Global Health Policy
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April 24, 2008
AEI Takes on Demand Forecasting for Malaria
Posted by Jessica Pickett at 10:39 AM
In honor of World Malaria Day tomorrow, AEI research fellow Roger Bate has issued a new policy brief and related magazine feature decrying the state of global demand forecasting for artemisinin-based cominbation therapies (ACTs):
WHO estimates often rely on 'need,' a normative concept of how many people should be treated, rather than on demand, a positive concept of what can and will be bought. In 2004, the WHO projected that the global need for ACTs in 2005 would be over 130 million treatments. This projection proved to be way too high; in 2005, maximum demand was only 25 million treatments. Major suppliers such as Novartis and Sanofi-Aventis relied on WHO estimates and, as a result, were forced to either destroy unused products or declare substantial losses when the anticipated demand never materialized. In December 2006, Novartis temporarily shut down its production facility in Suffern, New York, to prevent the production of too much medicine with a short shelf life; Chinese farmers had begun to complain that they had no buyers for their Artemisia annua. With an excess of supply, prices of Artemisia annua have plummeted, and now the WHO fears that farmers and artemisinin producers may withdraw from the market, reducing the overall supply of drugs and creating a risk of future shortages.
In the short run, unrealistically high demand estimates are costly for companies. In the long run, they are costly for the millions of people afflicted by malaria. If drug companies must weather too many losses as a result of misjudging malaria demand, they may decide to invest in drug development for other diseases. The WHO argues that its forecasts are better today. But to be useful to companies, they have to be provided at least 12 months in advance, and the WHO forecasts are not.
This analysis underscores many of our own findings in the CGD working group report A Risky Business: Saving Money and Improving Global Health through Better Demand Forecasts, which looks beyond malaria to expore the full impact of demand forecasting across diseases and stakeholders. Our research points towards three mutually reinforcing solutions:
- Improving the capacity to develop credible forecasts by taking forecasting seriously
- Mobilizing and sharing information about product demand in a coordinated way through the establishment of an infomediary
- Adopting a broad range of contractual arrangements
AEI's recommendation that companies agree to supply a certain amount of drugs in exchange for a contractual commitment from donors to purchase them at an agreed price would be a big step in the right direction; another variant on this approach, known as a "rolling horizon forecast commitment," is detailed in a background paper by our colleague Prashant Yadav. As the price of Coartem continues to drop and new manufacturers enter the market, the stakes will only become higher. With AEI and others now lending their voice to the call, hopefully the global community will begin to take action.
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Comments
Public health central planners consistently confused need with demand. The assumption is that the health needs that they perceive are perceived in the same way by consumers. If this were the case, all health innovations would be been taken up at the same rate everywhere without any investment in public awareness, education or behavior change. Estimating demand is more art than science. Levels of demand are heavily influenced by the level of investment in promotional/educational efforts. This factor is often overlooked by those estimating theoretical need.
Posted by: Jeffrey Barnes at May 13, 2008 06:14 PM