Discussion
This study calculated production costs and estimated generic prices for 148 medicines on the WHO EML, showing that most essential medicines can be manufactured at low cost. Calculation was possible for 148/197 (75%) of the medicines meeting inclusion criteria. Despite most medicines on the EML being off-patent, 214 of 277 comparable prices in the UK, 142 of 212 comparable prices in South Africa and 118 of 298 comparable prices in India exceeded the price that would be expected based on cost of production and a 10% profit margin.
This study used prices of actual, recent sales of API exported from India as the main data input for price estimation. For most medicines, at least 100 export shipments of API were available. Prices of API were generally stable over time, or had a slight decreasing trend (see online supplementary appendix). The estimation formula accounted for capital and operating expenses including labour costs, land and utilities costs, costs of running equipment, costs associated with environmental protection and compliance with cGMP standards, taxation and a profit margin. Validation exercises demonstrated a good ability of the estimation algorithm to predict current lowest global prices for treatments of HIV, TB and malaria—diseases with large international treatment programmes (figure 2). Lowest current prices in India were higher than the estimated generic price in 118 cases and lower in 180 cases, and median 40% lower than estimated generic price. This distribution suggests that the algorithm used to calculate minimum costs of production errs on the conservative side (table 1 and online supplementary appendix).
Most of the high-priced medicines in India were found only in the private market price source, and not the (Tamil Nadu) government tender list, suggesting a lack of availability in public facilities. Over 75% of health expenditure is out-of-pocket in India, of which the majority is spent on medicines.17 While we found Indian prices to be below our estimated generic price in many cases, Indian prices were mostly government tender prices, which are likely to be significantly lower than the private market prices more often experienced by those needing medicines in India. Further analysis of the Indian market would be necessary to determine prices available to various facilities, provinces and patient groups.
Generic competition achieved massive price reductions for antiretroviral drugs in the early 2000s.6 However, non-communicable diseases (NCDs) now represent a larger disease burden than communicable disease, and similar price reductions in medicines for cancer, type 2 diabetes and anticoagulation may be valuable in enabling wider treatment of NCDs in LMICs.18
To protect the right to health, all countries need to ensure affordable access to medicines. This requires avoiding and tackling monopolies, including through legislation, as well as encouraging competition, ensuring a robust supply chain and monitoring shortages and stock-outs. Mechanisms to overcome intellectual property restrictions in the public interest include governments issuing compulsory licences and originator companies offering voluntary licences. Both are legal mechanisms that allow the use of patented products (including production, import and use) before patent expiry.1 One successful example of voluntary licensing is embodied in the Medicines Patent Pool, which negotiates licences with originator companies, and then sub-licenses production rights to generic manufacturers in resource-limited countries.
The World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which sets minimum requirements and limitations on intellectual property laws globally, additionally provides (in article 31bis) for compulsory licences predominantly for export—meaning that compulsory licences can be granted in countries with large manufacturing capacity (such as India) in order to supply other countries where there is a pressing need.19
The TRIPS agreement does not prevent individual patients importing medicines for personal use, regardless of patent status, although national legislation must also permit importation for personal use to make this a viable route for access, and this is not uniformly true. This route is being used by patients to access affordable HIV pre-exposure prophylaxis and hepatitis C drugs, with evidence of good clinical outcomes.20 21 However, personal-use importation as a method to overcome to access barriers requires the patient population to be organised and assertive, have a high level of access to information and financial resources and cannot be considered a feasible large-scale solution.
Comparative clinical and cost-effectiveness is assessed both by national regulators such as the UK’s National Institute for Health and Care Excellence and the WHO Expert Committee reviewing proposed additions to the EML. Cost-effectiveness calculation depends on the efficacy and available price for the drug and the comparator. Where a novel drug is being compared with a drug that is near patent expiry, a cost estimation exercise can help anticipate the generic price of the latter. Recent examples where this analysis could have been applied include novel oral anticoagulants compared with warfarin, dasatinib as a second-line after imatinib for chronic myeloid leukaemia and dolutegravir compared with efavirenz for the treatment of HIV. Generic market entry of comparators should trigger recalculation of cost-effectiveness for drugs whose assessment depended on comparison with an earlier, higher non-generic price.
Estimation of production cost can improve transparency in pricing negotiations, and there are precedents using cost of production in price control mechanisms. In India, a formula based on costs of manufacture was used to set ceiling prices for ‘scheduled’ medicines from 1995 until 2013, when legislation changed.22–24 In South African government tenders, manufacturers are requested to provide in their bids a breakdown of drug price into API, formulation, packaging, logistics, and ‘gross margin’ components.25 China, Iran, Bangladesh and Pakistan use similar mechanisms.26
Further research based on pricing data for API exported from India may be limited by a recent change in Indian law, removing the requirement for daily publication of customs data.25 Expanded international price comparisons may identify cases where resource-limited health systems face excessive generic prices.
Limitations
This analysis was limited by the inability to include an estimate for the costs of product development, bioequivalence studies, registration costs and costs of litigation, due to a lack of published data. This is balanced against numerous factors that may have contributed to overestimation of the API costs incurred by Indian manufacturers, and thus overestimation of profitable generic prices: API prices in export data likely include a profit margin for the API producer, paid by the manufacturer of the FPP—while if API were manufactured in-house by the producer of the FPP, this intermediate profit margin, as well as transport costs and duties would be avoided. Direct assessment of API adherence to stringent regulatory authority standards was not possible from the export data. However, the sources consulted for the assumed conversion cost included quality assessment of API purchased from the assumed third-party supplier in this cost.
Depending on the country in question, as many as 15% of medicines on the current EML may be under patent protection.27 We undertook our analysis before the 2017 list was published; patented medicines added in 2017 that could otherwise have been included were dolutegravir, raltegravir, velpatasvir, nilotinib and dasatinib.
Tamil Nadu state tender prices are likely to be lower than the prices normally encountered by patients in India, where most medicine purchases are out of pocket.17 Similarly, in the UK and South Africa the price sources represented hospital purchases and may thus represent the lower range of prices (for the UK, in a minority of cases BNF ‘indicative prices’ were used instead, which are in general derived from prices paid by pharmacies).
