Global HIV/AIDS Epidemic: Selection of Antiretroviral Medications
Provided Under U.S. Emergency Plan Is Limited (11-JAN-05,	 
GAO-05-133).							 
                                                                 
In developing countries, only about 7 percent of people with	 
HIV/AIDS receive treatment. In 2003, the Congress authorized the 
President's Emergency Plan for AIDS Relief, a 5-year, $15 billion
initiative under the Office of the U.S. Global AIDS Coordinator. 
The Emergency Plan focuses on 15 developing countries, with a	 
goal of supporting treatment for 2 million people. Treatment	 
regimens use multiple antiretroviral medications (ARV), which can
be original or generic. Fixed-dose combinations (FDC) combine two
or three ARVs into one pill. Questions have been raised about	 
whether the plan is providing ARVs preferred by the focus	 
countries at reasonable prices. GAO compared the selection of	 
ARVs provided under the plan with that provided under other major
treatment initiatives, compared the prices of those selections,  
and determined what the Coordinator's Office is doing to expand  
the plan's selection of quality-assured lower-priced ARVs.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-133 					        
    ACCNO:   A15580						        
  TITLE:     Global HIV/AIDS Epidemic: Selection of Antiretroviral    
Medications Provided Under U.S. Emergency Plan Is Limited	 
     DATE:   01/11/2005 
  SUBJECT:   Acquired immunodeficiency syndrome 		 
	     Comparative analysis				 
	     Cost analysis					 
	     Drugs						 
	     Foreign aid programs				 
	     Health care programs				 
	     Infectious diseases				 
	     International organizations			 
	     Prices and pricing 				 
	     Quality assurance					 
	     Sexually transmitted diseases			 
	     Developing countries				 
	     AIDS						 
	     HIV/AIDS						 
	     President's Emergency Plan for AIDS		 
	     Relief						 
                                                                 
	     UN Joint Program on HIV/AIDS			 
	     Global Fund to Fight AIDS, Tuberculosis,		 
	     and Malaria					 
                                                                 

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GAO-05-133

Report to Congressional Requesters

United States Government Accountability Office

GAO

January 2005

GLOBAL HIV/AIDS EPIDEMIC

Selection of Antiretroviral Medications Provided under U.S. Emergency Plan
Is Limited

Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic Global HIV/AIDS Epidemic
Global HIV/AIDS Epidemic

GAO-05-133

Contents

Letter 1

Results in Brief 5
Background 6
Emergency Plan Provides Smaller Selection of ARV Products Than Other
Initiatives 10
Emergency Plan's Selection of ARV Products Results in Higher Prices for
Most First-Line Treatment Regimens 13
Coordinator's Office Has Taken Steps to Expand Selection of ARV Products
It Provides, but Patent Requirement Is Potential Barrier 15
Concluding Observations 17
Agency Comments and Our Evaluation 17
Appendix I Scope and Methodology 20
Comparing Selection of ARV Products the Emergency Plan Provides to That
Provided under Other Initiatives 20
Determining Prices of ARVs for the Focus Countries 22
Examining the Efforts of the Coordinator's Office to Expand the Selection
of ARVs It Provides 25
Appendix II Price Information from Survey of ARV Manufacturers 26
Appendix III Comments from the Department of State 30
Appendix IV GAO Contact and Staff Acknowledgments 36
GAO Contact 36
Acknowledgments 36
Related GAO Products 37

Tables

Table 1: Prices for the First-Line Regimens 14
Table 2: Standard International Terms for the Shipping and Insurance
Conditions of Purchase Agreements 25

Figures

Figure 1: WHO Recommendations for First-Line ARVs and Treatment Regimens
for Resource-Limited Settings 7
Figure 2: Selection of First-Line ARV Products Provided under the
Emergency Plan and Selection Provided under Other Initiatives 12
Figure 3: Manufacturers' Prices for First-Line ARV Products for the Focus
Countries (prices per person per year in U.S. dollars) 27
Figure 4: Manufacturers' Prices for FDC ARV Products for the Focus
Countries (prices per person per year in U.S. dollars) 29

