American Journal of Law & Medicine

Demand forecasting for essential medical technologies.

I. INTRODUCTION

Today's global health programs will attain their objectives only if products appropriate to the health problems in low- and middle-income countries are developed, manufactured and made available when and where they are needed. Achieving this requires mobilizing public and charitable money for more and better products to diagnose, prevent and treat HIV/AIDS, tuberculosis, malaria, reproductive health problems and childhood killers. But more money is only one part of the story. Weak links in the global health value chain--from research and development through service delivery--are constraining on-the-ground access to essential products. The consequences of those weak links are many: supply shortages, inefficient use of scarce funding, reluctance to invest in R&D for developing country needs and, most importantly, the loss of life among those who need essential products.

One of the weakest links is the forecasting of demand for critical medical technologies, including vaccines, medicines and diagnostic products. Demand forecasting, which may seem at first glance to be a small piece of the very large puzzle of access to medical products, is of central importance. Many of the shortcomings in funding and functioning of health systems impede accurate forecasting of demand--and without the ability to forecast demand with reasonable certainty and some assurance of a viable market, manufacturers cannot scale production capacity, make commitments to suppliers of raw materials or justify a business case for investing in costly clinical trials and other activities to develop future products. National governments and international funders rely on demand forecasts for budgeting, while health programs and implementing agencies depend on forecasts to plan their supply chain logistics. Thus, in the high-level policy debates about the volume, duration and use of donor funds to support R&D and purchase essential health products, one key fact has often been overlooked: if actions by the international community do not increase the ability to generate credible forecasts of demand--if, in fact, those actions contribute to a situation of greater uncertainty, with higher stakes--efforts to achieve greater access to life-saving and life-extending medicines will be undermined.

This article examines the ways in which better forecasting could contribute to improved short- and long-term access; outlines market-related risks and the ways in which the asymmetrical burden of risk across funders, regulatory and purchasing intermediaries and suppliers results in misaligned incentives with respect to producing optimal demand forecasts and broad access; and advances a set of specific recommendations for actions by donors and technical agencies that would help to reduce overall risk and correct those misalignments. The article summarizes the findings of the Center for Global Development's Global Health Forecasting Working Group. (1)

II. THE CASE FOR BETTER DEMAND FORECASTS

Demand forecasting is defined as the ongoing process of projecting which products will be purchased, where, when, by whom, and in what quantities. (2) Demand forecasts measure effective demand in the market--that is, product needs that have or will have purchasing power behind them and will result in actual orders. (3) Ultimately, effective demand can serve as a metric for assessing actual access to essential medical technologies at the patient level. (4) This analysis focuses on global aggregate demand forecasts for "new products and new markets"--that is, products that are newly licensed or new entrants into use in developing countries, in contrast to currently available and widely distributed therapies.

While demand forecasting is hardly a new challenge, the need for better forecasting has become acute in the context of current efforts to increase access to essential medical technologies. Crucial decisions about which vaccines, medicines and diagnostics to produce and to buy hinge on realistic projections of the future market--not on what ideally would be required to meet the potential need. If forecasts are off, so are the outcomes: limited funds to purchase products do not stretch as far, and the chance of shortages is higher than would otherwise be the case. The most important consequences are to health: children fail to get malaria medicines and vaccines that will save their lives, pregnant mothers and their babies go unprotected from exposure to malaria and the transmission of HIV, and AIDS patients miss their medicine cycles, jeopardizing their lives and adding to the threat of drug resistance within their community. (5)

The negative economic effects are profound as well. Uncertainties about demand significantly weaken the business case for branded and generic manufacturers' involvement in developing countries and have both immediate and long-term impacts on access to life-saving products. (6) In fact, when listing their biggest problems in serving the global health community, many pharmaceutical company executives cite poor demand forecasting as the most important one. (7) In short, ensuring better demand forecasts is at the heart of the global health agenda and merits attention from all who are involved in funding, purchasing, setting specifications for, developing, supplying and distributing global health products.

Traditionally, demand forecasting for health products in developing country markets was seen as a relatively low-level function, left to firms with particular business interests, using some basic information about health conditions and health system coverage provided by technical agencies. (8) In developing countries themselves, demand forecasting has been viewed as one of the many functions required of overburdened technical personnel within ministries of health or particular dedicated units, such as those that manage national immunization programs. (9)

More recently, with increased attention on getting new products into broad use to address highly visible public health priorities such as HIV/AIDS--and with significantly increased funding from governments and consumers in middle-income countries, plus new donor funding mechanisms for low-income countries--creating good demand forecasts that can be agreed to by multiple stakeholders has taken on a new and fundamentally different level of importance. In a piecemeal fashion, product-by-product, the global health community has responded. For example, the World Health Organization (WHO) has taken responsibility for developing forecasts for some products, and public-private partnerships have made impressive efforts for others. (10) However, relatively little has been done to address the underlying weaknesses in data, methods and institutional incentives that are common to virtually all products and that severely constrain good decision making. (11)

The forecasting challenges can only truly be understood by looking at the nature and distribution of underlying risks faced by the pharmaceutical industry, national buyers, regulatory and purchasing intermediaries, and funders. These risks are shaped by emerging features of the global health environment, including more money, new products and a more complex international market. Those risks, and their asymmetric distribution, generate distinct and misaligned incentives across important players in the global health market. Under current arrangements, those misaligned incentives conspire to impair demand forecasting and, more importantly, hamper broader access to critical medical technologies. (12)

III. THE NEW WORLD OF GLOBAL HEALTH

Understanding demand forecasting is key to future progress in global health, and requires a look at five recent changes: new amounts and sources of money, new and future products, new buyers, new suppliers and business models, and new intermediaries. While demand forecasting for many medical products is challenging, it is the "new products and new markets" for which the hurdles are highest and for which actions at the supranational level can have the greatest impact.

