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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
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
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
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
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
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
  • 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
Pharmaceutical System Failure
  • Stock out of essential drugs is a clear sign of pharmaceutical system failure
  • Government Failure
  • Market Failure
  • Income gap
government failure
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
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
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
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
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
Public Health/Pharmaceutical Scale

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

Intellectual Property

Health & Life

equity pricing
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
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 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
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
clinical services pyramid
Clinical Services Pyramid


Supply Chain

Supply Chain



Treatment of OIs


Lab Capacity

Prevention VCT Basic HIV/AIDS clinical services

Patient Education

goals of art
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
Key Considerations for ART Pharmaceutical Systems
  • Policy framework
  • Selection
  • Forecasting and quantification
  • Procurement
  • Storage and Distribution
  • Use
  • LMIS
  • Commodity security
policy framework
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
Product Selection (1)
  • Drug selection committees
  • National Treatment Guidelines
  • Other treatment guidelines
  • DRA registration
  • WHO prequalification
product selection 2
Product Selection (2)
  • FDA approval
  • Patent status of proposed drugs
  • Cost considerations
  • FDC and single drug formulations
  • Remember to plan for children
forecasting quantification
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
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
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
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
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