Abbreviations

ARV antiretroviral medication CDC Centers for Disease Control and
Prevention d4T stavudine EFV efavirenz FDA Food and Drug Administration
FDC fixed-dose combination FHI Family Health International HHS Department
of Health and Human Services HIV/AIDS human immunodeficiency virus /
acquired immune deficiency syndrome JSI John Snow Incorporated MSH
Management Sciences for Health NGO nongovernmental organization NVP
nevirapine UN United Nations UNAIDS Joint United Nations Programme on
HIV/AIDS UNICEF United Nations Children's Fund USAID United States Agency
for International Development WHO World Health Organization ZDV zidovudine
3TC lamivudine

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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copyright holder may be necessary if you wish to reproduce this material
separately.

United States Government Accountability Office

Washington, DC 20548

January 11, 2005

The Honorable Edward M. Kennedy Ranking Minority Member Committee on
Health, Education, Labor, and Pensions United States Senate

The Honorable Henry A. Waxman Ranking Minority Member Committee on
Government Reform House of Representatives

The Honorable John McCain United States Senate

The Joint United Nations Programme on HIV/AIDS (UNAIDS) estimates that 3
million people worldwide died from HIV/AIDS in 2003, and an estimated 38
million or more people are currently living with HIV/AIDS. Although there
is no cure for the disease, there are treatments that can slow its
progression. Yet in developing countries only about 7 percent of people
living with HIV/AIDS receive treatment. Since the mid-1980s the United
States has supported HIV/AIDS initiatives in developing countries directly
and through its contributions to multinational organizations such as
agencies within the United Nations (UN) system-including the World Bank
and UNAIDS-and, more recently, the Global Fund to Fight AIDS,
Tuberculosis, and Malaria (Global Fund).1 In 2004, the President's
Emergency Plan for AIDS Relief (Emergency Plan)2-a 5-year initiative under
the Office of the U.S. Global AIDS Coordinator (the Coordinator's Office)
within the Department of State3-added over $9 billion of funding for
HIV/AIDS treatment, care, and prevention in certain developing countries
to its ongoing commitments, bringing the total U.S. commitment to
addressing the worldwide HIV/AIDS emergency to $15 billion through 2008.

1The Global Fund was established in January 2002 as a mechanism for
attracting and distributing resources to programs targeting AIDS,
tuberculosis, and malaria in developing countries. It is an independent
private foundation under Swiss law and is governed by an international
board that includes recipient and donor countries, including the United
States.

2As authorized by the United States Leadership Against HIV/AIDS,
Tuberculosis, and Malaria Act of 2003 (U.S. Leadership Act). Pub. L. No.
108-25, S: 301, 117 Stat. 711, 728 (adding section 104A to the Foreign
Assistance Act of 1961, as amended, classified to 22 U.S.C. S: 2151b-2)
(for fiscal years 2004 through 2008, authorizes a total of $15 billion to
carry out the purpose of the U.S. Leadership Act to combat HIV/AIDS,
tuberculosis, and malaria and authorizes such sums as may be necessary to
prevent, treat, and monitor HIV/AIDS and carry out related activities).

The goals of the Emergency Plan, which focuses on 15 developing countries
with high rates of HIV/AIDS,4 are to support treatment to 2 million people
living with HIV/AIDS, prevent 7 million new HIV infections, and support
care to 10 million people infected or affected by HIV/AIDS, including
orphans, by the end of fiscal year 2008. The plan allocates more than half
its budget to treatment, approximately $4 billion of which is specifically
for the purchase and distribution of antiretroviral medications (ARV)-the
standard treatment for HIV/AIDS-in the focus countries. An HIV/AIDS
treatment regimen includes multiple ARVs. ARVs are marketed as either
original versions-all of which are currently under U.S. patents-or as
copies of the originals, that is, generic versions.5 In addition, some
manufacturers are marketing products that combine two or three ARVs into
one pill-known as a fixed-dose combination (FDC).

The World Health Organization (WHO) recommends five specific ARVs that are
used to build four regimens as the first line for treatment programs in
countries in which health care resources are limited, such as the focus
countries. WHO recommends one of the four regimens as the first choice for
rapid implementation of large-scale treatment programs in these countries.
Most focus countries have indicated a preference for FDCs, which can
simplify treatment and facilitate adherence to the recommended treatment
regimens, and for lower-priced generics in their national treatment
strategies.

