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World%20Bank%20Training%20Program%20on%20Managing%20Procurement%20and%20Logistics%20of%20HIV/AIDS%20Drugs%20and%20Related%20Supplies%20%20Financing%20and%20Pricing%20%20based%20on%20the%20World%20Bank%20document%20Battling%20HIV/AIDS:%20A%20Decision%20Maker

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Innovative Pharmaceutical Firms. Multinational companies: brand name drugs ... Negotiation of drug prices with pharmaceutical companies that are exclusive producers ... – PowerPoint PPT presentation

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Title: World%20Bank%20Training%20Program%20on%20Managing%20Procurement%20and%20Logistics%20of%20HIV/AIDS%20Drugs%20and%20Related%20Supplies%20%20Financing%20and%20Pricing%20%20based%20on%20the%20World%20Bank%20document%20Battling%20HIV/AIDS:%20A%20Decision%20Maker


1
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 Makers Guide to the Procurement of
Medicines and Related Supplies World Bank, 2004
Abuja, Nigeria 31 May 2005
2
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

3
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

4
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

5
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

6
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

7
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

8
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

9
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

10
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

11
  • The Pharmaceutical Supply Chain
  • Key Players
  • Manufactures
  • Innovative Pharmaceutical Firms
  • Generic Manufacturers
  • Wholesalers/Distributors
  • Retailers
  • Governmental Non-Profit Sellers

12
  • Innovative Pharmaceutical Firms
  • Multinational companies brand name drugs
  • Conduct their own RD 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

13
  • 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

14
Description of Current System Design
Drug Production
Manufacturer selling price, plus transport,
insurance taxes
Manufacturer selling price, plus transport,
insurance taxes
Wholesaler
Wholesalers price tax
Public Purchaser (Health minister, public
hospitals, etc.)
Retail Pharmacy
Retail price sales tax
Patient
Source World Bank Technical Guide Training
program on HIV/AIDS Drugs, 2003
15
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

16
Pricing
  • Price Discrimination
  • First degree charging whatever the market will
    bear
  • Second degree quantity or versioning
  • Third degree separate markets and customer
    groups

17
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 RD costs)
  • Prices 35 cheaper
  • g

18
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

19
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

20
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

21
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 dIvoire, 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

22
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

?
23
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

24
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

25
Additional Strategies
  • Other Remedies
  • Domestic Production
  • Local production of antiretroviral drugs
  • Examples Brazil, India, Thailand

26
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

27
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.

28
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
  • (HIV/AIDS Antiretroviral Newsletter, December
    2002, Issue No. 8, WHO)

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29
Illustrative Case StudyBrazil
  • 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

30
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

31
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

32
Antiretroviral Prices in 2002 The Impact of
Increased Competition
Price Per Pill Accelerated Access Initiative Brazil Lowest Generic Price
Zidovudine 100mg 0.26 US 0.13 US 0.10 US
Nevirapine 200mg 0.60 US 0.34 US 0.28 US
Lamivudine 150mg 0.31 US 0.29 US 0.17 US
Source Luchini et al. XIV International AIDS
Conference, Barcelona, July 2002
33
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 RD
  • Still not perfectly universal system

34
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

35
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

36
Summary and Conclusions
  • Once countries are able to produce generic drugs,
    they will have an advantage with regards to
    negotiations with patent holders

37
Competition is Highly Effective in Reducing
Prices - The Example of Antiretrovirals
Competition (2 to 6 producers per product)
No competition
Source Samb, B., 2000 UNAIDS, in Levison, L.,
Boston University School of Public Health, 2003
38
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-of-pocket
    payments it is important for government
    subsidization programs, in effect, transferring
    funds from formal employment sectors of the
    economy to other sectors

39
Resources
  • MSF Untangling the Web of Price Reductions Feb.
    2005 is available at -www.accessmed-msf.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_at_access.org.za (Alternatively, the paper
    will be circulated on the conference list-serve)
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