1. Differential pricing and access to medicines: issues and options Andrew Creese Essential Drugs and Medicines Policy Health Technology and Pharmaceuticals World Health Organization October 2002

2. n Tech briefing Oct 2002 Differential pricing - The adaptation of prices charged to the purchasing power of governments and households in poor countries n To improve affordability of key drugs while maintaining incentives for innovation ä ARVs for HIV/AIDS the most publicized case ä Antimalarials, resistant TB drugs, medicines for OIs, and others are also expensive therapies ä The case applies to non-patented as well as patent protected products. n Already practised with reductions over 90% - key factors - ä bulk purchasing - competition - skillful negotiation n Feasibility has been demonstrated ä economically feasible because of pharmaceutical cost structures ä compatible with WTO TRIPS agreement

3. n Tech briefing Oct 2002 Source: WHO/DAP (1998) Percentage of population with regular access to essential drugs (1997) 1 = <50% (36) 2 = 50-80% (68) 3 = 80-95% (33) 4 = >95% (41) 5 = No data available (1) n government health spending is down n developing countries lack insurance n 75%to 90% of spending out-of-pocket n treatment of simple pneumonia may cost 3 months wages in Africa n medicines 25%- 65% of total health spending Financing, pricing, delivery, other constraints mean that 1/3 still lack regular access to essential medicines

4. n Tech briefing Oct 2002 Price is one of several key factors influencing access to essential drugs 1. Rational selection 4. Reliable health and supply systems 2. Affordable prices 3. Sustainable financing ACCESS

5. n Tech briefing Oct 2002 Several actors and factors contribute to the final price of a drug n Actors: ä manufacturers ä distributors ä retailers ä governments ä purchasers n Factors: ä market characteristics ä policies of firms ä policies of governments Producers price Distributors margin Retailers margin Taxes & duties

6. n Tech briefing Oct 2002 UN Drug Access Initiative Domestic production Accelerated access initiative February-April 2001 offers Experience with AIDS drugs, contraceptives, other medicines shows differential pricing is feasible ??

7. n Tech briefing Oct 2002 Implementing differential pricing - what it entails n Segmented markets - high and low price zones n Prevention of physical backflow from low to high price markets, avoidance of reference pricing of DP products in high price zones, product differentiation.

8. n Tech briefing Oct 2002 Different paths can bring about differential pricing for single-source products; will have different effects

9. n Tech briefing Oct 2002 Possible constraints and some unanswered questions n Leakage of products - segmenting markets ä product differentiation by manufacturers ä supply chain management by purchasing organizations ä regulatory controls ä import and export controls n Leakage of prices - international reference pricing ä The real threat to core markets? n Competition law - collusion restricted even in a worthy cause

10. n Tech briefing Oct 2002 A web of international price comparisons has developed - much of it over the last 5 years Source: Ed Schoonveld, Market Segmentation and International Reference Pricing in Report of WHO- WTO Workshop on Differential Pricing and Financing of Essential Drugs, April 2001 Countries which use price comparisons in price-setting or whose prices are referenced

11. n Tech briefing Oct 2002 An enabling environment for differential pricing needs contributions from several stakeholders n Public policy makers in high income countries n Public policy makers in low income countries n Multilateral bodies n Research-based pharmaceutical companies n Generic producers n Purchasing bodies - public, private and NGO n Advocacy and consumer groups

12. n Tech briefing Oct 2002 UK high level working group on access to medicines n Members: ä government departments - treasury, trade, health, international development ä UK research-based industry (ABPI, GSK, AstraZeneca) ä Foundations (Wellcome, Rockefeller) ä EU directorates - trade, development ä UN system - WTO, WHO, Richard Feachem ä Ugandas High Commissioner to UK n Recommending to Prime Minister (2003 G8 target launch): ä Voluntary DP scheme focused on HIV/AIDS, TB and malaria medicines in the first instance ä All sub-Saharan Africa and other Least Developed Countries ä For public and not-for-profit NGOs ä Prices close to cost of production (without R&D and marketing costs) ä Monitoring mechanism to be set up and report yearly

13. n Tech briefing Oct 2002 Coming next (if you can take it)… Alternative paths to DP - whats the evidence base? Voluntary ä Bulk purchasing and competitive tendering ä Bilateral negotiations ä Voluntary licensing (in the context of differential pricing) ä Delaying or reversing patent protection in LDCs, as allowed by the Doha Declaration Non voluntary ä Compulsory licensing ä Price controls ä Government led patent waivers (semi-voluntary)

14. n Tech briefing Oct 2002 Selected criteria for comparing payoff of various differential pricing mechanisms