Procurement for Impact: Global Fund's Role in Sourcing

1. Procurement for Impact (P4I) and Market Shaping Progress report 16 December 2014 IPC Meeting, World Bank in Washington

2. Stepping back: why is the Global Fund involved in Sourcing? Over the last 7 years, the Board determined that the organization should play a greater role in procurement and market shaping of health products that it finances with 3 objectives1 Accelerate the introduction and maturation of new, more cost-effective products; Ensure recipients procure the most cost-effective, WHO-recommended health products or regimens that meet the Global Fund quality assurance policies; Ensure the continued availability, affordability, and innovation of products, including those for which there are not currently sustainable market conditions.through multiple approaches 1 GF/B23

3. The Global Fund has stepped up its sourcing and procurement strategy through a Procurement 4 Impact (P4i) transformation One Sourcing team dedicated to fundamentally change the way we work across the supply chain to increase access to products Improving our purchasing capability and changing our contracting models Earlier involvement and closer collaboration with manufacturers Better planning and scheduling to support continuity of supply Optimising the international supply chain to reduce cost and improve quality and efficiency Delivering more products at the right time and place to more people

4. Our Methodology A connected process to maximise value (which is not limited to purely to cost) UNDERSTAND DESIGN ENGAGE MANAGE Going to the real places, meet the stakeholders and understanding the facts. Defining a set of objectives based on findings and designing an approach to deliver them Designing tenders to meet our objectives Working with suppliers to drive continuous improvement

5. Demand and Market Analysis A structured, fact based diagnostic that evaluates 4 sets of criteria

6. Demand Side Analysis Placing the spotlight on ourselves, our customers and partners to understand the problems from the demand perspective - our findings from ACTs. Limited capacity planning for manufacturers Lack of supply chain integrity due to over commitment and under performance. Lack of leverage by separating PPM and AMFm volumes Limited transparency in co-payment allocation process Short term planning causing instability In raw material pricing Complex administration processes All these have been impacting Our Core Objective AVAILABILITY OF PRODUCT

7. The Analysis in Practice: Delivery Performance Poor delivery performance means that people who need treatment are not getting it. It has been caused by a variety of factors ---------and we will do something about it

8. The LLIN Tender Results Savings of $140m (8.7%) through contract life. Support to local manufacture Product standardisation through active demand management Pricing available to other parties New levels of trust and understanding.

9. The ACT Tender Results • Savings of $100m (33%) • over contract life • Stabilising Artemsinin price through longer term demand. • Encouraging investment in new products by recognising originators • Implementation of measures to improve delivery • Proved supplier capability to support RSM concept

10. The ARV Tender Results • Savings of $100m (2 yr: 9%) • Sustainable & predictable supply of the full range of the needed products • Enabling the quicker introduction of new products recommended by WHO • Encouraging longer shelves & country registration

11. ARV MedicinesTender TGF 14-040Briefing 15 December 2014 Geneva

12. The ARV tender objectives are aligned to the Board’s Market Shaping Strategy. Sustainable supply On-Time Delivery • Meeting programme needs • Continued reliable supply • De-risking API supply • Improved processes • To be customer of choice • Reduced lead times • Improved Delivery Performance • Mitigate force majeure Competitive pricing and affordability Quality and Regulatory • Longer shelf life • Broader country registrations • Supporting new product introduction • Leveraged volumes • Improved planning and longer term contracts • Use supplier expertise • Collaboration to protect reasonable margins These objectives will result in a new form of supplier engagement

13. The Global Fund’s Position in Global ARV Spend In 2012 PPM Spend accounted for +/- 20% of the global institutional spend. Estimates suggest this may have risen by 2014 to a maximum of 22% 2012 Non PPM PRs 45-50% 15-17% 33% While this gives the leverage that can be deployed it gives the Global Fund greater flexibility in supplier selection without de-stabilising the market. This tender 17-18% PPM 50-55% 27% 17% 23%

14. A Re-Cap on the Key Elements

15. Key Elements of the Approach 1: Continuous Supply Challenge to Address: Ensuring delivery across all 75 products where some, although vital in treatment, have very intermittent demand. Solution: Segmentation of products across a standard lifecycle model with weighted scoring. Evaluation of Supplier API Sourcing Strategy to determine risk.

16. Key Elements of the Approach 2: Market Sustainability Challenge to Address: Ensuring ongoing and new supplier participation in a market associated with low returns. Solution: Offer to develop long term supplier partnerships with selected suppliers based on collaborative projects and committed product volumes over 3-5 years. Mechanism developed to support new entrants and new products from existing players.

