Project Impact Making Medical Technology And Services Affordable And Available To The Economies Of Developing Countries Making Medical Technology And Services Affordable And Available To The Economies Of Developing Countries

4 Billion at Bottom of Pyramid   Per capita less than $1,500   A billion people have per capita income less than $1/day.   Income gap between rich and poor is growing: richest 20% account for 85% of income   Extreme inequity of wealth distribution reinforces view that poor cannot participate in global economy   Could swell to more than 6 billion people next 40 years   Bottom 4 billion of humanity represent multi-trillion $ market

Social Objectives  Focus on ‘pricing’ disparity’ where goods and services that provide for basic human needs, such as sight or hearing (or life itself!), are receding further and further from the reach of the poor.  Demystify costs, gain control of means for production and pricing to make products affordable to poorer two thirds of humanity  Create service delivery models to provide affordable and high quality products and services where price and quality become driving forces to convert need into demand

Aravind Eye Hospital  220,000 eye surgeries per year (10% of surgery in US)  2 million patients/year examined/treated  47% pay nothing, 18% pay two-thirds cost, 35% pay well above cost  For every $1 spent, $1.60 is earned  Able to be self sustaining and grow while staying true to social mission of serving poor  Replicated in Nepal, India, Egypt, Malawi, Kenya, Guatemala, El Salvador, others

Dr. Venkataswamy

Surgery at Aravind

Financial Viability Through a unique fee system & effective management, Aravind provides free eye care to 2/3 of its patients. For each $1 spent, $1.60 is earned Free Camp 47% Paying 35% Subsidized 18%

Profit Expenses Revenue

Al Noor/Magrabi Eye Hospital, Cairo

Principles of Cost Recovery Principles of Cost Recovery  Understanding the local paying capacity  Pricing for affordability  Pricing for all economic strata-multi-tiered pricing  Improving efficiency to decrease costs  Improve quality to create market demand  Satisfying customers/being accountable  Consumers become program planners  Increase volume to lower unit costs and prices  Choice to use profit & production capacity to serve poor  Nestle control in hands of those doing the work  Shift of resources from operating costs to start up costs for new programs

Why is medical technology not affordable?  WTO keeps drug prices high under Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Patents on life-saving drugs are treated the same way as patents on ice-cream machines.  Bureaucratic Imperative of Medical Industry: The ‘ethical’ responsibility of “ maximizing return on investment” to share-holders reduces the accessibility and affordability of technology oriented medical care in developing countries  Western companies do not simplify and make appropriate for developing countries

Aurolab  Established in 1992 as non-profit business trust  Organizational mandate to maximize product availability and affordability to the poor  Proven track record in the manufacture of : IOLs, suture, drugs, eye glasses  Associated with Aravind Eye Hospital  One of largest IOL manufacturer in world; 600,000 per year sold to 86 countries  FDA and CE Mark regulatory fulfillment  Uses profit and production capacity to serve the poor and build capacity

Reinventing Pricing Pricing is the Issue, Not Cost  Intraocular lenses: $100+ vs. $4.5  Suture: $200 vs $30  Pharmaceuticals: $60 vs. $.91  Hearing aid:$1500 vs. $50

Aurolab Financial Sustainability  $4.3 million in Annual Sales  52% Margin ($2.2M Net Income)  Sustained Growth, little marketing costs

IOL Implantation into the lens bag IOL Cornea Lens bag Iris

Clean Room Final Quality Control

Next Generation IOL  Hydrophobic Acrylic Foldable IOL  Alcon has 50% and AMO 20% of IOL market with this material  13M IOLs sold WW in 2002; 1.4M in USA  Foldable IOLS account for 96% of US Market  $ 1.6B US Market  Developed novel biocompatible material exceeding material properties of competition  Production in less than a year  Give IP and know how to Aurolab for social mission and license to others for Project Impact financial return to support new technology development

Suture: Cold Forming Needles

Suture: Micro grinding needle tip

Dr. P. Balakrishnan Managing Director Aurolab

How Affordable Technology Drives Sustainability  Availability of affordable intraocular lenses have enabled eye care programs worldwide to provide better quality visual outcomes  Vision with IOL attracts surgical patients at early stage when more still work and can contribute toward cost  Programs become ‘market driving’ to increase market demand which has led to financial sustainability

