Pricing & Distribution

What we measure

Equitable Pricing

According to the WHO, in the Least Developed Countries (LDCs), medicine costs account for the largest share of household expenditures after food. This can cause severe financial hardship, as 90% of individuals in these countries pay for medicines through “out of pocket” payments. Equitable pricing is defined as a pricing mechanism that is intended to lower financial barriers to pharmaceutical access.  

In several situations competitive pricing mechanisms cannot work. Some examples include patented products, exclusive voluntary licensing, “authorized generic”, and exclusive third party distribution contracts. In such cases equitable pricing initiatives can be used to ensure affordability and access to medicine for the underprivileged individuals and communities.

Tiered pricing, which adjusts prices to assure affordability of products in different social segments with special provisions for the poor countries and/or communities, is a prime example of equitable pricing. Price tiers can be defined at the country  pricing) or for different supply channels and target groups in the country (intra-country or within country tiered pricing). Inter-country tiered pricing can be extremely useful for Low Human Development Countries (LHDC) where the most of the population face affordability issues. In contrast, intra-country tiered pricing can be better suited to countries where an expanding middle class (e.g. China, India) co-exists with poor communities such as most of the Middle Human Development Countries (MHDCs).

An effective tiered pricing program would address the following issues:

• Price tiers should accommodate the individuals and nations with the highest financial barriers to access.
• Medicine prices for individuals and nations with the lowest affordability ratings should be set at or close to the marginal cost of medicine. Fixed costs such as R&D and marketing should be excluded from the price.
• Distribution and packaging of products under a tiered pricing program should include features to minimize the risk of product diversion. Product diversion is the redirection of products destined for poor countries or communities to other countries or communities
• Companies should work with their local distributors to guarantee that price-adjusted products reach their intended patients.

Considering the heterogeneity of countries and distribution channels, intra-country tiered pricing might not always be feasible or effective. Challenges arise especially when distribution channels for different social segments are not sufficiently isolated to minimize the effect of product diversion. In such cases, methods such as non-exclusive voluntary licensing, which decrease prices through generic competition, can be used as effective financially sustainable alternatives (For demonstrative examples please refer to the “Patents and Licensing” chapter).

To avoid repetition, through-out this report, the term Tiered Pricing is used to refer to Tiered Pricing practices with special provisions and equitable prices for the countries or individuals with financial barriers to access.

Marketing Approval (Registration)

Registration is the regulatory process of verifying the quality, safety and efficacy of pharmaceutical products for different markets.  Companies must carry out needed trials and submit required documents to qualify for marketing approval in each country where they market their products. Index 2010 covers registration practices that are conducive to improved access:

• Registration of products in high priority need areas should not be dependent on the viability of the target Index Country markets.
• Collaboration with international mechanisms that speed the introduction of pharmaceutical products in the Index Countries, such as the WHO prequalification process and the FDA tentative approval process
• Committing not to seek or advocate for exclusivity of clinical trial data submitted for registration in the Index Countries. This would facilitate competition and lead to increased supply and lower prices for much-needed medications following the expiry of patents

Manufacturing & Distribution

Product quality issues and unsuitable packaging are both important barriers to ATM. While most international pharmaceutical producers comply with international and regional quality standards such as FDA, EMA and WHO Good Manufacturing Practices, it is important that these standards apply to drugs sold in the Index Countries. Also, product packaging must be tailored to the needs of the target communities. Companies play an important role especially in countries with weak regulatory enforcement regimes. For this topic, the following principles have guided our analysis:

• Products sold in Index Countries should meet the same quality standards as those of the developed world.
• Product packaging, including product labeling, should be adapted to IC needs and languages.
• Product packaging should be designed to minimize the risk of product counterfeiting
• The company should maintain the capacity to carry out effective product recalls in Index Countries.