January 12, 2006
Jan 12

Press Release: About New Procurement Agreements

New York
Press Release


Who has access to Clinton Foundation products and prices, and what is required of them?

Countries participating in the Clinton Foundation HIV/AIDS Initiative (CHAI) Procurement Consortium have access to prices negotiated under CHAI agreements. As of January 2006, the Consortium includes 50 countries in Africa, Asia, Eastern Europe, Latin America and the Caribbean. In total, these countries account for three-quarters of the global need for ARVs.

CHAI purchasers agree to prompt and secure payment terms, and they regularly update and share demand forecasts. In addition, they commit to principles of sound procurement, typically reflected in a memorandum of understanding (MOU) with the Clinton Foundation. These include aggregated national orders; reliance on international quality standards like prequalification by the World Health Organization (WHO) or U.S. Food and Drug Administration (FDA) approval; expedited national registration based on those standards; secure distribution of product in country (to avoid leakage into high-income markets); compliance with national and international law protecting intellectual property; and movement towards using multi-year tenders and splitting high-volume orders across multiple suppliers.

For HIV rapid tests, the only requirements for purchasing countries are that they pay their bills within 30 days and that they regularly update and share demand forecasts.

Will CHAI be procuring these new products?

No. National governments maintain autonomy over the procurement process, and CHAI agreements support the practices and preferences of Procurement Consortium members. Through agreements with UNICEF, the International Dispensary Association (IDA), Crown Agents, the Global Fund to Fight AIDS, Tuberculosis and Malaria, the World Bank and others, CHAI ensures maximum flexibility for members of the Procurement Consortium to access prices under its agreements.

Is CHAI stifling competition by working with select companies?

No. CHAI agreements do not require purchasers to buy from CHAI suppliers. Countries are encouraged to retain normal procurement practices, including open tenders. Also, the prices set by CHAI agreements reflect production costs and margin, therefore other manufacturers can compete at these levels if they choose to lower their prices. In 2003, CHAI announced pricing agreements for first-line ARVs with five companies. Since that time, more manufacturers have entered the market, and average market rates have fallen to be within range of those set by CHAI partners. CHAI expects the same pattern to follow its agreements for second-line medicines.

Are CHAI’s prices sustainable?

Yes. Prices negotiated under CHAI agreements cover production costs to suppliers, including depreciation and cost of capital, as well as margin. Suppliers who agree to these prices treat this market as a low-margin, high-volume business, recognizing AIDS as a global health emergency.

Rapid Tests

How do CHAI’s new prices compare to current prices in the market?

Market prices for rapid tests vary by region. In Africa and other low-income countries, current prices range between $0.80 and $1.44 per test. In Latin America and among middle income countries, market prices are as high as $5 per test. Lower pricing is available from a number of smaller Asian suppliers but very few of these tests have been sold outside of Asia. CHAI’s prices range between $0.49 and $0.65.

In order to confirm that a person is HIV-positive, countries must run a combination of at least two different tests. Given current testing algorithms and prices in Africa, most governments are paying more than $2 per person identified as HIV-infected. Under CHAI’s new agreements, these countries will be able to adjust their algorithms to cut the cost of testing by 50%. In Latin America and other middle income countries the savings potential will exceed 50%.

Are there any hidden or additional costs that purchasers will need to pay?

CHAI prices for HIV rapid tests are in “Free on Board” (FOB) terms, meaning that they do not include applicable shipping and handling charges from the point of export. Comparison prices used above draw from the WHO’s Bulk Procurement Scheme, which likewise excludes freight costs. Shipping and handling fees are added to the FOB price of a product. Also, purchasers may choose to use procurement agents such as UNICEF, IDA or Crown Agents or to purchase through local distributors; the use of these third parties can add up to 10% to the cost of products. These additional costs are not particular to products offered under CHAI agreements.

The prices of HIV rapid tests include the cost of all company-manufactured consumables that are needed to run the test. However, there are additional consumables needed to safely collect blood samples and to dispose of hazardous waste, such as lancets and gloves; these are sold separately.

The cost of these tests was already low, so do these deals really matter? What is the impact of these agreements?

On a cost-per-test basis these agreements represent a relatively small savings, but when multiplied across the large volume of tests that will be needed for countries to reach their treatment targets, the potential savings are substantial. The Group of Eight commitment to support universal access to treatment by 2010 implies a need for countries to run at least 200 million HIV diagnostic tests over the next four years. Doing so under CHAI agreements will allow countries to save tens of millions of dollars.

Have any countries actually accessed these agreements yet?

Yes. The first order under these agreements was placed by Lesotho, which recently announced an aggressive testing and counseling program which aims to test everyone over the age of 12 by 2007. Other countries such as Brazil are in the process of conducting local validation of these tests and are readjusting their plans for testing in 2006 based on the lower prices. Assuming that the validation in Brazil is successful, the National AIDS Program plans to more than double the number of tests that it will run in 2006, from three to seven million. The additional rapid tests, which would cost $13 million at current prices in Brazil, will now be available for less than $2 million, reflecting savings of more than $10 million (or over 80%).

