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Managing Procurement and Logistics of HIV/AIDS Drugs and Related Supplies World Bank Training Program . Jabulani Nyenwa, MD, MPH, MBA May 2005. Acknowledgements. Jillian Clare Cohen Heather Bennett Patrick Osewe Olukemi Osinusi. Organization of Module.

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Managing Procurement and Logistics of HIV/AIDS Drugs and Related SuppliesWorld Bank Training Program

Jabulani Nyenwa, MD, MPH, MBA

May 2005


  • Jillian Clare Cohen

  • Heather Bennett

  • Patrick Osewe

  • Olukemi Osinusi

Organization of Module

  • Importance of pharmaceutical systems

  • Failure of pharmaceutical systems

  • ARV treatment programs

  • Key considerations in the supply chain management of ARV drugs

Learning Objectives

  • Explain the importance of the pharmaceutical system in the overall health system

  • Understand and identify the key components of supply chain management

  • Understand and identify the determinants of pharmaceutical system failure

  • Understand and identify the key considerations of ART supply chain management

Importance of Pharmaceutical Systems

  • Drugs are specialised health commodities

  • Pharmaceuticals are the second highest public health budget expenditure in most countries

  • Drug expenditure accounts for 50-90% of non-personnel health system costs

  • Access to affordable high quality health commodities is central to health care systems

  • Drug availability promotes confidence in health systems

  • Management of pharmaceutical systems is complex

Role of pharmaceutical systems

  • Uninterrupted availability of pharmaceuticals

  • Affordability of pharmaceuticals

  • Ensuring that safe and efficacious drugs are available in the correct form and condition for the correct indication and at an affordable cost whenever client needs them


Logistics Cycle

  • The framework through which pharmaceutical systems function

  • Ultimate goal is to meet customer needs

  • All the components of the cycle should be carefully planned, implemented and monitored

  • Emphasis must be placed on creating an enabling environment for effective pharmaceutical management

Determinants of Access to Pharmaceuticals


  • Research & Development

  • International Trade Agreements

  • National Regulatory Systems

  • Procurement mechanisms


  • Pricing policies

  • Government public health expenditures

  • Family income


  • Inventory management

  • Rational drug use

Pharmaceutical System Failure

  • Stock out of essential drugs is a clear sign of pharmaceutical system failure

  • Government Failure

  • Market Failure

  • Income gap

Government Failure

  • Low health expenditure

    • Public drug expenditure <US$2 per capita in 38 developing countries

    • Public health expenditure US$57 billion short of minimum for basic care (WHO, 2002)

  • Inadequate regulatory capacity

    • 10-20% drugs fail quality control tests in developing countries

  • Inefficient use of resources

  • Corruption

Market Failure

  • Developing countries are a small market to global pharmaceutical market (20% sales, 80% global population)

  • Little spent on R&D for tropical diseases

  • Global AIDS drug gap

  • Significant barriers to domestic manufacture


  • World Bank Definition

  • “..behaviour on the part of officials in the public and private sectors, in which they improperly and unlawfully enrich themselves and/or those close to them, or induce others to do so, by misusing the position in which they are placed.”

Pharmaceutical Industry

  • Big Pharma

    • research based, patented, “branded” medicines (GSK, Pfizer, BMS, Merck, Abbott)

    • compete on exclusivity (patents)

  • Generic manufacturers

    • copies of patented or off-patent drugs

    • Big Pharma also make generics

    • compete on price

How the drug industry works

  • Drugs expensive to manufacture but easy to copy

  • R&D very expensive ($800 m/drug*), most new drugs fail

  • To do R&D, companies need incentive

  • IP: Patents for 20 years - “market exclusivity”

  • but what happens in:

    • Markets where public has no purchasing power

    • Diseases that have no profits (malaria)

    • 10% of R&D spending on diseases that cause 90% of global disease burden

      (* Pharma funded study)

The Pharmaceutical Controversy

  • Drug companies want to maximize profits

  • Public Health aims to maximize impact

  • Big Pharma argues no profit, no R&D (except publicly funded e.g. vaccines)

  • So how do you reconcile profits and access?

  • TRIPS and Doha Declaration

Public Health/Pharmaceutical Scale

Are rights to IP >, = or < Right to Health?

