Giving Compass’ Take:
• To overcome demand uncertainty that drives up drug prices, partners must come together to agree on a price ceiling and minimum quantity of drugs purchased to ensure that the drugs can be made available to all who need them for a reasonable price.
• How can donors help facilitate such partnerships? How else can partnerships counter inefficiencies of capitalism?
• The Gates Foundation offers ways for donors to make an impact on global health.
In his landmark economic text Wealth of Nations, Adam Smith wrote that the “invisible hand” of the market would neatly divide the world’s resources among its needs: Prices would act as a communicator and clearinghouse between demand and supply. For a new, optimized HIV treatment regimen with patients mostly spread across sub-Saharan Africa, however, widespread uncertainty can muddle the price.
Suppliers cannot predict how quickly, nor in what volumes, countries and donors will switch to buying the new drug, and therefore may set high prices for their first sales.
Faced with these high prices, Ministries of Health may delay ordering the new drug. Initial orders also tend to be small, as patients gradually transition to the new regimen. This keeps prices high, with suppliers operating at small scale and holding off on factory investments that could bring down costs.
This scenario is not a hypothetical. Treatment regimens with the antiretroviral (ARV) drug dolutegravir (DTG) outperform the current standard of care for first-line HIV patients in important ways: faster suppression of the HIV virus, fewer side effects, smaller pill size, and lower risk of developing drug-resistant strains of HIV. Despite these benefits and the fact that DTG-based regimens have been available in the United States since 2013, there has been risk of a slow switch for low- and middle-income countries (LMICs).
To break the cycle of small orders and high prices driven by uncertain demand, a multiparty partnership reached ceiling price agreements for the new DTG-based regimen with the two generic manufacturers who have received tentative US Food and Drug Administration approval. The ceiling price agreements draw on donors’ and procurers’ visibility and influence over the uptake of DTG-based regimens to guarantee a price at launch that would typically emerge only after LMIC markets reach scale—with savings estimated at nearly $1 billion over the next six years. Moreover, this price is nearly the same as that of the most common regimen, so countries can switch without incurring higher costs.
Read the full article about reducing drug prices by Amy Lin at Stanford Social Innovation Review