3The U.S. Leadership Act established the position of the Coordinator
within the Office of the Secretary of the Department of State. S: 102, 117
Stat. 721.

4The focus countries are Botswana, Cote d'Ivoire, Ethiopia, Guyana, Haiti,
Kenya, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Tanzania,
Uganda, Vietnam, and Zambia.

5The original version of an ARV is the first version brought to market. In
this report, any copy of the original is considered a generic regardless
of whether it fits any particular national regulatory authority's
definition of generic.

While the Coordinator's Office has specified multiple objectives to
achieve the Emergency Plan's goals, two are most relevant to the purchase
of ARV products under the plan: first, coordination with the national
treatment strategies of the focus countries, and, second, provision of ARV
products of assured quality at the lowest possible price. Officials from
organizations involved in treating HIV/AIDS in developing countries, such
as Doctors Without Borders6 and Catholic Relief Services Consortium, have
criticized the plan for not including the FDCs preferred by the focus
countries in the selection of ARV products it provides. In addition,
concerns have been raised about the plan's ability to provide ARV products
at reasonable prices. You asked us to examine the provision of ARVs under
the Emergency Plan, as compared with the provision of ARVs under the
initiatives of major multinational organizations.

In this report, we determine (1) how the selection of ARV products
provided under the Emergency Plan compares with the selection provided
under the initiatives of the World Bank, the United Nations Children's
Fund (UNICEF), and the Global Fund; (2) how the prices of the ARV products
provided under the Emergency Plan compare with the prices of the ARV
products provided under the other initiatives; and (3) what the
Coordinator's Office is doing to expand the selection of quality-assured
ARV products at the lowest possible price under the Emergency Plan.

To compare the selection of ARV products provided under the Emergency Plan
to that provided under the other initiatives, we reviewed the requirements
that apply to the purchase of ARV products under the Emergency Plan, as
well as the requirements that apply to the purchase of ARV products under
the HIV/AIDS treatment initiatives funded by three multinational
organizations-the World Bank, UNICEF, and the Global Fund. We interviewed
officials from the Coordinator's Office and the U.S. agencies primarily
responsible for implementing the Emergency Plan, such as the U.S. Agency
for International Development (USAID), regarding how they oversee the
purchase of ARV products consistent with applicable requirements. We also
interviewed officials from the multinational organizations regarding their
requirements and the ARV products they provide through their initiatives.
In addition, we reviewed documentation from U.S. agencies, nongovernmental
organizations (NGO) that are participating in the Emergency Plan, and the
multinational organizations showing the ARV products that have been
purchased under their initiatives. We focused specifically on the ARVs
that are recommended by WHO for first-line treatment of HIV/AIDS in
countries where health care resources are limited. We identified the
quality assurance process applied to each product, but we did not evaluate
the different quality assurance processes or independently determine the
comparative quality of the products.

6Doctors Without Borders is the English translation for Medecins Sans
Frontieres.

To compare the prices of different ARV products provided under the
Emergency Plan and the other initiatives, we obtained price information
from selected manufacturers of ARV products that are generally available
to the focus countries.7 We report prices for the focus countries quoted
to us during June and July 2004 by 13 manufacturers. We asked ARV
manufacturers to quote prices according to a standard set of terms.
Because the price information we requested is proprietary to each
manufacturer, we could not directly assess the reliability of the price
data given to us. However, we checked the price data against several
published sources and determined that they are sufficiently reliable.

To determine what the Coordinator's Office is doing to provide an expanded
selection of ARV products at the lowest prices possible, we interviewed
officials from the Coordinator's Office regarding their efforts to address
potential barriers to providing additional ARV products under the
Emergency Plan. Because the Coordinator's Office is working with the
Department of Health and Human Services' (HHS) Food and Drug
Administration (FDA) to support the ability of additional ARV
manufacturers to meet the Emergency Plan's quality assurance requirement,
we also interviewed officials from FDA regarding these efforts. Aspects of
implementing treatment programs other than purchasing ARVs, such as human
resources and supply chain management, and treatments other than ARVs,
such as medications to treat opportunistic infections, are outside the
scope of this report. We conducted our work from January 2004 through
January 2005 in accordance with generally accepted government auditing
standards. For more details on our scope and methodology, see appendix I.

