Novartis reduces the price of anti-malarials below costs

Amid talk of a global subsidy for anti-malarials (proposed by the Institute of Medicine and under consideration by UNITAID), Novartis recently announced that it would reduce the price of its artemisinin combination therapy, Coartem, from $1.57 to just under $1 by subsidizing its production by more than $10 million per year in order to increase access within developing countries. While this sounds like good news -- and it is, in the very near term -- it should strike fear into the global health community when a pharmaceutical CEO decides to provide products "below our costs," especially coming on the heels of Sanofi-Aventis' tragic decision to trash 10 million doses of their own surplus ACTs.

I hope that this move is a strategic financial decision by Novartis to "prime the pump" by boosting demand and scaling up the supply chain for Coartem now in anticipation of a future global ACT subsidy; otherwise, it bears out the already deep-seated belief by pharmaceutical companies that the market for anti-malarials and other products for developing countries is not profitable enough to merit investment in R&D, and will deter them from doing so. But the sunny, charitable rhetoric of the press release was belied by CEO Daniel Vasella's blunt statements to the Wall Street Journal and Financial Times (subscriptions required):

"We have no model which would [meet] the need for new drugs in a sustainable way...You can't expect for-profit organisation to do this on a large scale. If you want to establish a system where companies systematically invest in this kind of area, you need a different system."

This is only the latest development in a two-year controversy around demand forecasting for Coartem:

The company was drawn into a dispute over production levels, accusing the World Health Organisation of exaggerated forecasts of 120m treatment courses a year and being accused by medical charities of failing to produce enough.

Novartis said it had sufficient capacity for 100m treatments, but that orders had fallen far short at just 4m in 2004, triggered by lack of funding, uncertainty over supplies or long-term donor support and medical debate over the need to switch to artemisinin-based drugs.

With additional funding in place, orders were 40m last year and 50m in the first 10 months of this year, but Mr Vasella said that even after writing off several million dollars in development costs, he was unable to meet his target of at-cost production after royalty payments and investment in plant.

While this is hardly the only example of the demand forecasting dilemma -- or even the most egregious -- it is certainly the most visible. To address this critical issue, CGD has convened the Global Health Forecasting Working Group to develop recommendations around specific actions and investments by international actors that could improve the global demand forecasting framework; the group's findings should be available by early 2007.