Global Health Policy
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June 09, 2006
IDPF-UNITAID: A "New" Economic Model?
Posted by Jessica Pickett at 03:08 PM
I've said it before, and I'll say it again: increasing demand raises prices. And yet the Joint Declaration on the International Drug Purchase Facility - UNITAID issued by Brazil, Chile, France and Norway at the launch of UNITAID on June 2nd explicitly includes the following contradictory principles of the new entity:
The IDPF-UNITAID will contribute for generating a steady demand for drugs - thereby fostering the supply of drugs at lower prices - as well as for creating economies of scale thanks to long-term pooled purchases. The Facility will provide a new impetus to ongoing prequalification processes coordinated by the WHO, including processes related to active pharmaceutical ingredients (API) and will also play a role in strenghtening national regulatory agencies for drug quality control.
As a result, the IDPF-UNITAID is expected to play a pro-active role in prompting greater market efficiency, inasmuch as it will induce price reductions, promote the diversification of generic products of certified quality and diagnosis kits, stimulate the entry of new manufacturers in the market and consequently enhance in a significant manner the access of affected people in developing countries to drugs.
There is a lot to be said for this new entity, and it holds a great deal of potential to improve access to global health products by reducing uncertainty and sharing market risks (particularly through long-term binding contracts). But they should learn from GAVI's experience: in the short-term, prices won't necessarily go down.
In his message to UNGASS (delivered by Philippe Douste-Blazy), French President Jacques Chirac concluded that:
A new economic model will thus be established. By giving manufacturers the visibility necessary to invest in research and new pharmaceutical production capacity, and consolidating reductions in prices, it will ensure that poorer countries have the capacity to access effective treatment for everyone.A "new" economic model, indeed.
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Comments
I hope that these governments are prepared for potential price increases in the short-term. If they are aware of this potential paradox, maybe they can come up with a way to keep prices down in the short-run (although it seems that the long-term benefit of lower prices may be worth enduring short-term price increases in any case). Couldn't governments provide temporary subsidies or otherwise negotiate with pharmaceutical producers to keep prices stable in the short-run?
Posted by: Michael Bernstein at July 6, 2006 02:40 PM
Could you kindly explain what the acronym UNITAID stand for? Thanks in advance for your help on this matter.
Posted by: Thelma E. Tupasi, MD at September 7, 2006 08:43 PM
But surely an increase in demand would also bring in competition. Hasn't GAVI seen an increase in applicants for certain vaccines?
Posted by: JIA at November 30, 2006 07:57 PM
JIA,
Yes, the increase in demand has led many new suppliers to enter the vaccine market - which is a very, very good thing. However, these entrants were attracted to the new market because of the higher prices they could charge and so it was unrealistic for GAVI to believe that prices would drop in the short-term; if the "pre-GAVI" price had been profitable they would have entered the market sooner, and so it is reasonable to expect them to exit if prices are driven back down towards that level again. Of course, in the long-term we can hope that the increase in supply (both in number of manufacturers and quantity produced) will eventually lead to lower prices due to economies of scale and technological advancements.
Posted by: Jessica Pickett at November 30, 2006 10:02 PM