Why is CHAI working with these particular companies?

The Clinton Foundation set out to identify a small number of diagnostic companies that could reliably produce high-quality, low-cost products. CHAI worked to analyze the market and to identify the suppliers that would best meet the needs of CHAI’s partners. Evaluation of these companies relied on criteria including their financial stability, commercial history, production capacity and distribution. The companies with which CHAI has signed agreements are both cost-competitive and willing to price their products on a low-margin, high-volume basis.

How did CHAI validate the quality of these tests?

All of the manufacturers with which CHAI has partnered have been positively evaluated by WHO, reflected by their inclusion in the WHO Bulk Procurement Scheme. WHO has conducted evaluations to assess the quality and performance of the test kits for HIV diagnosis since 1988. Laboratory evaluations are run at the Institute of Tropical Medicine at Antwerp on a geographically diverse reference panel of blood specimens. Test kits that are deemed to meet minimum sensitivity, specificity and ease-of-use criteria are included in the scheme.

What is the role of HIV rapid tests in treatment programs? In prevention programs?

HIV diagnostic testing is critical to the success of both treatment and prevention efforts. HIV testing is the entry point into treatment programs. Early detection of HIV can improve the quality of life even for patients not yet eligible for treatment by helping them to access services they need to stay healthy, thereby reducing mortality rates and decreasing the costs associated with hospitalization and care.

Diagnostic testing also plays an important role in prevention, as knowing one’s status is a major driver for behavioral change. Testing is typically coupled with counseling which offers HIV-infected individuals psychosocial support to help manage their illness and take appropriate steps to prevent further transmission of the virus. Similarly, it presents an opportunity to reach HIV-negative individuals with prevention messages that will help them avoid infection.

Compared to other antibody tests used to detect HIV, rapid tests allow countries to substantially expand the reach of testing programs and to improve their efficacy. Rapid tests can be stored at room temperature, require no specialized equipment and can be used outside traditional laboratory or clinical settings. This enables wider distribution of testing services. Further, other HIV screening tests require that patients wait for up to two weeks for their results, and many individuals tested never come back for their results. Rapid tests can provide results within 20 minutes or less, in the patient’s presence.

Can CHAI’s partner companies supply enough volume to meet demand?

Yes. CHAI’s four partner suppliers can together manufacture 60-70 million tests per year given current production capacity. This can meet demand in CHAI’s partner countries for the next four years. Each company has plans for expansion to substantially increase capacity over time.

Can countries use these new tests given current practices, policies and testing protocols?

Yes. While in some countries accessing the CHAI agreements may require that programs change the type of test being used in current testing algorithms, this is a relatively routine process. Some countries may require that tests be evaluated against a panel of local blood samples. These evaluation results help to inform decisions about the selection and ordering of tests within a testing algorithm. In many of the countries in which CHAI is working (e.g., Kenya and China), regular review and evaluation of panels of new and old tests is already conducted and new tests are introduced as necessary. WHO and the U.S. Centers for Disease Control have published a useful set of guidelines for evaluating HIV sero-diagnostic products. If and when a national testing algorithm is modified to include one or more of the rapid test products offered through Clinton Foundation agreements, countries will need to ensure the registration of these products with the appropriate national regulatory authorities.

Antiretrovirals (ARVs)

How do CHAI’s new prices compare to current prices in the market?

The WHO reports prices paid for antiretrovirals (ARVs) in a Global Price Reporting Mechanism (GPRM) database. For efavirenz, according to reported sales of 16 million pills (enough to treat 43,000 patients for one year) in more than 40 countries, the average market price is $367. The CHAI price of $240 represents a 35% reduction from this rate. For abacavir, according to reported sales of 1.4 million pills (enough to treat 2,000 patients for one year) in more than 20 countries, the average market price is $705. The CHAI price of $447 is a 37% reduction from this average.

(In the case of efavirenz, there is significant variance in the GPRM database between what low-income countries pay – $328 on average – and what middle-income countries pay – $479 on average. CHAI purchasers include both low- and middle-income countries, so a weighted average of these prices was used for the purpose of comparison.)

The non-governmental organization Médecins Sans Frontières publishes a report of list prices from specific manufacturers. It reports that Merck will supply efavirenz for $347 and that GlaxoSmithKline will supply abacavir for $887. Compared to these prices charged by the patent-holders for these products, CHAI prices represent 31% and 50% reductions, respectively.

Are there any hidden or additional costs that purchasers will need to pay?

CHAI prices are ceiling rates at or below which CHAI suppliers quote in response to tenders. Because the quote may fall below the ceiling, the cumulative impact of any additional charges can be marginal. For example, in the last two years more than 300 million pills have been sold under CHAI agreements; including all additional charges, the final price paid for these products was, on average, only two percent more than the original ceilings set by the agreements.

