With rigorous economic research and practical policy solutions, we focus on the issues and institutions that are critical to global development. Explore our core themes and topics to learn more about our work.
In timely and incisive analysis, our experts parse the latest development news and devise practical solutions to new and emerging challenges. Our events convene the top thinkers and doers in global development.
Every year, over a million people die from malaria--most of them children--and hundreds of millions more suffer from disease and disability. Along with the devastating human toll, the economic costs to many African countries are massive. The malaria burden has increased in recent years, in part because inexpensive and widely available anti-malarials such as chloroquine are no longer effective in many regions due to rapidly emerging drug resistance. As a result, in early 2004 the World Health Organization (WHO) recommended that countries adopt a new class of drugs called artemisinin-based combination therapies (ACTs).
The cost of production, and hence the price of ACTs (even on concessional terms) are significantly higher than traditional malaria treatments: 10 cents for an average dose for chloroquine compared to $1 or more for ACTs. An important contributor to the high costs of ACTs is the long (14-month) production cycle, which depends on the agriculture production of a key component, artemisinin, which is then combined with a second compound to hasten recovery and delay the onset of artemisinin-resistant parasites.
While several manufacturers packaged the different drugs together, until early 2007, Novartis was the only company that co-formulated two drugs into a fixed-dose pill (under the brand name Coartem). Under an agreement with WHO, they sold Coartem to developing country governments and international donors at a price set to recover the cost of production; in exchange, they relied on WHO to provide demand forecasts. The long production cycle coupled with a very short shelf life of only 24 months make accurate demand forecasts essential. Unfortunately, the forecasts provided to the manufacturer from the international community - which were estimates more of need than of effective demand - proved to be off by orders of magnitude.
The story started in 2004, when Novartis suffered public recrimination because it was unable to produce enough Coartem to meet an unexpected surge in demand after major funding sources, most notably the Global Fund to Fight AIDS, TB and Malaria, suddenly reversed their policies on using grants for procurement of ACTs. So when WHO forecast demand for 55 million courses of Coartem for 2005, Novartis invested in scaling up its production capacity accordingly, and produced 30 million treatments. But, in part because national governments were unprepared to make the switch and were unsure of long-term funding prospects, uptake was slower than anticipated; only 9 million treatments were sold that year. Novartis experienced even larger surpluses and excess inventory in 2006 as the uptake at the country-level continued to be significantly slower than expected. Today, while Novartis has scaled-up its production capacity to produce 120 million treatments (based on the initial WHO forecast in 2004), the realized sales continue to be about 60 million. In the meantime, millions of dollars, many doses and considerable good will have been wasted while malaria patients continue to die without access to treatment. For those working for greater engagement by commercial pharmaceutical firms in developing country markets, this is not the stuff of which good business cases are made.