E-drug: Prices of Essential Drugs in developing countries (cont'd)
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Dear Hilbrand,
Some more thoughts regarding your correspondence on prices of
essential drugs in developing countries.
You are correct in wanting to find out the costs of essential drugs to
governments. First of all, you will appreciate that essential drugs are
now produced by many manufacturing companies all over the world. I
suspect that the majority are on the Indian sub- continent, where
economies of scale are significant. This is the main reason why India
is being used even by large commercial concerns based in Western
Europe, as outsourced manufacturers on contract.
The huge level of competition in the supply of essential drugs makes
the pricing of these products quite dynamic. This is even more so in
the supply of these products against a government tender. Many
manufacturers and suppliers therefore offer prices per product on the
basis of volume. That is, if the a drug is ordered in significant bulk
(eg, 20,000 by 1,000 packs of Paracetamol 500mg Tab), the unit
price for this product will reflect the benefit of producing and
supplying in bulk. For example, if the unit pack of this drug is
US$3.00 (including markup for raw materials, salaries, quality
assurance tests, etc, etc), the manufacturer may offer a price of say
US1.00 per unit pack, if 20,000 packs are ordered (economies of
scale achieved). If one was to buy say 100 x 1,000, or 1,000 x 1,000
packs, the manufacturer may keep the price at US3.00 or at say
US$2.69. Another factor to consider would be when this product is
required in the buyer's country. If items are required at once, the price
may reflect the urgency required to manufacture and supply this item.
If required in say 3 months' time following placing of an order, a
manufacturer may place a low unit price to reflect the convenience
expected in manufacturing and supply. Therefore, any convenient
terms and conditions in a tender will result in better pricing. Anything
that can be met by the manufacturer or supplier is always welcome,
and often reflected in pricing.
However, if a government buys through a second party, that party
may also place a markup on the cost of buying from the manufacturer.
The size of the markup has to do with what information they may
have about who is funding the tender, what the Bolivian government
can afford, etc.
The only way I can think of for keeping the in-country price of drugs
low, would be through the Bolivian government having a contract with
a manufacturer, for the manufacture and supply of bulk quantities of
drugs for its needs. Even if other factors come into play (eg, cost of
raw material changing) it may be that the parties have agreed that one
of them (most likely the manufacturer), will absorb any adverse
changes.
Please note that the world market price for products is only useful as
a general guide. How representative of the actual facts on the ground
is, I cannot say!
It is also possible to achieve the same pricing policy if the buyer
involves several parties in the procurement structure (eg,
manufacturer, supplier, freight forwarders, carriers, etc). The key point
is to achieve a contract for say 12 months. Only in this way can the
government manage to keep the prices at the same level throughout
the year. Any other approach which does not follow this brief
example, may be unrealistic.
Regards,
Bonnie Fundafunda
Marketing Manager
ECHO International Health Services Limited
Ullswater Crescent, Coulsdon, Surrey CR5 2HR, UK
Tel: +44 (0)20 8660 2220
Fax: +44 (0)20 8668 0751
email: bfunda@echohealth.org.uk
[Thanks Bonnie. Your message contains many wise lessons for those
of us who try to achieve the best prices for drugs and medical
supplies in their countries. Hilbrand Haak, E-drug co-moderator].
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