 model we've heard from Hans about Novartis's intra-country price discrimination. I'm going to turn over the mic to Prashant Yadab who is one of the most distinguished scholars in this space, has spent a lot of time thinking about these issues and would love to hear your reactions. Thank you Quentin and thank you for having me here at this workshop. I think when we look at products which serve populations in developing countries, I think it becomes important to segment into two types and some would argue perhaps three. But I think having that distinction is important because if we are talking about pragmatic strategies unless we look at that segmentation, our pragmatism, the strategies gets lost. So the segmentation I want you to start with is products which have a market in both high income, sizable market in middle income, and some market in low income, and products which have a vast majority of the market that only exists in low income countries. Examples would be malaria drugs. So the kinds of strategies we can put in place will differ depending upon which we are looking at and some will have an overlap but I think unless we separate the two we won't get a clearer picture. So let's first think about those products for which there is only a market or the burden of disease is largely in low income countries. Malaria would be one example. Some middle but largely low income countries. And I think there the question of sustainability is to be asked in a very different way and I think if we say sustainability means a firm does everything then I think we are looking at the right wrong model. Primarily because even the cost of manufacturing. So even if you do not recoup any research and development cost even if you do not recoup anything else just the sheer cost of manufacturing is something that cannot be met by the current paying population or in some cases even the government which may pull. So there sustainability doesn't mean a firm doing it alone. Sustainability means ensuring that our institutions such as the Global Fund, Gavi, PEPFAR, PMI and the interface they have with the firm is an area where some low hanging fruit remains where we can improve things, improve access in a dramatic way without having to do something very large scale change. So we often critique large global institutions just because being a global institution comes with its set of bureaucracy comes with its set of constraints that public capital or philanthropic capital often leads to. But I think there are opportunities to change the way firms and the Global Fund or PEPFAR or PMI or other institutions like that work and that can help serve this segment of the market which is primarily low income countries. There are some opportunities of using intra-country differential pricing in that market like Hans was mentioning but I think even intra-country differential pricing alone cannot perhaps solve all of that issue. Then I think if we look at those products which have a dual market which means those who have a significant middle income or even a higher income country market there I think the value of inter-country differential pricing and intra-country differential pricing and some combination of the two becomes one of our most important tools. The idea is very simple. We believe we can recoup our ND costs at the same time improve access but for some reason the simple theoretical idea does not translate into something which we can see being used on a wide scale in practice and as an academic or someone who works at the think tank I have had the opportunity of working with several companies who have been experimenting trying to do either intra-country or some combination of inter- and intra-country differential pricing and as a result have learned what their challenges are and I think often times in forums like this we tend to think about what can we do at the inter-firm level which means what can we do in the way a global institution works but I think often in this case the challenges may even be intra-firm intra-firm incentives and I'll get into the details of what exists within a firm that often is challenging. So if we look at inter-country differential pricing I think a large part of it depends upon if you decrease price points in certain middle income countries or low income countries the expectation is from a firm standpoint volumes will increase but that doesn't happen because the cost care of care and the bottlenecks that exist in the cost care of care are very many whether it's diagnosis, lack of treatment care provision options and so on. So then it becomes a question can a firm work with partners to resolve each of the bottlenecks in the cost care of care and whose job is it, to what extent is it a firm's job to what extent is it the job of the government of the country and to what extent is it the job of some global institutions and that's something which we've experimented with we've not come up with one way of doing it but I think that's an area where we've learned quite a lot more in the last decade than what we used to know in the early 2000s when many of these newer institutions were being created and new programs like the malaria program at Novartis were being created so I think we've come a long way in that then I think if you look at intra-country differential pricing and this is something I've explored since 2007 and 2008 I went and asked in some of you perhaps in this room the question as a company do you engage in intra-country differential pricing and a resounding answer I got from most companies I talked to was either no or very little and it sort of baffled me that the Treaty of Westphalia which was defining the concept of a nation state in 1856 perhaps was not the only way to segment to do pricing I mean we didn't have to necessarily say the pricing segment will be a nation state and for a nation state this is the price we could choose pricing for market segments as we thought appropriate so then the question was why can't we do it why can't we say this is the wealthy people in Kenya and these are the less wealthy people in Kenya and can we have separate price points and the reasons for well there'll be product diversion it'll flow across the channels and whatever price we give to the low income will start that product will start flowing and so yes that's the reason I got more and more interested in this issue because my training is in supply chain management and looking at distribution channels and we try to figure out what can be done in the distribution channel and how can we split some of the risks that fall entirely on the firm