A. NEW AMOUNTS AND SOURCES OF MONEY

The three main sources of finance for health products in developing countries are private, out-of-pocket spending; national or subnational public sector payers, typically channeled through ministries of health; and international public and private donors. (13) Although expenditures by all three sources have been increasing gradually in most countries, the expansion in international public sector donor funds is creating a discontinuity in the resources available, particularly in the lowest income countries. (14) As this has happened, the policies and practices of both traditional and new donor agencies have become a driving force in the market. (15)

Donor funding for global health has increased substantially in the past five years, particularly for HIV/AIDS, tuberculosis, malaria and vaccines. The United States alone authorized up to $15 billion for HIV/AIDS through the President's Emergency Plan for AIDS Relief (PEPFAR) in 2003-08 and $1.2 billion for malaria through the President's Malaria Initiative in 2005-10. (16) The US House of Representatives recently voted to reauthorize PEPFAR for $50 billion over the next five years. (17) Through December 2007, the Global Fund to Fight AIDS, Tuberculosis and Malaria had approved proposals totaling more than $10.1 billion, and already disbursed $5.0 billion in funds. (18) Globally, annual funding for AIDS, tuberculosis and malaria has more than doubled from 2001 to 2005; by 2007, the annual funding target was $15 billion for the three diseases. (19)

The situation for vaccines is similar. In 2004, UNICEF purchased 2.8 billion doses of vaccines worth a total of $374 million, compared with only 969 million doses, worth $55 million in 1990--an almost 600% increase in spending. (20) In addition to increases for polio eradication, much of this new money has come through the GAVI Fund (formerly the Vaccine Fund), which has received more than $1.8 billion in donor commitments from its inception through the end of 2006. (21) In 2007, the International Finance Facility for Immunization was launched with the expectation of generating an additional $4 billion over the next 10 years to purchase vaccines through GAVI. (22)

These new funds are being channeled through new mechanisms. Beyond the Global Fund and GAVI, which are now reasonably well established players in global health funding, newer approaches are being launched. In 2006 the UNITAID international drug purchasing facility was created and is expected to mobilize at least $300 million a year from the airline ticket levy by France and other donors to be dedicated specifically to health products. (23) Several donors, including Canada, Italy, Norway, Russia, the United Kingdom and the Bill & Melinda Gates Foundation, have joined forces to fund a pilot Advance Market Commitment, which has mobilized $1.5 billion for the procurement of vaccine against pneumococcal disease for low-income countries if and when an appropriate product is deemed eligible for purchase. (24) A global subsidy program for artemisinin-based combination therapy (ACTs) for malaria is under development by the World Bank, which would establish a separate, product-specific funding stream. (25) Other proposals are in the offing. (26)

The increase in funds and funders has had significant impacts on the overall supply chain that affects demand forecasting. Donor funding is notoriously unpredictable and tends to be more subject to rapid fluctuations than is the national public finance base in developing countries. (27) Commitments ate not always reflected in disbursements, and funding can be cut off instantly when there are allegations of corrupt practices or other major governance concerns (as in the case of Uganda). (28) While several of the new funding instruments are designed to create a more predictable flow of funding, the risks associated with relying on donor funding area major challenge for forecasting demand.

The increase in demand for products is a major step for global capacity, not an incremental one. The major increase in funding and subsequently in demand for products requires large investments by manufacturers to scale up production capacity to keep pace. Within countries it necessitates greatly expanded procurement, warehousing, storage and logistics capabilities. Both require accurate forecasts to plan and justify investments.

B. NEW AND FUTURE PRODUCTS

As a beneficial result of recent investments in global health, including both the large appetite of donors to purchase global health products and the growing support for global health R&D, many new products for developing country markets are available or in development. The array of new products has many payoffs for health. For example, new products that contain artemisinin are effective against malaria that is resistant to traditional chloroquine products. (29) Also, the dozens of antiretroviral medicines in use in developing countries are needed for the clinical management of AIDS patients. (30) However, the emergence of so many products creates challenges for funders, intermediaries and consumers, who are all accustomed to having only a few commodity-type products with quite well established supply and procurement relationships. Those challenges will be exacerbated as the late-stage products--new vaccines, antimalaria drugs and tuberculosis drugs, in particular--are licensed and brought to market. (31)

Over the next five years, 15-20 new vaccines with significant value to developing countries are expected to be prequalified by WHO. (32) These products enter a supply chain that has struggled in recent years with two new antigens, Haemophilus influenzae type b and hepatitis B, following decades when immunization programs in developing countries were focused on delivering just six relatively low-cost vaccines. (33) Beyond vaccines, those who follow the pipeline of tuberculosis products expect to see 12 new diagnostic products and seven new therapeutics by 2013. (34) One of the public-private partnerships, the Medicines for Malaria Venture, has anticipated four new antimalaria drugs between 2007 and 2009 alone. (35) In short: excellent news about bringing new science into the service of global health, but major hurdles and questions as the fruits of recent investments come to market.

Beyond simple numbers of new entrants, the pharmaceuticals, biologicals and diagnostics now available and soon to come to the market differ from their older generation therapies. These differences highlight why the stakes for good demand forecasting are high, and particularly why manufacturers who are engaging in the global health market are keen to see major progress in forecasting accuracy. …

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