4
An International System for Procuring Antimalarial Drugs

INTRODUCTION

No special systems exist internationally to assist either the public or private sectors in procuring antimalarial drugs. Governments generally purchase antimalarials through formal procedures in which companies submit bids according to government specifications. Successful bids are chosen on the basis of various criteria including price, quality, and delivery. Governments also exercise regulatory authority over which drugs are registered for sale in a given country, including aspects of labeling and dispensing (e.g., with or without prescription). The private sector is, of course, required to abide by the laws and regulations, but its operations are independent; private vendors typically import drugs through wholesalers according to perceived demand. How well government dictates are followed in the private sector varies among countries.

In the case of artemisinin combination therapies (ACTs), a more centralized procurement system becomes increasingly attractive—particularly if a large international subsidy is part of the equation. Centralized procurement is not a new idea. UNICEF (United Nations Children’s Fund) has been procuring childhood vaccines and other drugs for decades, most recently in collaboration with the Global Alliance for Vaccines and Immunization (GAVI). There is a new “TB Global Drug Facility” with a similar role for procuring drugs that constitute the international standard in tuberculosis treatment. The World Health Organization (WHO) has recently proposed similar entities for malaria and HIV/AIDS. Centralized procurement does



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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance 4 An International System for Procuring Antimalarial Drugs INTRODUCTION No special systems exist internationally to assist either the public or private sectors in procuring antimalarial drugs. Governments generally purchase antimalarials through formal procedures in which companies submit bids according to government specifications. Successful bids are chosen on the basis of various criteria including price, quality, and delivery. Governments also exercise regulatory authority over which drugs are registered for sale in a given country, including aspects of labeling and dispensing (e.g., with or without prescription). The private sector is, of course, required to abide by the laws and regulations, but its operations are independent; private vendors typically import drugs through wholesalers according to perceived demand. How well government dictates are followed in the private sector varies among countries. In the case of artemisinin combination therapies (ACTs), a more centralized procurement system becomes increasingly attractive—particularly if a large international subsidy is part of the equation. Centralized procurement is not a new idea. UNICEF (United Nations Children’s Fund) has been procuring childhood vaccines and other drugs for decades, most recently in collaboration with the Global Alliance for Vaccines and Immunization (GAVI). There is a new “TB Global Drug Facility” with a similar role for procuring drugs that constitute the international standard in tuberculosis treatment. The World Health Organization (WHO) has recently proposed similar entities for malaria and HIV/AIDS. Centralized procurement does

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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance not usurp the role of national governments, which retain responsibility over national drug policy and regulatory matters. Centralized procurement will only be effective if countries view it as facilitating their national malaria goals and objectives. In September 2003, the IOM Committee on the Economics of Antimalarial Drugs cosponsored a meeting with the World Bank and the Roll Back Malaria Partnership to discuss the financing and procurement of ACTs. This chapter is based in large part on discussions that took place at that meeting, and the resulting meeting report (World Bank/Institute of Medicine, 2004). The chapter discusses the pros and cons of different levels of international procurement of ACTs, and some possible institutional arrangements. For now, the hypothetical organization discussed would only procure ACTs; however, in the future, it also could procure second- and third-generation combination antimalarial treatments. The need for some form of centralized, coordinated procurement is widely acknowledged and relatively uncontroversial. The open questions are these: where should the agency be located? Does it require the creation of a new entity, or can it operate within an existing organization? To what degree should it also manage the international subsidy as opposed to partnering with another group that performs that function? The biggest challenge for an ACT procurement group will be to solidly liaise with the private retail sector in endemic countries. This report strongly endorses the principle of procurement at a high level in the distribution chain (possibly at the level of purchase from manufacturers), but it does not take a position on how it should be organized or administered. THE BASICS OF DRUG PROCUREMENT Tasks of Centralized Procurement Organizations Supranational centralized procurement is attractive because it allows countries to participate in and benefit from a more focused and efficient effort than any single country could individually mount. Even if their drug policies differ, all malarious countries face common challenges. Every country with endemic falciparum malaria will need at least one ACT as first-line treatment for uncomplicated cases. The number of available ACTs in the short-to-medium term will probably number half a dozen, produced by 10-20 manufacturers capable of delivering ACTs of acceptable quality. Therefore, an international procurement organization would likely be charged with the following tasks in greater or lesser degrees of collaboration with governments and WHO, depending on the task:

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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance Forecasting demand Negotiating good prices Maintaining healthy competition in the ACT market Facilitating wholesale and retail distribution Minimizing production of artemisinin (and other) monotherapies Assuring quality Stimulating the market Providing technical assistance Conducting monitoring and evaluation Handling intellectual property rights issues Forecasting Demand There is widespread agreement that accurate forecasts of demand are essential to the success of procurement operations. Agreement is equally widespread that accurately forecasting the demand for antimalarials is nearly impossible. The current figure generally believed to represent worldwide antimalarial demand is 300-500 million adult-equivalent courses of treatment per year. Since funds to subsidize the world’s needs are not likely to reach sufficient levels for several years and production scale-up also is just beginning, the best that can be done now is to ratchet up funding and production over several years. Within 5 years, the ability to forecast demand should be greatly improved, however, at which time the procurement organization will have forged relations with major producers, and individual countries will have collected data on the volume of ACTs entering their respective countries and will be in a better position to project demand. Good Prices and Healthy Competition There are no firm rules for judging “good” prices, or “healthy” competition, but UNICEF provides some guidance based on their long experience in vaccine procurement (Box 4-1). One key point is the need for multiple suppliers. Furthermore, a single rock-bottom price is not necessarily the best long-term strategy. In the case of ACTs, different prices for different formulations are likely, but there also could be a range of acceptable prices for a given formulation. One price-lowering option that will not apply to ACTs is tiered pricing because the market for these drugs in high-income countries will be negligible (discussed in Chapter 3). Facilitating Wholesale and Retail Distribution The organization should have the capacity to deliver the desired level of subsidy through public, nongovernmental organization (NGO), and private

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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance BOX 4-1 UNICEF Principles for Vaccine Procurement UNICEF believes that a healthy industry is vital to ensure uninterrupted and sustainable supply of vaccines. UNICEF believes in procurement from multiple suppliers for each vaccine presentation. UNICEF believes in procurement from manufacturers in developing countries, and industrialized countries. UNICEF believes in paying a price that is affordable to Governments and Donors, and a price that reasonably covers manufacturers’ minimum requirements. UNICEF believes that we should provide manufacturers with accurate and long-term forecasts; UNICEF believes that manufactures should provide UNICEF with accurate and long-term production plans. UNICEF believes that as a public buyer, providing grants to manufacturers is not the most effective method of obtaining capacity increases. UNICEF believes that option to quote tiered pricing should be given to manufacturers—in accordance with the World Bank classification of Low, Middle, and High Income countries. SOURCE: UNICEF, 2003. retail distribution channels. A major challenge will be to assure access and appropriate use of antimalarials purchased through the many facets of the retail private sector. Regardless of how well other systems work, failure of this sector means that the majority of treatment seekers will not obtain effective drugs for themselves and their children. Minimizing Production of Artemisinin Monotherapy With its buying power, the procurement organization should be able to prevent producers from manufacturing and selling artemisinin monotherapies, or monotherapies of non-artemisinin partner drugs. In other words, the procurement agency should have the authority to disqualify ACT producers from benefiting from the subsidy if they engage in these activities. The organization also should set guidelines for keeping monotherapies off the market in participating countries. Even without the suasion that buying power brings, if subsidized ACTs become widely available, the economic incentive to produce monotherapies should dry up.

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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance Quality Assurance Assisting with quality assurance through its prequalification program is one of WHO’s strengths. The prequalification requirements for artemisinins and ACTs have been established, but thus far, only one (Coartem) has been prequalified. Several manufacturers of other artemisinin products have applied, but none had passed as of June 2004. WHO is working with these companies (all of them generic manufacturers, mainly in Asia) and there is an expectation that several will become prequalified soon. A persistent problem has been the lack of a standard monograph for the artemisinins, a result of their nonstandard history of development. The product monograph—which usually is assembled by an originator company for a new drug—is important because it specifies quality standards for manufacture, and tests used to verify quality. The companies that have already begun manufacturing and selling artemisinin monotherapies and coformulations in Asia have done so without the benefit of a monograph. WHO has assumed responsibility for developing the monograph, but has not yet completed it (as of June 2004). Market Stimulation The establishment of a procurement organization will signal to producers that a market exists, but only if the organization can marshal sufficient funding in the near term. Some participants at the World Bank/RBM/IOM meeting in September 2003 suggested that a minimum of US$10-30 million per year would be needed for the next 3 to 5 years, enough to purchase roughly 10-30 million adult-equivalent courses of treatment. The IOM committee believes this “pump-priming” figure is far below long-run needs, however, which are reflected in the much larger subsidy (US$300-500 million per year) recommended in this report. In addition to an assured purchase fund, the organization will require funds to organize outreach to current and potential producers of ACTs in order to provide them with information about acceptable products, the WHO prequalification process (including the possibility of technical assistance), the procurement process itself, and the anticipated timetable for purchases. Technical Assistance Technical assistance by the procurement organization should cover a wide range of activities to assist both producers and consumers. Assistance may be direct or brokered by the organization (e.g., funding a consultant to visit a plant that needs help with quality control). Countries may require assistance with such tasks as identifying lead ACTs for first-line treatment, product registration and labeling, training regulators and field workers,