if it does intra-country differential pricing so imagine and I'm going to use Novartis as an example just because I've been a friend of Hans for a while now so I think the key thing is if all of the risk of a product that is meant to be sold to the more affordable segment moving into the high income falls on the firm and it is expected of the firm to make investments to reduce that diversion then I think the equation doesn't work out well from a sustainability standpoint if we say that the package that is going to the low income market is subsidized by the US president's malaria initiative or the global fund now that package coming into a wealthy pharmacy in Nairobi suddenly becomes a risk which is also for the large financier and that sharing means both parties now have to exert effort to make sure that diversion doesn't happen and often times a company has very little control in the country to prevent diversion but a government or a global institution may have better ability to control that so that's an area I think we can experiment with and can learn some from what the Novartis work has done the second part we often forget and this is a very operational thing is that the risk that falls on a company in such markets is larger than what it is in bigger markets and the reasons are very many but there are two that stand out one is risk about demand uncertainty because the pair is more decoupled the pair is always decoupled in a pharmaceutical health product market but in this case the pair is far more decoupled from the company and from the end consumer because we are paying through a global mechanism it becomes hard for a company to know what the demand will be to do planning and every time you have poor demand certainty that leads to increased prices because someone has to pay the cost of the millions of doses that have to be destroyed or expired and occasionally one time the company may say we'll write it off but eventually if this is a repeat occurrence this is a cost that a public pair or a government will have to pay so that's the demand uncertainty part the second is a credit risk element when we look at small country governments purchasing often times for a company taking on the credit risk of whether they'll pay or at least whether they'll pay on time and then once it's beyond 180 days or 360 days do you call it a written off account or do you still consider that as account receivables and how do you manage that so that's another area where we can do something because we have new forms of capital today I think new kinds of philanthropic capital have become available which do not come with the kinds of constraints that public capital used to have and we can very effectively use this new philanthropic capital to do risk underwriting which can then lead to a company being able to serve smaller markets much better then I think if you look at inter-country differential pricing one element that doesn't always work out is the current distributor for a company their incentive structures are here is your target or your quota for the country and if you achieve it you remain a distributor you achieve your bonus that's how they incentivize the sales force the challenge is most distributors especially in countries where the company does not have an affiliate office are people who've been the distributors for more than a decade and they have become complacent I'm being very candid here acknowledging that this is being live streamed most of them have become complacent because they serve the capital city and the 25 or 50 tertiary care establishments that exist in the capital city and they meet their quota at that price point by serving just those tertiary care facilities so if you not tell them let's drop the price point to one third and now for you to meet the same quota and get the same bonus nothing more you will have to go to 300 more secondary care facilities or district hospitals if I have been in business for 20 years I started it my son is now running it I would say no this is not going to work and the commercial team comes back and says no this is not going to work so as a result we haven't changed intra-from incentives on the distribution and commercial side for making tiered pricing work and that's why the volumes remain small so we say well we did tiered pricing but the volume never increased but some of it is cascade of care constraints but some of it is just the wrong incentives and then we come back and say because it is not increasing volumes that means competition is a better way to improve access than tiered pricing and then this debate becomes more interesting from an analytical standpoint because we can't answer the question and Suri is here and she can tell us more because she's looked at this when do we say that volume expansion through competition is a better lever for improving access versus tiered pricing and the biggest concern to your pricing is the volumes that happen through the lower steers remain small so that's one way of thinking about it the reason this is important is new products for all types of diseases including the ones that are targeted for low income countries all the ones which have dual markets are going to be much more complex to manufacture so we welcome the program that Gilead has started with voluntary licensing and I think it has the potential of doing lots of interesting things but at the same time some future products will be so complex to manufacture that we won't be able to say there are 15 voluntary licensees in India or China who can start manufacturing because even manufacturing capabilities are going to be very technically intensive and also the cost of manufacturing will have much more economies of scale so these are some things which are emerging I think the last thing I'm going to say is at the interface between global institutions and firms we can change the risk profile we can create new types of partnership arrangements and I think many of our global institutions Global Fund, GAVI, PEPFAR have already started doing that and I think we need to look at that and highlight that more thank you thank you so much Prashant that's a ton of great stuff to chew on there so I'm going to call in Chen when I was in government I spent a little time working on reforming the patent system most of what's interesting that I know about the patent system I learned from Terry Fisher but when I was sort of thinking about the patent system and the America Invence Act I started researching who are the people who are writing interesting things about the patent system and I came across the scholarship