7We selected the manufacturers from which major organizations that support
treatment initiatives in the focus countries told us they consider
purchasing ARVs.

                                Results in Brief

The Emergency Plan provides a smaller selection of ARV products than the
selection provided under the initiatives funded by the World Bank, UNICEF,
and the Global Fund. Under the Coordinator's Office's application of the
Emergency Plan's quality assurance requirement, the ARV products the plan
provides must have approval from either FDA or another acceptable
regulatory authority. Because six original ARV products have met this
requirement, the plan provides these six in its selection. Although this
selection includes one double-ARV FDC that can be used in two of the four
regimens recommended by WHO as first-line treatments in countries with
limited resources, it does not include the triple-ARV FDCs preferred by
the majority of the focus countries. In contrast, the other initiatives
provide a selection of ARV products that includes not only those that meet
the plan's quality assurance requirement but also generic ARVs and one of
the preferred triple-ARV FDCs that have met the quality assurance
requirements of these initiatives.

The Emergency Plan's selection of ARV products results in higher prices
for most of the first-line treatment regimens. At the prices quoted to us
during June and July 2004, the differences in price between the original
version of an ARV provided under the Emergency Plan and the lowest-priced
generic version of the corresponding ARV provided under the other
initiatives ranged from $11 less per person per year to $328 more for the
original version. At these prices, three of the four first-line regimens
could be built for a lower price with the generic ARV products provided
under the other initiatives than with the original ARV products provided
under the Emergency Plan; there was no difference in price for the
remaining regimen. For the three regimens that could be built for a lower
price, which include WHO's first-choice for rapid implementation of
large-scale treatment programs, the difference in the price of the
regimens ranged from $40 to $368 less per person per year. Such
differences in the price of a regimen per person per year could translate
into millions of dollars of additional expense when considered on the
scale of the Emergency Plan's goal of treating 2 million people by the end
of 2008. For example, for every 100,000 patients on WHO's first-choice
regimen for 5 years, the plan could pay over $170 million more than the
other initiatives to purchase the ARVs.

The Coordinator's Office has taken steps to expand the selection of
quality-assured ARVs-including FDCs and lower-priced generics-that it
provides to the focus countries under the Emergency Plan, but a statutory
patent requirement may pose a barrier to expansion efforts. Currently, the
selection of ARV products available under the plan is primarily limited by
the quality assurance requirement. The Coordinator's Office has worked
with FDA to expand the plan's selection of quality-assured ARV products,
particularly FDCs. The Coordinator's Office has encouraged manufacturers
to seek FDA approval for their ARV products-and thereby satisfy the plan's
quality assurance requirement-and several manufacturers told us that they
intended to do so. However, if generic ARVs receive FDA approval, the
patent requirement-a statutory prohibition on the purchase of any
medication manufactured outside the United States if the manufacture of
that medication in the United States would be covered by a valid U.S.
patent-could become a barrier to expansion. The Emergency Plan may not be
able to provide lower-priced generic ARVs and FDCs unless the
Coordinator's Office addresses this potential barrier. The Coordinator's
Office has the authority to provide ARVs notwithstanding the patent
requirement. If applications proceed as anticipated by ARV manufacturers
and FDA, we expect that FDA-approved generic ARVs will be available early
in 2005. However, unless the patent holders for these ARVs give permission
or the Coordinator's Office exercises its authority to purchase these
products notwithstanding the patent requirement, the selection of ARVs
provided under the Emergency Plan may not expand rapidly enough to address
the AIDS emergency.

In commenting on a draft of this report the Department of State,
responding on behalf of itself, HHS, and USAID, expressed concern about
how we addressed the issue of ARV quality. In the draft report we
described the quality assurance processes used by the Emergency Plan and
the other initiatives, specified which process applied to each ARV
product, and stated that quality is the primary factor determining the
selection of products provided under each. However, as the draft report
stated, evaluating the quality assurance processes used by each initiative
was beyond the scope of our work.