17. A two track approach to supplier engagement Two forms of framework agreement were defined Engagement Model Approach Profile Type 1 (Supplier Partnerships) Longer Term Allocated and Committed Volumes Annual joiint business plans A range of products (high volume) The type and duration of contracts awarded will be determined as part of the tender process Shorter Term Allocated and Committted Volumes Single products (lower volume) Type 2 Supply Contracts

18. The Overall Evaluation Process The evaluation proces has been ongoing since 12th September

19. Weighting Criteria To achieve a complex range of objectives a number of criteria were evaluated with the overall weighting shown below. • The overall weighting comprised • 45.5% price criteria • 54.5% other technical & value elements

20. Evaluation Methodology A structured methodology was followed through out the process which required a significant level of data load. All data and calculations have been independently verified and a full audit trail maintained.

21. The Collaborative Workshops The workshops were based on projects initiated by the Global Fund and by bidders. For the bidders projects submitted varied in ambition and detail covering topics including African investment, API security and new product and formulation development. The Global Fund initiated 4 projects: • Project one:Target pricing • Tenofovir based regimens/APIs: TLE, TEE, TL, TE, E and • 2nd line protease inhibitors: Lopinavir-ritonavir and atazanavir-ritonavir • Project two: Target Pricing • Zidovudine based regimens/APIs specifically: LZN, LZ, N. • Project three: Improving paediatric supply and formulations • Project four: Vendor Managed Inventory to support the Rapid Supply Mechanism

22. Benefits Analysis: 1 Objectives Results

23. Benefits Analysis 2: Objective

24. Benefits Analysis 3: Objective

25. Benefits Analysis 4. Objective

26. Conclusion • Adopting the new approach based on long term, strategic relationships has, from the evidence of the tender, proved successful. • Through the tender the Secretariat has supported the Board’s strategy on market shaping through underpinning long term sustainability both at a product and market level. • Direct savings of $96m for PPM grants have been achieved with a future price roadmap that will increase affordability equating to at least 400,000 people on treatment for 2 years • Further budgetary headroom of up to $125m for non PPM grants has been identified which equates to up to at least 500,000 people on treatment for 2 year • Supplier relationships have now moved to a state where future value can be created for mutual benefit. • The team acknowledges further work is required to turn aspiration into reality and that maximising the achievable value on an ongoing basis will require close collaboration across the Secretariat to ensure clear and timely visibility and management of demand. • Operationalising the relationships starts in January 2015

27. Developing a Sourcing Strategy for HIV Diagnostics 15 December 2014 Geneva

28. Global Fund on HIV and health products for HIV • 2014-2016 allocations: HIV = USD 7.8 billion for 105 countries • Based on historical evidence this will translate into a spend of at least USD 3.4 billion on medicines and health products • Historically: • 80% on ARVs • 20% diagnostics, drugs of opportunistic infections; condoms etc.

29. Recent (Global Fund) Technical Review Panel (TRP) observations • “Grant applicants have struggled to present a clear and prioritized concept note that explicitly explains strategic choices made in the allocation of limited resources to high-impact, cost-effective activities” • “The TRP fully recognizes the important contribution that treatment can make to reducing both mortality and new infections. However, these gains can only be fully realized in an environment of ready and equitable access to HIV testing and treatment, strong linkages between diagnostic and ART services, quality medical care and support, appropriate regimens, high retention and good adherence”

30. Feedback from recipient countries and grant management teams • Confusion on the interpretation of the WHO recommendations about CD4 and viral load • Challenges to develop a prioritized rational and afforded plan for implementing the WHO recommendations • Uncertainty of how DBS and “POC” will evolve and what is the right mix; should they wait? • Need for a guidance on the process for a transparent selection and procurement of the optimal most cost-effective platforms • National laboratory teams need empowering to be able to argue their case in funding prioritization decisions

31. Feedback from manufacturers Gaps around DBS and sample transport normative guidance Need for & realistic country based forecasts with funding behind them: separation of need from demand International expectations don’t often meet country reality Infrastructure and skills gaps need redressing Greater focus on service levels in selection and procurement Longer term vision in procurement and contracting Service contracts need to be funded and purchased

32. HIV Diagnostics: Our approach will be broad based and designed to address a range of objectives - including On-Time Delivery Sustainable Supply • Continued supply of products • Meeting the needs of country programmes • Reduced lead times • Improved Delivery Performance • Simplify supply logistic chains &distribution models • Mitigate force majeure Quality and Regulatory Competitive Pricing and Affordability • Support up-take of new technologies improving programme performance • Procurement of Quality Assured products • Leveraged volumes • Improved planning and longer term contracts • Use supplier expertise • Product Standardisation These objectives will result in a new form of supplier engagement

33. Guidance has been issued: WHO, Global Fund, UNITAID & MSF

34. Collaboration is good

35. We are working with the companies to develop a range of contracting models for high-cost analysers Pricing schedule Framework Agreement Performance schedule Purchase agreement Reagent rental agreement Turnkey agreement Quality schedule Country Orders Country Orders Country Orders Country Orders Country Orders Country Orders Governance schedule Country Orders Country Orders Country Orders

36. Indicative Timeline.

37. Thank you!.