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Clinton Foundation HIV/AIDS InitiativePharmaceutical Services Team

Engaging the ARV Marketplace to Optimize Outcomes for Patients

February 14, 2006

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Summary

• By engaging both the demand-side and the supply-side of the ARV market in 2003, CHAI was able to bring prices down. The approach affirmed the need for countries to access low prices and the need for suppliers to stay in business. Organizing the market with both transformed the business of 1st-line ARVs to “low-margin, high-volume” and has contributed to wider access to ARVs around the world.

• The relative success of price reductions and expanded access in the last 2-3 years, however, must not mask challenges facing the market today. High prices for 2nd-line ARVs, cost and volume pressures on 1st-line ARVs, and price disparities between low and middle-income countries represent real constraints to patient access, and CHAI is working to address these with suppliers and purchasers.

• Critical to any effort to address these challenges – and keep the supply of ARVs sustainable for ever larger numbers of patients – is the actions of countries. National governments, by recognizing evolving market dynamics, can take action today to avoid potential bottlenecks (such as rising 1st-line prices), to accelerate time to market for affordable 2nd-line generic ARVs, and to minimize any delay between supply of a product and its availability to patients

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Content

• Approach and Outcomes of Original Pharmaceutical Agreements

• Current Challenges in the ARV Marketplace and CHAI’s Response

• Country-level Opportunities to Optimize Access for Patients

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State of Treatment in 2003 vs. 2005

End 2002

200

Africa

Latin America

People on antiretroviral (ARV) treatmentThousands

300

50

50 Mid 2005

1,000

300

200

500

Rest of World

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Drug and Diagnostic Costs to Countries

National treatment budget(2003 data – illustrative)Percent

Drugs (44%)

Labs (23%)

Staff

Training

Physical Infrastructure

NutritionIEC

Management

For new national treatment programs, the relatively high cost of drugs and diagnostics was a key determinant to the reach of available resources

(Despite early Global Fund grants, the announcement of PEPFAR (Jan 2003) and the

“3 by 5” target (Sep 2003), resources were not unlimited)

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Supply-side Perspective in 2003

• Limited volume (70k outside LAC) compared to capacity

• Fragmented and unpredictable orders

• No credible forecasting of volumes increases over time

• Lack of prompt payment by purchasers

• Lack of standardized treatment guidelines

Generic prices were low relative to branded products,

but still reflected high production costs

CHAI experience in the U.S. confirmed that better market dynamics drive lower costs to manufacturers, enabling lower

prices over time

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Monitorconsumption

Supportpurchasing

Forecastdemand

Developoperational

plans

CHAI Engagement with Countries

• Model scale-up of treatment over time

• Set national treatment guidelines

• Model product-specific demand over time

• Align policies for procurement

• Pool donor funds and sources of orders to create national demand outlook and purchasing process

• Set national treatment targets

• Quantify requisite resources

• Plan for operations, oversight, milestones, etc.

• Deploy tools to sites to monitor ongoing consumption

• Use consumption data to update demand forecasts (pull not push)

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• Conduct site visits at multiple levels of value chain

• Understand company position in the marketplace

• Map production process

• Complete financial due diligence

• Un-bundle production costs

• Identify major cost drivers

• Identify process improvements at each level of value chain

• Analyze impact of increased volume on cost

• Identify potential for future cost savings

NegotiatePrice

ModelProduct

Cost

Due Diligence

Identify Potential Partners

• WHO/FDA quality benchmark

• Breadth of product selection

• Develop transparent pricing formula

• Establish scale curve for future cost/price reductions

• Identify product development priorities

• Continue to monitor costs

CHAI Engagement with Suppliers

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Pharmaceutical Value Chain

Cost of activepharmaceuticalingredient (API)

Rawmaterials

41%

100%

4%

Cost of FinalProduct

3%26%

Tax 7%

Mnfctr17%

Overhead 2%

Formulationproduction (excipients,

mnfctr, packing)

Corporateoverhead,

sales & marketing

R&D

Additional cost for formulation manufacturer

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Targets for Savings

Large reductions at the API level:• Sourcing to low-cost API suppliers, • Driving efficiency through scale,• Reducing gross margin

Cost of activepharmaceuticalingredient (API)

Rawmaterials

41%

100%

4%

Cost of FinalProduct

3%26%

Tax 7%

Mnfctr17%

Overhead 2%

Formulationproduction (excipients,

mnfctr, packing)

Corporateoverhead,

sales & marketing

R&D

Additional cost for formulation manufacturer

Reductions in formulation costs:• Cross-subsidization of overhead• Reductions in margin• Scale-based savings (very small)

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ARV Price Comparison: 2003

1 As reported by the manufacturers and by Médecins Sans Frontières (MSF) in Untangling the Web of Price Reductions2 $384 was the weighted average price being offered to CHAI purchasers in October 2003. 3 MSF’s May 2003 guide reported the best prices offered by Cipla, Hetero and Ranbaxy as $304, $281 and $285.

