Better Forecasts of Demand for Medicines in Developing Countries Could Save Millions of Dollars--and Lives

May 29, 2007

CGD Proposes "Infomediary" - Information Intermediary - to Solve Chronic Problem

Rich countries and private philanthropies spend billions of dollars every year to buy medicines for poor people in developing countries but the lack of reliable demand forecasts creates shortages and raises prices. CGD is proposing a practical new solution: a neutral third party--neither buyer nor seller--to aggregate information on anticipated demand and use it to produce reliable forecasts.

The information intermediary - or "infomediary" - would mimic the way that the problem of reliable demand forecasts for medicines and other health products is addressed in rich countries, according to the report prepared by a group of experts convened by CGD's Global Health Policy Research Network.

The "infomediary" is a key element in a package of practical ideas described in the group's report, A Risky Business: Saving Money and Improving Global Health through Better Demand Forecasts. The proposals, which also include a variety of new contracting mechanisms, would reduce the high levels of risk that confront private companies manufacturing pharmaceutical products for poor people in developing countries. For example, buyers could begin to offer contracts that include minimum quantity guarantees.

"Better forecasts of the demand for medicines and other health technologies that donors and governments buy for poor people in developing countries would reduce the unnecessarily high risk that private companies face in manufacturing these life-saving products," according to Ruth Levine, CGD vice president for programs and operations, and a co-chair of the demand forecasting working group. "By reducing risk with better forecasts, the global health community can avoid shortages, cut costs and save lives."

While great strides have been made in the last decade to improve health in poor countries - more money for drugs and vaccines, new funding mechanisms, and concessionary pricing by some pharmaceutical firms - the global supply chain that connects the dots - from production to the people who badly need medicine - does not work well, according to Levine.

Without reliable forecasts, companies don't know when to invest in new manufacturing facilities, or how much of which products to produce at what time. Often the donors and specialized agencies that deliver medicines in developing countries have over-estimated effective demand--the amount of medicine that will actually be purchased. Companies are forced to choose between producing medicines that they may be unable to sell, and thus losing money, or producing less then the forecasts stipulate and vulnerable to being blamed in the event of shortages.

The impact of unreliable forecasts can be seen in the experience of Novartis, which until early this year was the only pharmaceutical company producing a fixed-dose malaria medicine that included artemisinin, a Chinese herb derivative effective in combating treatment-resistant malaria.

In early 2004, alarmed by rising drug resistance, the World Health Organization (WHO) recommended that countries adopt artemisinin-based combination therapies (ACTs).

Novartis agreed to sell its ACT product, Coartem, to developing country governments and international donors at the cost of production in exchange for reliable WHO demand forecasts. The forecasts were critical, because it takes 14 months to grow the herbs and manufacture the drugs, which then have a shelf life of just 24 months. Artemisinin-based combination treatments not used within two years of production become ineffective and must be discarded.

In 2004 Novartis suffered public recrimination for failing to produce enough Coartem to meet an unexpected increase in demand. So when the WHO forecast a demand for 55 million doses in 2005, Novartis invested to boost production, raising output to 30 million doses. But only 9 million doses were sold that year and there were even larger surpluses in 2006, because country-level uptake was slower-than-expected, as some countries opted to stick with older, less-effective and much cheaper alternatives.

Today, while Novartis has scaled-up its production capacity to produce 120 million treatments (based on the WHO initial forecast in 2004), sales are only about half that level. Meanwhile, millions of doses (and dollars) have been wasted even as malaria patients die for lack of effective treatment.

Developing countries, pharmaceutical companies, and public-private health partnerships such as GAVI (formerly the Global Alliance for Vaccines and Immunization) and Medicines for Malaria Ventures have welcomed the proposal.

"Getting life-saving medicines to those who need them requires far more than money," says Simon Mphuka, executive director of the Churches Health Association of Zambia. "Improving demand forecasting is an essential and urgent task as we strengthen the supply chain, and the broader health system."

"Now that the main analyses are complete, it is imperative that we move toward implementing the recommendations so that we will see sustained health benefits from new resources and new technologies," says Hetherwick Ntaba, former Minister of Health in Malawi.

"While there are many bottlenecks that help explain the limited use of existing drugs in resource poor settings, none are bigger than those related to improving the capacity to develop credible forecasts," says Gail Cassell, vice president for scientific affairs & distinguished Lilly research scholar for infectious diseases at Eli Lilly and Company. "If implemented, the recommendations made in the new report of the Global Health Forecasting Working Group of the Center for Global Development will go a long way to improve access to existing medicines and will lower the barriers to the development and delivery of new therapies."

According to Alice Albright, the chief financial & investment officer of GAVI, "accurate demand forecasts are the foundation of successful immunization efforts in poor countries: improvements in the current system will allow us to realize the full potential of the many new products that will soon be available. The Center for Global Development report drives home the true significance of this critical function, and puts forth clear, practical solutions for how donors can come together with developing countries and private industry to effectively increase access to vaccines and other health technologies."

CGD president Nancy Birdsall said that the report "provides an elegant analysis of the problem and a sensible agenda for action."

"If these recommendations are implemented, manufacturers will benefit - in reduced risk in the production of medical technologies; the donors or ministries of health will benefit from more reliable and accurate information on the price and availability of essential products; and most important, millions of families in the developing world will benefit - in reduced disease and deaths and the personal agony those entail," she said.