                                   Background

Although no cure exists for HIV/AIDS, the use of multiple ARVs in
combination has been shown to suppress the virus and slow the progression
of the disease. Twenty distinct ARV medications can be used to treat
people living with HIV/AIDS. The standard treatment is a regimen that
combines three or more ARVs. People receiving ARV treatment can develop
strains of HIV that are resistant to some or all of their ARVs, and as a
result their treatment regimens become ineffective and they must switch to
a different regimen. The risk of developing resistance decreases when
patients are able to adhere to their recommended treatment by taking the
prescribed ARVs, the right number of times each day, and without missing
doses.

Recommended ARV Treatment Regimens

WHO has recommended certain regimens for settings in which resources are
limited.8 For people receiving ARVs for the first time in such settings,
WHO recommends one of four regimens, known as first-line regimens. These
regimens are built from combinations of the following five first-line
ARVs: stavudine (d4T), zidovudine (ZDV),9 lamivudine (3TC), nevirapine
(NVP), and efavirenz (EFV).10 (See fig. 1.) Of the four first-line
regimens, WHO recommends d4T + 3TC + NVP as the first-choice regimen for
rapid implementation of large-scale treatment programs in resource-limited
settings because, for example, it is expected that most people will be
able to tolerate it without developing side effects that would require
switching to another regimen. Each of the focus countries highlighted in
the Emergency Plan has selected one or more of these first-line regimens
for its national treatment strategy, and most have selected d4T + 3TC +
NVP as their first-choice regimen.

Figure 1: WHO Recommendations for First-Line ARVs and Treatment Regimens
for Resource-Limited Settings

aWHO recommends d4T + 3TC + NVP as the first-choice regimen for rapid
implementation of large-scale treatment programs in settings with limited
health care resources.

For people who have developed strains of HIV that are resistant to their
initial treatment regimen, WHO recommends one of four second-line
regimens. The second-line regimens use a different set of five ARVs.
Second-line regimens can have disadvantages, which may be magnified in
resource-limited settings. The disadvantages include the need to take more
pills, the potential for additional side effects, the need for
refrigeration during transportation and storage, and prices that are
generally higher than those for first-line regimens. WHO emphasizes that
promoting better adherence to a first-line regimen, thereby reducing the
occurrence of resistance and delaying the need to shift to a second-line
regimen, is particularly important in resource-limited settings because of
these disadvantages.

8WHO states that its recommendations are based on considerations including
a regimen's potency, potential side effects, the need for laboratory
monitoring, anticipated patient adherence, treatment of coexisting
conditions, treatment of pregnant women, and the availability and cost of
the medications.

9Also commonly known as azidothymidine (AZT).

10These five ARVs are produced in multiple forms-such as capsule, tablet,
or liquid-and in several different doses (for example, 100 mg and 300 mg).
The pill form is generally used for adolescents and adults, and liquid
forms are primarily used for children.

The Coordinator's Office, FDA, and the Institute of Medicine, as well as
the Global Fund, the World Bank, UNAIDS, and WHO, have endorsed the use of
FDCs, which combine two or more ARVs into one pill, as an important
strategy to promote adherence to ARV regimens.11 These organizations have
determined that the benefits of FDCs include promoting adherence, by
reducing the number of pills a person has to take at one time, reducing
the time and costs associated with procurement and distribution of ARVs,
and simplifying the selection and prescribing of ARVs.

Funding for HIV/AIDS Treatment in the Focus Countries

Both national initiatives-such as the Emergency Plan-and multinational
initiatives provide funding for HIV/AIDS treatment in the focus countries.
In general, these initiatives provide their funding through grants,
cooperative agreements, and contracts with governments and NGOs. The NGOs
provide technical assistance and support the implementation of treatment
programs by, for example, purchasing medications. In recognition of the
fact that several initiatives may be active in any one country, the U.S.
government and the multinational initiatives have agreed to promote
coordination across their initiatives in order to use resources
efficiently and effectively and to ensure rapid expansion of treatment
programs.