The ceiling prices themselves are in “Free on Board” (FOB) terms, meaning that they do not include applicable shipping and handling charges from the point of export. It is common for the prices of ARVs to be reported as FOB. Shipping and handling fees add to the FOB price of a product. In addition, some purchasers choose to use procurement agents such as UNICEF, IDA or Crown Agents, which typically adds an additional 10% to the price. These costs are not particular to products and prices offered under CHAI agreements.

For the supply of efavirenz only, Cipla and Ranbaxy will honor a ceiling price of $240 per patient per year for orders for which the volume meets or exceeds 40,000 packs (of 30 600mg tablets). For smaller volumes, Cipla and Ranbaxy may charge up to an additional 10% as a handling fee to cover associated inventory carrying costs.

Why is CHAI working with these companies and not patent holders or previous CHAI partners?

CHAI would welcome the involvement of additional manufacturers, including the patent holders, for these and other products. Pricing under CHAI agreements requires manufacturers to take a “cost-plus” approach, whereby they agree to specified margins and mark-ups that cover all costs, including depreciation of capital, and add a modest margin. Matrix, Cipla, Ranbaxy, Strides and Aspen have agreed to this approach for efavirenz and abacavir, making the prices announced today possible. Other CHAI partners, including Hetero, either do not supply these products or have chosen not to participate in today’s agreements, but they remain strong partners to CHAI in the supply of first-line ARVs, consistent with prior agreements.

In addition, CHAI would welcome greater efforts by patent holders to reduce prices for ARVs in all developing countries fighting HIV/AIDS emergencies, to expedite product availability through quicker registration of second-line ARVs in particular, and to grant voluntary licenses to support generic production of ARVs in these markets. For example, Aspen Pharmacare will produce efavirenz through a voluntary license from Merck.

Have these products received WHO or FDA approval yet?

Not yet. CHAI is committed to high quality standards, and all of its partner suppliers of first-line ARVs have received multiple WHO and/or FDA approvals. For efavirenz, submissions to the WHO and/or FDA have already been made by Cipla and Ranbaxy. Additional submissions for efavirenz by Strides and Aspen, as well as Cipla’s submissions of abacavir, will be completed in the first quarter of 2006.

Review by the WHO and/or FDA includes assessment of a dossier to confirm the safety, efficacy and quality of a drug – including the results of bioequivalence testing conducted by a contract research organization (CRO) to assure that the effect of a generic product is the same as the original product – as well as inspection of the relevant manufacturing site(s) for compliance with good manufacturing practice (GMP). Cipla, Ranbaxy, Strides and Aspen are relying on CROs that have successfully been audited by WHO and/or FDA, and all four companies are manufacturing these products at sites that have been previously approved by the WHO and/or FDA. Cipla, Ranbaxy, Strides and Aspen have previously received WHO and/or FDA approval for 28 formulations of ARVs.

In addition to having WHO and/or FDA approval, products must be registered in the country of sale before they can be available to patients. Registration of one of more of these products is complete in 14 countries and is pending in 23 others. Also, some procurement agents require independent review of products. Cipla’s efavirenz has already been reviewed and approved by IDA, the largest nonprofit procurement agent in the world.

CHAI expects sales of these products to grow substantially after WHO and/or FDA approval. The prices are being announced now both to support sales that occur in the interim and to ensure countries can budget appropriately to maximize treatment access in 2006.

Aren’t very few patients on second-line treatment? If so, why are these agreements important?

The Clinton Foundation estimates that more than 10% of all patients on ARVs in developing countries are already on second-line regimens. As a result, even the immediate savings offered by these agreements are significant, especially in middle-income countries, where current prices are sometimes significantly higher than those offered in Africa.

Moreover, an increasing number of patients are moving on to second-line treatment. CHAI estimates that as many as half a million patients will be on second-line combinations in only two years. After each year of therapy, between five and 10% of a given patient population will need to switch to second-line medicines. Given that the cost of second-line treatment is 10 times that of first-line, the cost of therapy for a population doubles when 10% enroll on second-line medicines. This represents a financial challenge to countries rapidly scaling up access to HIV/AIDS treatment.

In addition to providing financial relief, CHAI hopes that its work on these medicines will help to stimulate the second-line market. The volumes of second-line medicines necessary in 2006-2007 will help lower production costs, and this will help bring the overall price of second-line treatment down over time.

Are these new products and prices consistent with India’s 2005 patent legislation?

Yes. India’s patent legislation has not restricted the manufacture of generic ARVs, but it does require that manufacturers pay a royalty and/or attain a license for particular products once the patents for these products are granted. If and when these conditions apply, CHAI partner suppliers will comply as appropriate to ensure ongoing supply of product. The Clinton Foundation is confident that the legislation as passed will not impede the supply of either first-line or second-line ARVs.

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