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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance and setting up monitoring and evaluation systems, to name just a few. Producers also may need help with technical aspects of production, or bidding processes. Sustainable funding must be identified to provide the technical assistance needed, with or without a cost recovery mechanism. Monitoring and Evaluation The organization will need to evaluate its own performance. In addition, it should set standards for countries procuring products through it to determine how well they are meeting the needs of the population, and monitoring antimalarial resistance. The agency should cultivate a strong sense of accountability toward the private sector and its clients. Intellectual Property Issues Intellectual property issues for ACTs currently under development should be minor, if they surface at all. The procurement organization must follow the development of new-generation antimalarials, however, which may come with more complex intellectual property backgrounds. Other Desirable Characteristics of a Procurement Organization for ACTs ACTs currently have a short shelf-life roughly estimated at 2 years. Therefore, one practical consideration for a procurement agency will be organizing the direct delivery of ACTs from producer to customer with as little delay as possible. This precludes the procurement agency from physically warehousing ACTs and shipping them. Instead, it must devise mechanisms for tracking and accounting for the products as they move without being physically involved in the transfers. In the beginning, it would be ideal if ACT procurement could be managed by an established organization with sufficient capacity and experience to launch the process whether or not a new institution is later created. UNICEF, for one, could fill the interim role and possibly maintain the program into the future. Another possibility, once functional, is the developing malaria facility being organized under WHO auspices, or yet another new or existing organization. The IOM Committee has taken no position on the specific entity that would be best able to fill this role. In the early years, a procurement organization also should have guaranteed purchasing power and assume some financial risk for contracts with suppliers. This mirrors UNICEF’s role in vaccine procurement. In the case of ACTs, the risk should be small, particularly during early years when demand will greatly outpace supply. If a global subsidy at the supranational level is implemented, the pro-

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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance curement organization (or a closely allied fiscal entity) should receive funds and be empowered to interact not only with governments but all sectors. We are aware that this approach does not reflect current health development financing, which is largely public-sector oriented (although it sometimes includes NGOs). The procurement organization and its partners (e.g., WHO, The Global Fund) would need to work with major donors to develop ways for donors to contribute to a global subsidy targeted at public and private sectors within the strictures of their organizations. Degrees of Centralization of Procurement Organizations The choice between internationally centralized and fully decentralized procurement by individual countries is not a simple dichotomy. A spectrum of possibilities exists, from minimal coordination through full bulk purchasing. Five operating scenarios are described below: Informed buying: Purchasers share information on prices and suppliers, but purchase individually. Coordinated informed buying: Purchasers conduct joint market research, share supplier information, and monitor prices but purchase individually. Group contracting: Purchasers jointly select suppliers and negotiate prices, agreeing to purchase from the selected suppliers. Purchases can be made individually or jointly. Central contracting and purchasing: Purchasers jointly tender and contract through a global procurement agent. Pooled procurement: A central organization negotiates and purchases from suppliers, and distributes drugs to next level purchasers. Participants at the joint meeting in September 2003 (World Bank/Roll Back Malaria/IOM) agreed that efficient procurement of ACTs would require an operation toward the bottom of the list, with far more centralized functions than information sharing. Examples of Higher Level Procurement Strategies The GDF The WHO Global Drug Facility (GDF) for TB drug supply bundles global pooled procurement with pooled financing and includes a network of partners who provide technical assistance to support drug grants. Procurement is one component of four in the GDF framework (Table 4-1). TB drugs are purchased on behalf of countries from a contractual partner of

