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Editor: Katharine Van Tassel
Concordia University School of Law

Friday, July 18, 2008

Clinton Foundation Sets Up Malaria-Drug Price Plan

The Wall Street Journal reports on Bill Clinton's new plan that aims to stabalize malaria drug prices.  Mark Schoofs writes,

Malaria_net_2 Former President Bill Clinton's foundation is set to unveil a pricing agreement Thursday that it hopes will make malaria drugs available to millions of poor people.

The agreement points to the sophistication needed to harness market forces and get lifesaving medicines to countries where treatable diseases still take a staggering toll.

First-line malaria drugs -- known as ACTs, for artemisinin-based combination therapies -- present a tricky problem: the volatile cost of the powerful antimalarial plant extract artemisinin. During the past few years, the price of that key ingredient has fluctuated from as little as $150 a kilogram to as much as $1,100, according to Chinese producers.

Such instability makes it difficult for those in the market -- from artemisinin producers to pharmaceutical companies to the health ministries that often buy the drugs -- to plan. That can make pharmaceutical companies wary of reducing prices for fear of another price spike and deter generic-drug makers from entering the market and fostering more-competitive pricing.

The agreement Mr. Clinton plans to announce aims to limit price fluctuations. It creates a consortium of two Chinese raw-artemisinin suppliers, two Indian companies that convert artemisinin into the active pharmaceutical ingredient and two Indian generic-drug companies. Among other things, the deal puts a ceiling on the price of the raw artemisinin in return for a guarantee that other consortium members will purchase large proportions of their artemisinin from the two participating suppliers, unless nonmembers can offer equal-quality product at an undisclosed discount.

The deal also reduces the price of one drug, known as ASAQ, by about 30%.

Scheduled to join Mr. Clinton at the presentation is Novartis AG Chief Executive Daniel Vasella. The Swiss drug company has been supplying the overwhelming majority of ACTs in the developing world -- 66 million treatment courses last year alone -- at an overall loss that Dr. Vasella said exceeds $100 million, including research-and-development costs. Mr. Clinton is expected to thank Novartis for supplying the drug and for not raising the price despite the artemisinin price increase.

Novartis isn't part of the consortium, but Dr. Vasella lauds the effort to make malaria drugs more available. His main caveat is that the Clinton agreement "doesn't address the need for new drugs and the incentives for innovators to engage more."

"How was it possible that we have a product that completely transformed malaria treatment, saving 500,000 lives? It's only possible by innovation," Dr. Vasella said.

One attempt to spur innovation was introduced in February 2007, when the Bill and Melinda Gates Foundation and five countries began funding "advance market commitments," in which donors such as the U.K. and Italy would guarantee that they would buy enough vaccines of various types to lure companies to invest in developing them. But the approach remains untested while its supporters iron out the legal framework. Cutting prices and stimulating new research are only parts of the challenge; many developing-world health systems can't deliver the treatments effectively.

The Clinton Foundation's malaria work builds on previous efforts. In 1996, when lifesaving AIDS drugs first appeared, activists pressured patent-holding pharmaceutical companies to reduce prices and pushed the U.S. government to stop opposing the use of patent-busting generic drugs in poor countries. The stark cost difference between generic and branded versions helped pressure the major drug makers to slash prices in poor nations.

Still, by 2003, AIDS drugs were reaching only a tiny fraction of people, because poor countries weren't buying them partly out of fear that they lacked the resources to properly administer lifelong regimens. The result: Although millions of people were wasting away from the disease, there was little market demand for the drugs that could save them.

In its first major price-slashing effort, the Clinton Foundation effectively catalyzed demand, working with African governments to develop plans to deliver the drugs on a mass scale and then using that demand to bargain with generic-drug companies to reduce prices through economies of scale. Another key: Rich countries ponied up millions of dollars to help poor ones buy the drugs.

To address the malaria market, the Clinton Foundation tapped 31-year-old Inder Singh, who holds five educational degrees, including an M.B.A. from the Massachusetts Institute of Technology. He worked on two Silicon Valley start-ups before starting two businesses of his own. He soon realized that, for malaria, the challenge was to manage demand.

After the World Health Organization in 2004 recommended that ACTs be used as first-line malaria drugs, demand skyrocketed. It takes a year or more for the Artemisia annua plant to mature, which led to hoarding and price gouging, Mr. Singh said. The resulting price increase attracted Chinese farmers who flooded the market, leading to subsequent oversupply and a plunge in price.

Creating reliable demand forecasts helped the foundation cobble together the pact being announced Thursday. The agreement solves another problem: multiple purity specifications that are measured by different methods. The Clinton Foundation coordinated the establishment of a single quality standard within the consortium.

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