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Antiretrovirals for low income countries: an analysis of the commercial viability of a highly competitive market

Olive N Nakakeeto* and Brian V Elliott

  • * Corresponding author: Olive N Nakakeeto nakakeeto@sfr.fr

  • † Equal contributors

Globalization and Health 2013, 9:6  doi:10.1186/1744-8603-9-6

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Antiretrovirals for low-income countries, current market situation and future prospects

Harald Rinde   (2013-04-03 14:22)  BioBridge Strategies email

Olive N Nakakeeto and Brian V Elliott report on the potential impact from price decreases on the long-term sustainability of supply of antiretrovirals (ARVs) in low-income countries [1].

BioBridge Strategies (Harald Rinde MD, MBA and Louis J. Riceberg PhD) was engaged by the World Health Organization Prequalification of Medicines Programme (WHO-PQP) in 2011 to examine and analyze the business case for manufacturers of ARVs, anti-TB drugs, antimalarials, and in 2012 continued the analysis for reproductive health medicines. We also examined the process and cost involved in securing WHO prequalification of a pharmaceutical product by WHO-PQP. We carried out an interview and business modeling process similar to that of Nakakeeto and Elliot. The objective of our study was to enable WHO PQP to better understand the business needs of pharmaceutical manufacturers, including where it might improve its service to them, and how it could stimulate more applications for prequalification, so as (ultimately) to increase access to quality-assured medicines for patients in low-income countries.

Our business modeling looked at the current situation for manufacturers operating in institutional markets, and profit-and-loss analysis over time. We interviewed senior business management in a total of 37 pharmaceutical companies in India (13), China (9), Europe (6), Africa (2), Eastern Mediterranean countries (2), Russia (1), Ukraine (1) and Pakistan (1). We also sought input from 10 organizations working in global public health, including WHO, Bill and Melinda Gates Foundation, M��decins Sans Fronti��res, Global Drug Facility, the Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria, UNITAID, UNICEF and the Clinton Health Access Initiative. In addition, we used a range of publicly available information to build our business model.

Our findings and conclusions were very similar to those of Nakakeeto and Elliot for the business case for ARVs. We came to the same conclusions for anti-TB products too. The latter product category has, historically, been characterized by regular drug shortages, and could be viewed as an historical example of what could happen with ARVs. Antimalarial and reproductive health medicines have not been subject to the same degree of price pressure as ARVs and anti-TB products and still represent relatively attractive businesses, albeit with their own challenges.

The institutional markets for ARVs in low-income countries have many imperfections. For example, the governments of these countries sometimes offer local manufacturers preferential treatment when they organize tenders for ARVs or other needed drugs, even when these have not been prequalified or approved by a stringent regulatory authority, are of poor quality and/or are more expensive. In one country in which we conducted interviews, the ministry of health and the local prison authorities (who were purchasers of anti-TB medicines), confirmed that they were not willing to pay higher prices for quality-assured medicines, choosing instead to procure cheaper medicines produced locally, for which quality was not guaranteed. Several interviewees commented that in another country the government procures locally-manufactured drugs that do not meet international standards.

Such policies unintentionally risk compromising their patients�� health in exchange for local business and employment (i.e. health policies are conflated with industrial policies). As mentioned by Nakakeeto and Elliott, some countries waive import requirements for local manufacturers or offer them tax advantages or free land, support for manufacturing facilities, thereby giving them, what was often referred to by our interviewees as, ��an unfair competitive advantage��. In fact, the application of different quality standards for different manufacturers and/or products means that there is, de facto, no single and competitive fair market for generic drugs procured for patients in low-income countries.

The situation for ARVs has reached a critical point whereby reduction of manufacturing cost and sourcing of less expensive active pharmaceutical ingredient (APIs) no longer outweigh the downward pressure on finished pharmaceutical product prices; gross margins are hovering just above zero percent for many products. In some years, the gross profit has even been negative for some products. This can be illustrated in Figure 1 (link: http://www.slideshare.net/haraldrinde5/bio-bridge-strategies-response-to-nakakeeto-and-elliott-2013). Thus for those manufacturers who do adhere to international quality standards, this environment is extremely demotivating. Even worse, continued downward pressure on prices risks undoing all the efforts made by a number of organizations during the past decade aimed at ensuring that patients in low-income countries have access to quality-assured medicines.

The level of net profit is also dependent on what costs are included in ��variable cost�� and our experience from the interviews was that many companies did not allocate all costs (including overhead) when they made business decisions regarding products destined for the institutional markets of low-income countries. Fortunately, their business decisions were also influenced by their commitment to ensure a supply of essential medicines to low-income countries and their social responsibility. If, instead, all variable costs were allocated to products, net profits would even more often be close to or below zero, especially for ARVs and anti-TB drugs.

Nakakeeto and Elliot point out that manufacturers are often frustrated by delay in reaching the market and must deal with a lack of consistency of regulatory approvals across individual countries. Currently, very few countries accept prequalification by WHO-PQP as sufficient regulatory justification for local approval, or even operate a fast-track regulatory process for WHO-prequalified products. However, WHO-PQP is currently working on development of a collaborative procedure for registration of prequalified medicines, to make them more quickly and widely available in participating countries (see: http://apps.who.int/prequal/info_press/documents/CollaborativeRegistration_16November2012.pdf). It is also working on joint assessment of products with a number of East African countries; under joint assessment, a product is prequalified and granted national registration in participating countries at the same time.

The business case was also heavily influenced by the unpredictability of market needs, and poor forecasting and planning in the recipient countries. Several manufacturers stressed that 30% of orders they had received were ��emergency�� orders. This meant that manufacturing planning was inefficient, sourcing of low-cost APIs often not possible, and supply chains continuously disrupted as a result. In addition, shipping costs were often high because batches had to be shipped by air. Emergency orders had therefore often been shipped at a loss.

What about the future? As Nakakeeto and Elliot write, currently about 8 million patients are treated with ARVs, while about 15 million patients are in need of treatment. An almost doubling of supply of ARVs in the coming years, and a significant increase in manufacturing capacity is needed. Demand will also be exacerbated due to the evolving chronic nature of HIV/AIDS, requiring lifetime treatment. Yet there have been no new entrants to the ARV low-income country markets for many years, as Nakakeeto and Elliot also found. With the current pressure on profit margins it is unlikely that this situation will change. On the contrary, it appears likely that these markets will become even less attractive, with the risk that manufacturers pull out of them altogether.

Moreover, we are currently in the midst of an ��avalanche of drugs coming off patent��, a term used by several manufacturers. In the coming five years (2013 to 2017) about 100 drugs will come off patent in the USA, with a combined US retail sales value of about US$ 50 billion (2011 value). The average US retail sales value of each drug was about US$ 500 million in 2011 [2]. This is illustrated in Figure 2 (link: http://www.slideshare.net/haraldrinde5/bio-bridge-strategies-response-to-nakakeeto-and-elliott-2013)

These new generic product opportunities offer generic manufacturers large and attractive markets in the USA and Europe, with significantly higher profit margins than those offered by the institutional markets of low-income countries. We can only hope that when public or private companies make business decisions for the future they will find an effective means of balancing the need for a profitable and sustainable business with their social responsibility to supply medicines to vulnerable populations.

BioBridge Strategies: Harald Rinde MD, MBA; Louis J. Riceberg PhD

References
[1] Nakakeeto and Elliott: Antiretrovirals for low-income countries: an analysis of the commercial viability of a highly competitive market. Globalization and Health 2013 9:6.
[2] Medco June 2012. Estimated Dates of Possible First-time Generics / Rx-to-OTC Market Entry

Competing interests

None declared

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