Playing the Game  Beg others to help you or: gain control of technology, production, distribution and pricing  Transform corporate behavior by playing the corporate game and being competitive  Difficult to change corporate behavior by pronouncement; better to compete on their ground to get them to change how they price their product for poorer markets  Effect of Aurolab pricing lowers prices worldwide

Tech Transfer Modus Operandi  Starting assumption: things don’t really cost that much to make  Demystify cost and technology  Find R&D people who have worked in leading companies with large R&D budgets  Gain control of technology, production, distribution and pricing  Scale costs to result in affordable pricing to end user  Transform the market place by being price competitive

What can medical companies do to put me out of business?   Grand gestures instead of small gestures   Find ways to sell products in poor countries at lower prices in a way that does not compromise profitability in developed country markets   Develop distribution that minimizes leakage into higher priced developed country markets   Put more money into developing country diseases   Practice generosity

The Global Challenge of Hearing Impairment  WHO estimates 250 million disabling hearing impairment  Average Price in 2003 was US $1,500  Hearing aid companies are oriented to high profit margins and low volume  Only 6 million sold /year but only 12% go to developing countries  Need is at least 32 million units/yr.  Poor quality “low- priced” hearing aids create client dissatisfaction  Lack of cost-effective, financially self- sustaining service delivery models for the lower economic groups

Affordable Hearing Aid

 Digitally programmable hearing aid usually priced at $1500 is being sold for $0 to $200  Manufacturing operational January 2003  Per unit cost under $50  US FDA approval & CE Mark Certification  Clinical trials completed at U. of Washington with successful results  Sustainable service delivery models developed that deliver hearing aids to all economic strata  Multi-tiered pricing implemented locally & globally  2nd generation high powered digital almost complete  Partnerships developed with Lions, PDA, Al Noor, and other social enterprise distributors

Affordable AIDs Drugs?   42 million HIV positive   4% get antiretroviral treatment in poor countries   Feasibility study: US $40/yr/patient drug cost? US $40/yr/patient drug cost? Legally possible to produce with violating trade agreements? Legally possible to produce with violating trade agreements? Create market driving service delivery model (bottom up) to create market demand instead of top down? Create market driving service delivery model (bottom up) to create market demand instead of top down?

Compassionate Capitalism  Choice to use profit and production capacity to serve poor  Philanthropy that by-passes the middle man  Pricing for affordability to poor & generating sufficient revenue to grow and flourish  Selling the product for the least amount of money rather than the most  Profit is a means to an end and not the end itself  Return on investment to the community (beneficiaries) and not to shareholders

Financing Dilemma  Under capitalization  Lack of adequate financing mechanism for social enterprise  Traditional donors do not want to invest in anything with appearance of risk  VC’s want to know exit strategy and how much they will get  Donors /investors convolute approach of social enterprise  Inefficient capital market for social enterprise

Non profit “Merger and Acquisition”  Northwest Lions Foundation for Sight and Hearing (NLFSH) and Project Impact developing a non-profit partnership; largest eye bank  NW will ‘buy’ over time, the assets of AHAP  NLFSH shares responsibility for financing and executing AHAP’s core functions: product development, distribution of hearing aids through non-profit channels, outreach to audiologists, and product fulfillment and service activities.  Project Impact to continue playing role in raising funds, developing international distribution channels, and technology development for AHAP.

What Project Impact Gets  Assurance of sufficient capitalization and managerial wherewithal  Financial strength  Guaranteed financing for 4 years for new Project Impact technology development ventures  Part owner of commercial asset-future upside  Assurance of adherence to social mission  Exit strategy that allows AHAP to be placed in competent hands and allows us to stick with core competencies  Sleep well and wake up happy

How Ashoka has Helped  Pro bono legal support of Fried Frank Shriver Harris and Jacobson  Donor / investor network  Collegiality with other Ashoka fellows  Declaration that the frog is really a prince  Psychological benefit of stipend to support risk taking behavior  Involvement with Ashoka to develop Social Financial Sector

David Green Formula for Getting By  Make do with very little  Perseverance  Embrace the possibility of failure  Act in spite fear and uncertainty  Plan for sustainability to get out of dependency  Boot strapping on a shoestring necessary in beginning but should be followed by proper capitalization, once certain risks have been reduced-- to reduce stress and have a life!  Thinking makes it so  Everyone has the same nerve endings