« Our family planning team asked, « Can we do something about contraceptive pricing? » recalls Natalie Revelle, who leads volume assurance efforts at the Gates Foundation. Spoiler alert: Three years after separate six-year contracts with Bayer and Merck, the demand for contraception is even higher than initially anticipated. The annual execution rate was closer to 10 million in 2012. By 2020, the number of women with access to contraceptive implants will be significantly higher than the 40 million implant units initially estimated by the partnership and guaranteed by the Gates Foundation and its donor partners. The results of contraception agreements exceeded expectations. According to a report, the savings on Bayer`s Jadelle implant could prevent more than 280,000 children and 30,000 maternal deaths and more than 20 million unintended pregnancies. According to the World Health Organization (WHO), waiting between pregnancies decreases by at least two to three years of infant and infant mortality and benefits maternal health. In very young women, contraceptive use delays first pregnancies, which present a higher risk. The Gates Foundation is in a strong position to take this risk on the demand side, as it often has a broader perspective on the entire market than the companies themselves. Not only does it work closely with all donor governments, which provide most of the funds to global health campaigns, but it often supports, through grants, local agencies and organizations that collect and distribute some of the purchases it guarantees.
This market knowledge means that the real risks to the Foundation are less than the perceived risks to pharmaceutical companies. Back from London, the Family Planning Program and the internal Related Investment (PRI) team of the Bill and Melinda Gates Foundation set out to help Melinda achieve this goal. In collaboration with donors from Norway, the United Kingdom and the United States, the Gates Foundation has negotiated agreements with two major pharmaceutical companies, Merck and Co. Inc. and Bayer AG, to double the supply and half the price of contraceptive implants, a popular and effective method of birth control. These long-term reversible contraceptives are in high demand in women, but they are rare in many developing countries. This rule is regularly invoked as part of volume guarantees in transport contracts – z.B. when a shipper claims that it can no longer comply with a volume guarantee agreed with a carrier due to the loss of a major contractor. Instead of a volume guarantee, the Foundation and other donors are providing technical assistance to help a new supplier, The Chinese company Shanghai Dahua Pharmaceuticals Co., improve its product – a cost-effective version of a similar four-year contraceptive implant – and obtain WHO prequalification. This will increase supply and create a more competitive market. Dahua-Sino unsuccessfully sought its own volume guarantee. Revelle summarizes the Gates Foundation`s broad guidelines for volume guarantees: Have a deep understanding of the dynamics of supply and demand in the sector.
Do you know the business models of suppliers. Understand the cost of goods and how this could change with higher quantities. Use volume guarantees to reduce uncertainty and costs. And don`t offer long-term guarantees. Price cuts have already saved more than $240 million for global public health donors, who purchase products for the poorest countries. By the end of the guarantees in 2018, the total savings could exceed $500 million, perhaps much more in the coming years.