Intellectual Property

Health & Life

Equity Pricing

  • Drug pricing to equity according to ability to pay

  • Criteria include economic indicators (wealth, income) and disease burden

  • Forms of equity pricing

    • Preferential pricing

    • Market segmentation

    • Differential pricing

Problems with Equity Pricing

  • Some consumers pay MORE than others

  • Reference Pricing – middle tier countries demanding African prices for ARVs

  • Diversion/Leakage – difficult to keep markets separate

Marginal Cost Pricing

  • Marginal cost: Direct cost of producing one additional unit, assuming fixed costs (R&D, factory, equipment, testing etc.) are already covered

  • For ARVs fixed costs are very high (hundreds of millions) but marginal costs may be cents

  • Marginal cost pricing: charging marginal cost per production unit

  • Low marginal costs = opportunities for equity pricing

Should Big Pharma care about pricing?

  • Bad publicity

  • Pressure from activists

  • Huge markets in China, India, Brazil etc

  • Future markets in Africa (not important consideration)

  • Weakening IP in developing countries threatens whole IP system

HIV/AIDS Programs

Clinical Services Pyramid


Supply Chain

Supply Chain



Treatment of OIs


Lab Capacity

Prevention VCT Basic HIV/AIDS clinical services

Patient Education

Goals of ART

  • Maximum and durable viral suppression

    • Durability of viral suppression by initial treatment regimen is a determinant of sustainable access to efficacious ART

  • Restoration and preservation of optimal immune function

  • Reduction of morbidity and mortality

  • Improvement of quality of life

Key Considerations for ART Pharmaceutical Systems

  • Policy framework

  • Selection

  • Forecasting and quantification

  • Procurement

  • Storage and Distribution

  • Use

  • LMIS

  • Commodity security

Policy Framework

  • National ART plan

  • Vertical or integrated supply chain system

  • Sources levels of funding

  • Detailed SOPS including guidance on patient selection criteria

  • Drug regulatory policy

  • Patent laws

  • Pricing policy to patients

Product Selection (1)

  • Drug selection committees

  • National Treatment Guidelines

  • Other treatment guidelines

  • DRA registration

  • WHO prequalification

Product Selection (2)

  • FDA approval

  • Patent status of proposed drugs

  • Cost considerations

  • FDC and single drug formulations

  • Remember to plan for children

Forecasting & Quantification

  • This must be done prior to commencing an ART program

  • Always consider newness of ART programs

    • lack of accurate data

    • Use available data e.g. other programs, demographic, morbidity

  • Careful monitoring of consumption and program performance

  • Need for flexibility as data is gathered from the program


  • Design and understand the ARV pipeline

  • Detailed procurement plan must be developed

  • Procurement strategy

    • Single source – direct contracting

    • Limited source – limited international bidding

    • Multi source – international competitive bidding

  • Procurement contract flexibilities

  • Monitoring of the procurement plan

  • Computerised systems – software

Inventory Management & Use

  • Storage

    • Security

    • Storage space

    • Cold chain

  • Dedicated distribution system

  • Rational use of ARV drugs

  • Training of health care workers (prescribers)

  • Knowledge of PLWHA – treatment literacy

  • Adherence strategies

Logistics Management Information System (LMIS)

  • The need for an information system to manage the supply chain is not an option

  • ARV LMIS should be developed prior to starting an ART program

  • Training of healthcare workers

Commodity Security

  • Generally ARV drugs are not in full supply

  • However the pharmaceutical system must ensure uninterrupted supply for ALL patients started on ART

  • The system must also have the capacity to accommodate any planned program scale-up

  • Sustainability of ART programs is directly related to the pharmaceutical system capacity

Role of Pharmaceutical Systems in ART Programs

  • Access

  • Durability

  • Scalability

  • Sustainability


  • Pharmaceutical policies reach beyond health and touch on areas of trade and industrial policies

  • The global drug gap is due to market and government failures and limited budgets and income in developing countries

  • Governments can turn to outside support for technical assistance when desired

  • Domestic drug production can be a solution to solving the drug gap

  • Policies and practices should be in place to ensure well-functioning pharmaceutical systems

Speaking about AIDS is a point of pride, not a source of shame. There must be no more sticking heads in the sand, no more embarrassment, no more hiding behind the veil of apathy

K. Annan

Bangkok 2004

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