Current Events and Philanthropy

The Clinton Foundation and the Declining Price of Antiretroviral Drugs: A Cautionary Success Story

Editors’ Note: In this post, Tamara Mann Tweel offers an assessment of the impact of the Clinton Health Access Initiative, based on a report completed for the Open Philanthropy Project. The Open Philanthropy Project, funded by GiveWell and Good Ventures, also supports the work of HistPhil co-editor Benjamin Soskis on the blog.

Two modes of discourse dominate the current conversation on the Clinton Foundation. The first, entirely critical, describes the Foundation as a corrupt force created to manipulate American foreign policy and to satisfy the ego of its founders; the second, entirely adulatory, considers the positive outcomes of the Foundation, particularly its work on the global AIDS epidemic, as sufficient to absolve the entity from any particular institutional shortcoming. This binary within the media suggests a broad public confusion and discomfort about the value of collaboration across the private and public sectors. Far from being inconsequential election-year fodder, these concerns raise questions that are central to rising trends in philanthropy. They should propel scholars to offer the public nuanced pictures of the benefits and shortcomings of entities, like the Clinton Foundation, that deliberately and strategically work between sectors to solve global problems.

In the case of the global AIDS epidemic, the Clinton Health Access Initiative (CHAI), which was originally founded as a subsidiary of the Clinton Foundation, forged alliances between private industries and governments to help lower the cost of life-saving AIDS medication. Across the board, elite foundations from the Rockefeller to the Gates foundations have celebrated such collaborations as useful (and at times, necessary) means of addressing today’s most complex social problems.

One year ago, I completed a long-term research project for GiveWell and the Open Philanthropy Project’s History of Philanthropy initiative, on the causes of the unprecedented price drop of lifesaving AIDS medication. Antiretroviral drugs (ARVs) went down from 10,000 – $15,000 per person per year to $140 per person per year between 2000 and 2005. This price drop inspired governments and international bodies to purchase ARVs and administer therapy to millions of individuals stricken with HIV/AIDS.

While the Clinton Foundation often receives credit for the entirety of the ARV price drop, my report affirmed scholarship that claimed the price drop actually occurred in three stages. The first, from $15,000 per person per year to approximately $1000 per person per year in specific cases, can be attributed to activists persuading pharmaceutical companies to offer philanthropic prices to discreet pilot projects; the second price drop, from approximately $1000 per person per year to approximately $350 per person per year, can be attributed to the active creation of an international generic drug market; and the final drop, from $350 to $140, can be attributed to deliberate market interventions into the generic market by the Clinton Health Access Initiative (CHAI).

When CHAI entered the field in 2002, four crucial steps in transforming the ARV market had already taken place. (1) Companies, like Cipla Ltd., existed with a proven expertise in making high quality, high volume, generic drugs; (2) International governing bodies had been persuaded to create a permissive legal environment for the production and purchasing of generic drugs; (3) The World Health Organization was on its way to offering quality control for generic ARVs; (4) In addition to CHAI, large third party purchasers, like governments or newly created international buying groups, were developing the financial capacity for large-scale orders.

CHAI capitalized off of a strategy that was working, refined it, and offered it to governments across the globe. In so doing, they managed simultaneously to further lower the price of ARVs and to persuade governments to commit to AIDS treatment for their population. From the start, CHAI worked at the nexus of government, business, and philanthropy. Individuals were moving between sectors, leveraging power, and drawing what they knew from one field to influence another. It is this exact intersection that opened potential for conflicts of interest. But it was also these moments of cross-fertilization that opened opportunity. It is my assessment that CHAI was largely successful because they hired program officers with significant private industry experience in the pharmaceutical supply chain and had sturdy long-standing connections to governments.

In 2002, CHAI was founded explicitly to “save the lives of millions of people living with HIV/AIDS in the developing world by dramatically scaling up antiretroviral treatment.” Ira Magaziner, a former policy advisor to President Bill Clinton and then the Vice Chairman and Chief Executive Officer of CHAI, realized that governments were not scaling up treatment and that companies were having a hard time increasing demand, which would in turn lower prices. He concluded that the normal lag time of the market was preventing countries from moving forward with purchase orders. CHAI would intervene to create more trust and rationalize the relationship between the companies on the supply side and the governing bodies on the demand side.

To begin, CHAI created a team that came predominantly from the world of management consulting. Some of these employees had worked as consultants to pharmaceutical companies and knew intimately how the industry worked. On the supply side, they began by convincing manufacturers to accept smaller margins but produce more drugs, they helped source cheaper ingredients, and eventually they even paid chemists to develop less expensive manufacturing and synthesizing techniques.

When CHAI first approached Ranbaxy, a generic producer in India, Sandeep Juneja, a top executive at the company, said demand was picking up but was “still weak.” In the excellent book AIDS Drugs for All, Ethan Kapstein and Joshua Busby report that CHAI then “suggested that they could put the developing countries together in a kind of pooled procurement. Their idea was to put the people together to form a sort of ‘buying club.’ CHAI, Juneja argued, ‘brought us into their vision of having a very low mark-up.’ He said CHAI asked us to ‘take a leap of faith that this will happen. And we did.’”

The first CHAI agreement on this consortium model contained three major rounds of price cuts. The first came from the high volume, the second came from generic companies willingness to accept slighter margins, and the third came from ‘forward pricing.’ CHAI was able to secure prices that anticipated volumes three years down the line.

CHAI secured these predictable volumes by working closely with governments on the demand side. The team realized that even for generic companies sale volumes were extremely unpredictable. To persuade the manufactures to accept slimmer margins, they would have to ensure large and reliable purchasing orders, which meant reaching out to governments and working closely with their health ministries. My sources at CHAI often remarked that CHAI’s ability to work with governments and their health ministries led to the most sustainable form of change; it made governments commit to purchasing the drugs while helping them build the infrastructure for sustainable treatment.

According to CHAI, from 2003-2005, access to prices as low as $140 per person per year, “had been extended to 48 countries, representing 70 percent of people worldwide living with HIV.” The CHAI approach also lowered the overall costs of generic ARVs while increasing international demand. Kapstein and Busby summarize, “Leaving aside the technical role played by CHAI representatives, the initiative has been an important agent in driving down drug prices.”

CHAI successfully intervened in a transforming market. They did so effectively because they were willing to draw on expertise from private industry and build relationships with governing bodies. This kind of intervention should raise concerns about potential conflicts of interest. These concerns, however, must be balanced by in-depth and careful research into how and when these ethically fraught strategies are producing outsized results. Our most monumental problems require extraordinary moments of collaboration. It is our job to explain how and when those collaborations are successful and when they lead to real abuses of power.

-Tamara Mann Tweel

Dr. Tamara Mann Tweel is the Director of Strategic Development at Hillel International’s Office of Innovation and a seminar instructor at Columbia University, where she teaches courses on the history and ethics of philanthropy.

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