In the annual meeting of WHO and UNAIDS with ARV producers in October 2011 , manufacturers stated that for several ARVs the gross margin is now less than 10% - typically 5 to 8%. They pointed out that, as new opportunities arise (they reported that in 2012 alone 67 medicines will come off patent in the USA) it is increasingly difficult to convince manufacturers to expand or even to maintain existing ARV production capacity. As competitive markets do require a diverse offer, the increasingly vocal statements by the producers sparked off several assessments by the industry, and not-for-profit organizations, such as UNITAID  and the Global Fund.
Our own attempt to analyse whether producing ARVs for low income countries was still profitable was hampered by lack of transparency about the production costs of ARVs. Key uncertainties concern the cost of the APIs, and the structure of the manufacturing costs of the generic producers.
The first major uncertainty is the cost of APIs to ARV producers. We used the lowest price quoted for APIs from consecutive surveys by WHO, in spite of the fact that those prices were consistently on average 35% lower than the prices quoted for the same APIs in the World Trade Organization, WTO Market News Service . We had to conclude, from our sensitivity analysis, and taking into account that the companies still publicly stated that they continued to make Ó albeit modest Ó profits, that even those lowest quotes to WHO are overestimated. This conclusion is also supported by a case documented in our interviews in which a vertically integrated API manufacturer marked up the price of one of its API to a formulator with at least 35% to ensure its own competitiveness in a 2012 tender.
A second uncertainly is the cost structure of ARV production in the leading ARV producing companies. While, on average, the publicly quoted Indian ARV manufacturers reported 43.9% expenditure on non-material costs, this is much higher than the 17.4% non-material costs reported from Brazilian manufacturers . As non-materials cost likely becomes less, as a proportion of the total production cost, when volumes increase, as is the case with antiretrovirals, we therefore likely overestimated their magnitude in our assessment of the production cost of the Indian manufacturers. Also hinting in this direction was a statement from an Indian manufacturer that costs across his first line portfolio were API 80%, excipients 15%, and packaging 1%, leaving a 4% gross margin. His non-materials cost was apparently so low as to have been forgotten.
A final limitation of our costing analysis is that we added a fixed amount to account for excipients and packaging costs, to the cost of API, for every 365 tablets produced. This is clearly suboptimal, as different formulations come with different excipients, and their cost will change over time. While this cost was derived from published data from Brazil , it might be overestimated for Indian producers, which operate on a much larger scale than their Brazilian counterparts.
When considering how worried one should be about the commercial viability of the ARV market in low income countries, there are conflicting signals.
On one hand, there are signals that there is still scope for price reduction, in particular for the newer formulation products containing tenofovir. In December 2012, the government of South Africa announced that it has secured access to lower prices for several antiretroviral drugs, including the fixed dose combination of emtricitabine, tenofovir, and efavirenz for a substantially reduced price Ó quoted as 89.37 Rand per patient per month, equivalent to 120 US$ per year of treatment . It is hard to imagine that the 3 companies (Aspen Pharmacare, Cipla Medpro and Mylan Pharmaceuticals) which agreed to supply this formulation would do so at a loss.
On the other hand, we have converging statements that the gross profit margins on the first line portfolio have decreased to between 5% and 8%, considerably less than the average gross profit margin of 16% reported by publicly quoted Indian ARV manufacturing companies listed in Table 1, and less than the gross 14% margin reported for a generic manufacturer in Brazil . Our assessment of the evolution of their profit margins suggests that they might have lost 6 to 7% of their gross profit margin on sales between 2010 and 2012 is in keeping with their assertions. This would explain why their HIV product managers face challenges when pleading with their senior management to expand ARV production.
A second distress signal is that manufacturers are beginning to drop out of more challenging markets. CIPLA, the Indian company which started supplying affordable ARVs to low income countries in 2002, announced in July 2012 that, after shifting its export portfolio away from the tender ARV business, will cut down exposure to anti-HIV drugs, and shift it to high-margin, complex products such as inhalers . Also, while a denial was posted in e-drug, in early 2012, the Zimbabwean manufacturer Varichem was reported to have stopped producing ARVs, and stated that it had not supplied any ARVs to Zimbabwe since November 2010, citing lack of local support [17, 18].
Some suggestions to protect the future development of the market for antiretroviral drugs in low income countries have been identified in assessments by UNITAID and Médecins Sans Frontières (MSF). The UNITAID Medicines landscape report identified, among others, the need to secure API supply for antiretroviral medicines, and suggested to focus on developing market intelligence on API markets to identify suppliers, production capacity, cost structures, intellectual property issues, and relationships between API suppliers and finished product manufacturers, and to support upstream API production expansion where needed through incentives . Concurring with the manufacturers we interviewed, their report further suggests generating and sharing regular market forecasts at API and final product levels, to improve transparency and minimize market uncertainty for developers and manufacturers . The 2012 “Untangling the Web” report by Médecins Sans Frontières includes a strong focus on intellectual property as a tool to sustain competitive markets, and, in pleading for further price decreases, recognizes the need to maintain a competitive environment for which the continued commitment of generic manufacturers from India remains critical . There is also agreement with the manufacturers , strongly articulated by WHO and UNAIDS in Treatment 2.0 initiative, that simplification of the treatment guidelines is needed to increase access to antiretroviral therapy .
However, even if there remains uncertainty about whether the prices in the ARV market for low income countries have really bottomed out, increasing access also requires that the views the companies which compete with one another to supply the market be given serious consideration. This requires attention to how the business is concluded, how fast they are paid, which regulatory hurdles need to be overcome, and what intelligence can be shared to create the global public good that access to treatment for HIV represents.
The opinions and actions of organizations such as WHO, UNAIDS and the Global Fund in changing the ways tenders are conducted, in pharmaceutical regulation, and in forecasting will be critical in achieving the goal Ó 15 million people on ARV treatment by 2015 Ó which they helped formulate. However, it would help the manufacturers too if they could be a bit more forthcoming with information that would allow a better appraisal of whether their prices are fair and viable.