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When: Wed 13 Jul 2011 10:15 a.m. - 11:30 a.m.
Room: Windsor West

Chair (1): Prashant Yadav (MIT-Zaragoza International Logistics Program)

Organizer (1): Prashant Yadav (MIT-Zaragoza International Logistics Program)

Session Description (195 words)

Key Terms: differential pricing, dynamic efficiency, local production, market dynamics, pharmaceuticals

Presentations (3)

1. Modelling the Risks of In-kind Pharmaceutical Donations and Differential Pricing from a Dynamic Access Perspective

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   Presenter: Cheri Grace (HLSP Institute. Global Health)

   Abstract (451 words)

   In-kind product donations and differential pricing are strategies employed by pharmaceutical companies towards improving access to medicines in developing countries. These strategies have been, and continue to be, primarily the realm of the multinational industry. In cases where medicines are patent protected and/or used for tropical neglected diseases, these strategies have sometimes been the only way possible to obtain access to an otherwise unaffordable medicine. This purpose of this work was to analyse the risks of such strategies, from the perspective of dynamic access to medicines.

   2. Methodology
   This study focused on the sectors where donations and differential pricing at scale were more likely to be economically feasible and where such strategies were more likely to have a negative impact on competing, generic producers: first and second line antiretrovirals (ARVs), drugs for opportunistic infections associated with HIV and AIDS, artemisinin-based combination therapies (ACTs), Long-Lasting Insecticidal Nets (LLINS), and first and second line drugs for tuberculosis (TB).

   In order to understand the market impact risks of the chosen commodity sectors, demand and supply parameters of each sector were mapped, and hypotheses generated about the risks and weaknesses in the market structure and thus, how competing firms supplying the market on a commercial basis could be impacted by a donation. From this process, a conceptual framework was developed which captures all the key parameters important in assessing the market risk from these strategies.

   To demonstrate how these risks would be experienced at the level of a single generic firm who is competing with a donation, a mathematical model was constructed. Using reasonable assumptions about total market size, revenue, margin, market share and fixed/variable costs of the generic firm, we determined the conditions (e.g. market share hurdle) at which the producer would exit the market. We conducted a sensitivity analysis to provide insight into how the results would differ according to varying assumptions, e.g. size of market share taken up by the donation or the differentially priced product, and degree of operating leverage of the competing firm.

   3. Policy Implications
   Historically, low-income countries were reliant on corporate philanthropy as a predominant way to bridge the gap between health needs and supply in some technology sectors. With the emergence of quality supply of health technologies from lower cost producers in countries such as India and China, and the rise in global health donor spending, policies on donations therefore need to shift to promote the emergence and maintenance of viable commercial markets in these sectors. While in-kind product donations and differential pricing have provided static access to medicines, in some technology areas we are now reliant on low-cost generic producers to bring dynamic access through continued price reductions, supply security and innovation in compliance-enhancing product attributes.
   

   Key Terms: Access to Medicines, Differential Pricing, In-Kind Donations

   Authors (2): Cheri Grace (HLSP Institute. Global Health) and Padmashree Gehl Sampath (UNCTAD)

2. Intra-country Differential Pricing for Pharmaceuticals: Welfare Effects at Different Levels of Channel Targetedness and Channel Separation

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   Presenter: Prashant Yadav (MIT-Zaragoza International Logistics Program. Zaragoza Logistics Center)

   Abstract (281 words)

   Inter-country differential pricing has been noted to be a very effective way to improve access to medicines for people living in low and middle-income countries. However, intra country differential pricing i.e. charging different prices to different income segments within a country has not been widely analyzed primarily due to the perceived risks of leakage from one channel to the other. The highly skewed income distributions within lower-middle and middle- income countries hinder the politico-economic feasibility of differential pricing because inter-country differential pricing cannot guarantee affordable prices to the poorest population segments in lower-middle and middle-income countries.

   Using a simple analytical model parameterized with data for a specific product category and two countries, this paper first attempts to capture the welfare benefits of intra-country differential pricing. Properties of the demand function, distribution channel “targetedness ratio” and the degree of channel separation are used as variables to define when is intra-country differential pricing welfare enhancing. The results show that intra country differential pricing can be welfare enhancing even with moderate degree of separation between the distribution channel through which the poorest income quintiles seek treatment and the distributional channel through which the richer segments seek treatment in developing countries. The model also shows that even if there is some limited switch over of patients in where they seek treatment to exploit the price differential, or some limited product diversion from one channel to the other, the overall revenue of the pharmaceutical manufacturer would still be higher under intra-country differential pricing. The model can be used to define thresholds on product diversion and treatment seeking switchover that would make intra country differential pricing attractive from a overall welfare, consumer surplus and manufacturer profit perspective.
   

   Key Terms: access to medicines, channel structure, Differential pricing, intra-country differential pricing

   Author (1): Prashant Yadav (MIT-Zaragoza International Logistics Program. Zaragoza Logistics Center)

3. Donor Interventions to Shape the Industrial Organization of Antiretroviral Medicines Markets in Developing Countries: Lessons from UNITAID

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   Presenter: Brenda Waning (World Health Organization/UNITAID. Market Dynamics)

   Abstract (357 words)

   Background
   Numerous donors and international organizations, including UNITAID, have recently adopted market-based approaches to improve access to medicines and other health commodities in developing countries. Interventions are designed to mitigate the effects of market instability and uncertainty which typically present as insufficient innovation of products adapted for low-resource settings, lack of competition, interrupted supplies, use of medicines of unknown quality, and unaffordable prices.
   UNITAID-sponsored projects implemented by the Clinton HIV/AIDS Initiative (CHAI) utilized price negotiation, pooled purchasing and other tools to create and stabilize low volume-niches of pediatric and second-line antiretroviral (ARV) medicines.

   Methods
   We used information from the World Health Organization Prequalification Programme and the United States Food and Drug Administration to describe trends in quality-certification of pediatric and second-line formulations and used 7,989 and 2,126 donor-funded, pediatric and second-line ARV purchase transactions, respectively from 2002-2009 to measure upstream market entry and downstream market diffusion of these products.

   Results
   UNITAID's interventions had dramatic impact on the size and structure of both market niches. In the pediatric niche, purchase and volume assurances were sufficient incentives for manufacturers to develop new and improved formulations. A new market for pediatric ARVS emerged immediately, but dispersion of that market beyond UNITAID's focus countries has been limited. The second line ARV market experienced dramatic growth in size, the entry of real competitor manufacturers and substantial prices reduction in UNTAID focus countries and beyond.

   Conclusion
   Market-based interventions can have dramatic effects on the upstream and downstream markets of pharmaceuticals in developing countries. Each market niche, however, is unique and presents different challenges and therefore different approaches. In the pediatric ARV example, the mere availability of a new and improved product is insufficient to create and sustain a viable market. Introduction of pediatric products must be accompanied by assistance to address the related supply chain and prescribing complexities. Donors should work collaboratively with each other and more closely with pharmaceutical manufacturers to leverage win-win situations for introduction of new technologies. For second-line ARVs, multi-organization (UNITAID, Global Fund, PEPFAR) pooling of global demand created economies of scale for production while manufacturers worked proactively to register their improved formulations and hasten uptake in developing countries.
   

   Key Terms: ARVs, dynamic efficiency, Market Dynamics, UNITAID

   Author (1): Brenda Waning (World Health Organization/UNITAID. Market Dynamics)