BrandedBest

Price1

GenericPurchase

Price2

$562

$384

GenericList

Price3

$290

3TC+d4T(40)+NVPOctober 2003

CHAICeilingPrice

$140

• 9 formulations of 4 first-line ARVs included in agreements

• Prices were a 75% reduction from patent-holders, and a 50% (or more) reduction from the market price of generics

• CHAI prices were FOB ceilings for national tenders

• CHAI partner formulators: Cipla, Ranbaxy, Hetero and Aspen Pharmacare (and Strides Arcolab as of 2006)

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• Country tender process maintained– Member Purchasers issue tenders through traditional means– CHAI published price becomes ceiling– CHAI monitors suppliers costs to ensure consistent pricing

• Countries incorporate strategic sourcing practices*– Payment backed up by LC’s or other secure instruments– Regular and aggregated orders– Ongoing forecasting – Expedited registration– Use of international quality standard (WHO)– Move towards larger and/or multi-year tenders– Split bids per product, as appropriate

• Demonstration of secure distribution system and commitment to comply with international and national law (IPR)

Operational Principles for Purchasers

* These are explicitly specified in MOUs with purchasers in Procurement Consortium (with provision of order info)

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Reach of Agreements After 2 Years

Access to CHAI pricesNumber of countries

January2004

January2006

4x

13

51

People benefiting000’s on ARVs purchased under CHAI agreements

End Q22004

End Q42005

8x

30

240 In addition to benefit of lower prices through CHAI

agreements, market prices around the

world have fallen as other manufacturers compete with CHAI suppliers (and as

purchasers expect better prices).

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3TC+d4T(40)+NVPJanuary 2006

BrandedBest

Price1

GenericPurchase

Price2

$562

$221

GenericList

Price3

$192

CHAIPurchase

Price

$144

ARV Price Comparison: 2006

1 As reported by the manufacturers and by Médecins Sans Frontières (MSF) in Untangling the Web of Price Reductions2 Weighted average of price being paid in middle and low-income countries, according to World Health Organization.3 Average price, per MSF’s June 2005 guide, of three suppliers currently WHO prequalified (Cipla, Hetero, Ranbaxy).

• CHAI purchase prices have been within 2-3% of ceilings

• CHAI prices remain lowest for some – but not all – products

• On average, CHAI rates are 20-30% less than market in low-income countries

• Middle-income market rates are still 2.5 times higher

• CHAI prices are lower for pediatric formulations

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Content

• Approach and Outcomes of Original Pharmaceutical Agreements

• Current Challenges in the ARV Marketplace and CHAI’s Response

• Country-level Opportunities to Optimize Access for Patients

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Challenges in the ARV Marketplace

• High Price of 2nd-Line ARVs

• Pressures on Ongoing Supply of 1st-Line ARVs

• Price Disparity Across Markets

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Current Prices of 2nd-Line ARVs

Price of 2nd-Line Treatment

(Annual cost in US$)

$6,000

$1,40010x

$140

40x

1st Line(Africa)

2nd Line(Africa)

2nd Line(MiddleIncome)

ABC $584$887

Supply of 2nd-Line ARVs

(Low cost source is highlighted)

Product GenericInnovator

ddI $142$279

TDF N/A$204

LPV/r $1,500$500

SQV $1,022$989

IDV $217$400

RTV $196$83

NLF $1,217$978

ATV N/ATBD

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CHAI Activities to Lower 2nd-Line Prices

Need Description CHAI Response & Role

Lower cost of production

Current production cannot match innovator pricing due to poor chemistry, low yields and high price intermediates

Build a team of experts who know the chemistry to assist suppliers; search for better intermediate sourcing

Credible demand forecasts

Toxicity and switch rates are not known, and suppliers do not have insight on what 2nd-line drugs are being used

Work with WHO/UNAIDS to estimate gross demand; with countries to improve estimates of 2nd-line use

Simplified national treatment guidelines

New WHO guidelines will have 36 options for combinations without clear pros/cons in terms of cost, availability, etc.

To assist countries and drive volumes to the most relevant products – CHAI will issue “guidelines to guidelines”

Quick regulatory approval

Once products are commercially available, WHO approval and national registration are additional prerequisites to wide access

Support WHO prequalification program to increase capacity and efficiency; encourage prioritization of 2nd-line products with FDA

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Initial 2nd-Line Price Reductions

Abacavir

MiddleIncomeMarketPrice

Generic &InnovatorBest List

Price

InnovatorBest List

Price

MarketPrice

$479

$347

$887

$705

Efavirenz

CHAIPrice

$240

CHAIPrice

$447

– 50%

– 31%

– 50%

– 37%

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Cost Pressures on 1st-Line ARVs

• Rising intermediate prices (and limited supply)

• Rising solvent prices (due to increasing price of oil)

• Currency exchange fluctuations

• Cost of re-listings and double submissions (WHO & FDA)

• Increased R&D costs for second-line products

• Stock carrying costs, interest rate for late payments, etc.