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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance TABLE 4-1 The Four Functions of the GDF   Grant-making to countries and other qualifying recipients.   Application review, monitoring, and evaluation, including a monitoring and evaluation process after the grant.   Procurement through a contractual partner of the GDF, with shipment to the country’s port of entry.   Partner mobilization, for technical support in the application process, conducting monitoring and evaluation, and helping with in-country drug management.   SOURCE: World Health Organization (http://www.who.int/gtb/publications/gdf/gdf_factsheets.htm). the GDF and shipped to countries. At the country level, customs, port clearance, warehousing, and distribution are still handled through the country’s own systems. A recent evaluation of the GDF listed three outstanding achievements of the facility (McKinsey and Company, 2003): Expanded access to high-quality TB drugs Facilitation of expanded levels of directly observed treatment (DOTS) System-level benefits resulting in reduced drug prices The evaluation notes that the combined approach of pooled financing and commodity procurement has been key for the GDF to meet its goals, particularly in providing incentives for countries to adopt the DOTS strategy and to rationalize the choice of drugs used for treatment. The key to stimulating scaled-up drug production was the ability of the GDF to forecast demand. Coordinated Informed Buying of HIV/AIDS Drugs A recent example of pooled procurement is found in Management Sciences for Health’s (MSH) collaboration with the Rockefeller Foundation and key African institutions on the design of a program for Coordinated Informed Buying of HIV/AIDS-related drugs in programs of regional pooled procurement under the auspices of ACAME (an association of francophone West African countries’ central medical stores) and CRHCS (East and Southern Africa Commonwealth Regional Health Community Secretariat). The program will expand beyond HIV/AIDS drugs to a wider selection of drugs on countries’ Essential Drugs Lists if the initial experi-

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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance ence with HIV/AIDS drugs proves successful. MSH has argued for pooling procurement at the regional level rather than globally, on grounds that this will result in greater ownership by countries and lower levels of requisite political commitment. Bulk Procurement by UNICEF UNICEF’s Supply Division in Copenhagen has several years of experience in fully centralized purchasing of vaccines under the umbrella of GAVI. UNICEF’s program involves both virtual and physical warehousing of commodities, as distinct from pooling of individual orders from countries. UNICEF also is a key partner in the GDF. Like the GDF, UNICEF staff have found demand forecasting the single greatest challenge influencing the success of their efforts in vaccine procurement. Approximately 25 percent of their effort is taken up in forecasting activities. PROPOSED MALARIA MEDICINES AND SUPPLIES SERVICE As this study neared completion, in December 2003, the Roll Back Malaria (RBM) partnership issued a “Draft Concept Document” to establish a “Malaria Medicines and Supplies Service” (MMSS) within RBM (WHO, 2003). This, and a companion proposal for HIV/AIDS-related commodities, both modeled on the Global TB Drug Facility, are the initiatives of the new WHO Secretary General, Dr. J.W. Lee. The RBM draft concept document is not a finished proposal but a starting point for broad consultation to begin honing the plan. This section, therefore, outlines the main characteristics described in the draft with the understanding that it is a living document that may well change before this IOM report is in print. Characteristics of the Proposed MMSS The stated purpose of the MMSS is to “facilitate and expand access to high-quality treatment of malaria and preventive measures by improving the supply of medicines and other essential supplies.” The products covered will be ACTs and other drugs, diagnostics, and insecticide-treated nets. The functions envisioned fall into three categories: Global information products Technical tools and assistance to countries and others at all stages of the supply cycle Facilitating the procurement of the named products

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Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance The procurement function goes as far toward centralization as pooled procurement, but does not mention outright bulk procurement. As described, the MMSS would be responsive to “qualifying national malaria control programs, NGOs, and other private-sector organizations.” The MMSS is proposed as a time-limited endeavor that will phase itself out as capacity is developed in endemic countries to assume the procurement (and other) responsibilities. Consistency with IOM Recommendations The MMSS as currently described in the draft document would meet some of the goals of this report’s recommendations and could evolve in such a way that it would meet all of them. One obvious difference is that the MMSS is described as a time-limited organization. It is not clear that the need for this function will diminish in the foreseeable future. If working well, it could be a permanent, efficient mechanism for antimalarial procurement. Another key issue that still must be addressed is the mechanism for injecting a global ACT subsidy into the system in a way that will influence the private retail sector. If this element is not factored into the plan, a number of problems are likely to arise—the biggest one being an inability to discourage the sale and use of monotherapies. The widespread availability of monotherapies would in turn threaten to curtail the useful lifespan of ACTs. REFERENCES McKinsey and Company. 2003. Evaluation of the Global TB Drug Facility. Geneva: Stop TB Partnership, World Health Organization. UNICEF. 2003. Overview of UNICEF immunization procurement, 2003. Presentation at World Bank/IOM/RBM meeting, Expert Consultation on the Procurement and Financing of Antimalarial Drugs, September 15-16, 2003. WHO. 2003. Proposal for a Malaria Medicines and Supply Service. Unpublished. World Bank/Institute of Medicine. 2004. Expert Consultation on the Procurement and Financing of Antimalarial Drugs, September 15-16, 2003, Washington, DC. Washington, DC: World Bank.

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