national labs with the capacity to
manufacture large quantities of antiretroviral
drugs
30
Illustrative Case Study:
Brazil
Factors that Contribute to Success
•
Negotiation of drug prices with
pharmaceutical companies that are
exclusive producers
•
Deals were made with Abbott, Merck
and Roche cutting prices of four drugs
by more than 50%
31
Antiretroviral Prices in 2002: The
Impact of Increased Competition
Price Per Accelerated
Brazil
Pill
Access
Initiative
Zidovudine
0.26 US$
0.13 US$
100mg
Nevirapine
0.60 US$
0.34 US$
200mg
Lamivudine 0.31 US$
0.29 US$
150mg
Lowest
Generic
Price
0.10 US$
0.28 US$
0.17 US$
32
Source: Luchini et al. XIV International AIDS Conference, Barcelona, July 2002
Illustrative Case Study:
Brazil
Factors that Prevent Success
•
•
•
•
•
Most developing countries lack
manufacturing capacity building to produce
local drugs under compulsory licensing
Strengthening and capacity building
require much funding
Reduction of customs and tariffs over time
– fierce competition
High prices constitute necessary incentive
for efficient R&D
Still not perfectly universal system
33
Illustrative Case Study:
Brazil
Take-Away Lessons
•
Gather financial resources
•
Confront cultural, religious, and legal
barriers
•
Compulsory licensing
•
Local production by local laboratories
•
Increased advantage in negotiating drug
prices with patent holder pharmaceutical
firms
34
Summary and Conclusions
There are many ways in which drug prices can
be reduced
• Stages of production
¯ For countries that have the capability of
producing their own generic products, it is
important to bear in mind the various stages of
production
¯ Production of raw materials and intermediates
¯ Production of active principles
•
Negotiations with patent holder firms
35
Summary and Conclusions
•
Once countries are able to produce generic
drugs, they will have an advantage with
regards to negotiations with patent holders
36
Competition is Highly Effective in Reducing
Prices - The Example of Antiretrovirals
Cost per capsule or tablet (US $)
5
No competition
Competition (2 to 6 producers per product)
4
2.90
3
2.00
2
1.72
1.31
1.85
1.55
1.04
0.83
1
0.08
0.51
0
Product A
Product B
1996
Product C
1997
1998
Product D
1999
Product E
2000
37
Source = Samb, B., 2000 UNAIDS, in Levison, L., Boston University School of Public Health, 2003
Summary and Conclusions
•
Transparency
For countries that receive a large
percentage of funding from foreign donors,
it is important that they that the funding
be monitored and accounted for
•
For countries for which a large percentage
of health care revenue comes from out-ofpocket payments it is important for
government subsidization programs, in
effect, transferring funds from formal
employment sectors of the economy to
other sectors
38
Resources
• MSF: Untangling the Web of Price Reductions
Feb. 2005 is available at -www.accessmedmsf.org (Please look under Documents for
HIV/AIDS)
• For the final version of the Oxfam study on the
US-SACU FTA, please email me, Achal Prabhala,
at achal@access.org.za (Alternatively, the paper
will be circulated on the conference list-serve)
39