The Emergency Plan is the largest national initiative to combat the global
HIV/AIDS epidemic. Through the Emergency Plan, the U.S. government both
provides direct technical assistance through field offices and funds NGOs
that support HIV/AIDS treatment programs in the focus countries. Under the
direction of the Coordinator's Office, USAID and HHS's Centers for Disease
Control and Prevention have primary responsibility for implementing the
Emergency Plan, with USAID responsible for overseeing the purchase of
medications.12

11See, for example, Institute of Medicine, Scaling Up Treatment for the
Global AIDS Pandemic: Challenges and Opportunities (Washington, D.C.:
2004).

Multinational organizations, including the Global Fund and agencies within
the UN system, also provide funding to HIV/AIDS programs in the focus
countries. The Global Fund, which was initiated in 2002, expects
disbursements to total $1 billion by the end of 2004, over half of which
are intended to fund HIV/AIDS programs. Within the UN system, the World
Bank represents the largest source of funding for HIV/AIDS activities in
developing countries. Since 1986, the World Bank reports that it has
invested $2 billion in HIV/AIDS prevention, care, and treatment services
in developing countries.

Requirements Related to the Purchase of ARV Products

All HIV/AIDS treatment programs must comply with the laws-including patent
and drug registration laws-that apply in the country for which they are
purchasing ARV products, as well as the requirements that pertain to the
source of funding they are using. The purchase of ARVs under the Emergency
Plan is subject to USAID quality assurance requirements and a statutory
patent requirement.13 To assure quality, USAID requires that ARV products
purchased under the plan have either FDA approval or the approval of
another acceptable regulatory authority.14 Because the Emergency Plan is
largely funded under the Foreign Assistance Act of 1961, the purchase of
ARVs with these funds is subject to a provision of the act that prohibits
the purchase of any medication manufactured outside the United States if
the manufacture of that medication in the United States would be covered
by a valid U.S. patent, unless the patent owner gives its permission.15
The purchase of ARV products with funds from the other initiatives must
meet the quality assurance requirements that the World Bank, UNICEF, and
the Global Fund have in common. Specifically, these organizations require
that all ARV products either be approved by an acceptable regulatory
authority such as FDA or be prequalified through WHO's Prequalification
Project. WHO's Prequalification Project includes a process for assessing
the quality of products that have not been subject to review by an
acceptable regulatory authority. Prequalification relies on review of
product information and manufacturing site inspections to determine if the
product meets WHO standards.

12Several other federal entities-including the Departments of Commerce,
Defense, and Labor and the Peace Corps-also have responsibilities under
the program. For additional information on the structure and operation of
the Coordinator's Office, see GAO, Global Health: U.S. AIDS Coordinator
Addressing Some Key Challenges to Expanding Treatment but Others Remain,
GAO-04-784 (Washington, D.C.: July 12, 2004).

13Medications purchased under the Emergency Plan are also subject to rules
pertaining to source, origin, and nationality for commodities that USAID
finances, unless USAID issues a waiver to allow otherwise. See, 22 C.F.R.
Part 228. These include a requirement that pharmaceutical products must be
manufactured in the United States in order to be eligible for USAID
financing. 22 C.F.R. S: 228.13(c). The Coordinator's Office confirmed that
USAID can issue a specific waiver of these rules, has already done so for
ARVs purchased under the Emergency Plan, and will continue to issue
waivers for the purchase of ARVs to carry out the plan.

14The Coordinator's Office defined "acceptable regulatory authority" in
guidance issued to field staff on March 24, 2004. See also, USAID
Automated Directives System, S: 312.5.3c, for USAID's internal regulations
and guidance regarding the purchase of pharmaceutical products.

Emergency Plan Provides Smaller Selection of ARV Products Than Other Initiatives

The Emergency Plan provides a smaller selection of ARV products than the
other initiatives. Because the plan provides only ARV products that have
been approved by FDA or another acceptable regulatory authority, it
provides six ARV products, all of which are original versions. In addition
to ARV products that have met the Emergency Plan's quality assurance
requirement, other initiatives also provide generic ARVs that have been
prequalified by WHO. While the plan does not provide the FDCs preferred by
the focus countries, these products are available through the other
initiatives.