Costs

Savings

• Better yields than expected• Cheaper routes of synthesis• Use of cheaper API for

unregulated markets

CHAI response

• Work on the supply side to control prices of solvents and intermediates

• Work on the demand side to encourage practices which control costs

Production costs for 1st-line ARVs are rising, despite some efficiencies and savings. Continued work is needed to maintain or lower prices.

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Projected 1st-Line Demand Increases

0

2

4

6

8

2002 2003 2004 2005 2006 2007 2008 2009 2010

End 2005: 1–1.5 million

2006/07: 3 million

2010 goal: 6–8 millionAPI supply has exceeded

ART demand to date, but it is not known whether supply of API will keep pace with demand as

ART access increases exponentially

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Content

• Approach and Outcomes of Original Pharmaceutical Agreements

• Current Challenges in the ARV Marketplace and CHAI’s Response

• Country-level Opportunities to Optimize Access for Patients

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Country-level Opportunities

• Help Control 1st-Line ARV Costs

• Ensure Consistent 1st and 2nd-Line Protocols

• Expedite National Registration

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Country-level Actions to Control Costs

Demand-side Action

• Prompt payment

• Larger and/or longer-term tenders

• Reliance on international quality standard and ongoing accountability on API sourcing

• Splitting awards to tenders for specific, high-volume products

• Conducting and sharing ongoing, consumption-based forecasting

Supply-side Impact

• Avoids interest payments to minimize costs to formulators

• Allows suppliers to plan for production – achieving better pricing on intermediates and avoiding stock-carrying costs

• Avoids predatory pricing by suppliers who sell lower-quality products (cheaper to make)

• Ensures competition so a few products in a few high-volume countries do not determine market

• Enables API suppliers to plan for medium and long-term capacity needs

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Possible Revision to 1st-Line WHO Protocol

d4T- or -AZT

3TC- or -FTC

NVP- or -EFV

+ +ABC- or -TDF

Triple NRTI alternative

Though this yields 24 choices of three-drug regimens, we do not anticipate consumption patterns to change because the 20 new variations are cost-

prohibitive (averaging $570, or 2-4 times the price of current 1st line with NVP)

or

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Likely Revised 1st-Line Regimens

REGIMEN PRICE (US$)

d4T 3TC NVP 140

AZT 3TC NVP 240

d4T 3TC EFV 430

AZT 3TC EFV 540

TDF FTC EFV 665

TDF FTC NVP 375

ABC 3TC NVP 705

ABC 3TC EFV 995

TDF 3TC NVP 325

TDF 3TC NVP 325

AZT FTC NVP 310

d4T FTC NVP 210

ABC FTC NVP 755

AZT FTC EFV 600

d4T FTC EFV 500

ABC FTC EFV 1045

AZT 3TC ABC 785

AZT 3TC TDF 405

AZT FTC ABC 835

AZT FTC TDF 455

d4T 3TC ABC 685

d4T 3TC TDF 305

d4T FTC ABC 735

d4T FTC TDF 355

Current protocols will remain dominant, with more EFV for TB patients if the price comes down

TDF+FTC+EFV FDC is possible and may be used as alternative

ABC will be saved for 2nd Line

Many combinations combine once and twice daily dosing and will not be favored due to this reason as well as high prices

Countries are unlikely to adopt triple NRTI regimens in the absence of specific toxicities or more attractive prices

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Likely Revised 2nd-Line Regimens*

The average best price of these 12 possibilities is $1,320 today (with a range from $780 to $1,860). LPV/r is cheaper than SQV/r and will remain so. ATV/r pricing

has not yet been announced. Protease-inhibitors with ritonavir require cold-chain, but a heat-stable version of LPV/r will be available beginning in 2006.

ABC, ddI, LPV/r and TDF will be dominant. Countries should revise protocols quickly to adjust demand forecasts. Also, the pace of registration of generic forms

of these products will be critical to realizing lower prices, when available.

TDF- or -ddI

ABC- or -AZT**

LPV/r- or -SQV/r- or -ATV/r

+ +

* These 12 possibilities are the most likely of 36 variations** AZT can be used + or – 3TC

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Steps to Expedite Product Availability

Action

1. Supplier R&D should focus on key products, and regulatory submission made as soon as possible

2. International regulatory review should be quick and donor policy flexible to procure new products

3. Purchasers can expedite registration based on WHO or FDA approval and ensure national law leverages donor flexibility

CHAI role

CHAI is focusing supplier R&D on EFV, TDF, ABC, ddI, LPV/r and ATV/r and is providing assistance if possible to prepare submissions

CHAI and WHO are working together to raise more resources for prequalification and begin prequalification for diagnostics; CHAI has worked with GFATM to develop and document its new procurement policy

CHAI is encouraging suppliers to submit dossiers identical to WHO/FDA submission and pay registration fees

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• Expedite national registration based on WHO and/or FDA approval (and submission of identical dossier, with B/E data and same API-source)

Need for Quick Access to ARVs

Health Systems Strengthening

• Continue to charge fee for product registration

• Seek donor funding for NDRA and NQCL strengthening

• Seek WHO support for NDRA strengthening (including participation in prequalification project)

Balance with NDRA Strengthening