Emergency Plan Provides One Version of Each First- Line ARV and a Double-ARV FDC

As of December 2004, the Emergency Plan provides one version-the original
version-of each of the five ARVs necessary to build all of the first-line
regimens. The plan also provides a double-ARV FDC (ZDV + 3TC) that can be
used in half of those regimens, but not the regimen that is recommended by
WHO as the first choice for rapid implementation of large-scale HIV/AIDS
treatment programs in resource-limited settings (d4T + 3TC + NVP). These
six products, flagged with filled diamonds in figure 2, are the only
first-line ARVs that have been approved by FDA or another acceptable
regulatory authority and thus comply with the plan's quality assurance
requirement. Because no generic ARVs currently meet the plan's quality
assurance requirement, the Emergency Plan does not provide generic
versions of any of the first-line ARVs or the double-ARV FDC provided
under the plan. In addition, the Emergency Plan does not provide any
version of three other FDC products that are generally available to the
focus countries, including the triple-ARV FDC (d4T + 3TC + NVP) that is
preferred by the majority of the focus countries.

15Foreign Assistance Act of 1961, Pub. L. No. 87-195, S: 606, 75 Stat.
424, 440 (1961) (codified, as amended, at 22 U.S.C. S: 2356 (2000)).

Figure 2: Selection of First-Line ARV Products Provided under the
Emergency Plan and Selection Provided under Other Initiatives

Notes: Data from GAO survey of ARV manufacturers during June and July
2004, the Coordinator's Office, USAID, WHO, the World Bank, UNICEF, and
the Global Fund. As of December 2004, the ARV products flagged with a
filled diamond have been approved by FDA or another acceptable regulatory
authority; those flagged with an unfilled diamond have been prequalified
by WHO; and those not flagged with a diamond have been neither approved by
FDA or another acceptable regulatory authority nor prequalified by WHO. We
did not determine whether the different quality assurance processes result
in ARV products of differing quality. Because laws of a country may affect
whether a particular ARV product is available there, not all ARV products
are available in all of the focus countries.

Other Initiatives Provide Generic as Well as Original ARVs

The other initiatives provide not only the original versions of the
first-line ARVs but also generic versions that meet their quality
assurance requirements. In addition to ARVs that have been approved by FDA
or another acceptable regulatory authority, the other initiatives also
accept those that have been prequalified by WHO. Thus the other
initiatives provide generic versions of most of the first-line single
ARVs, as well as a double-ARV FDC (ZDV + 3TC) and a triple-ARV FDC (d4T +
3TC + NVP), flagged with unfilled diamonds in figure 2, that are not
provided under the plan. Other generic versions of all ARV products are
available to the focus countries but are not provided under the Emergency
Plan or under the other initiatives. The additional generic ARVs generally
available to the focus countries, shown in figure 2 as vertical lines
without diamonds, have been neither approved by FDA or another acceptable
regulatory authority nor prequalified by WHO.

  Emergency Plan's Selection of ARV Products Results in Higher Prices for Most
                         First-Line Treatment Regimens

At the prices quoted to us during June and July 2004, most first-line
regimens could be built for a lower price with the generic ARV products
provided under the other initiatives than with the original ARV products
provided under the Emergency Plan. (See table 1.) The difference in price
between the original ARVs provided under the Emergency Plan and the
lowest-priced generic ARVs provided under the other initiatives ranged
from $11 less per person per year for original 3TC to $328 more for
original NVP. (See fig. 2.) At these prices, three of the four first-line
regimens could be built for a lower price with the generic ARV products
provided under the other initiatives than with the original ARV products
provided under the Emergency Plan. The difference in price for these three
regimens when built with the lowest-priced ARVs provided under the other
initiatives and when built with the lowest-priced ARVs provided under the
Emergency Plan ranged from $40 less per person per year for the regimen
ZDV + 3TC + EFV to $368 less for the regimen ZDV + 3TC + NVP. There was no
difference in price for the regimen d4T + 3TC + EFV because the
lowest-priced ARVs provided under the Emergency Plan and the other
initiatives are the same. All of the first-line regimens could be built
for a lower price using the lowest-priced generic ARVs that are generally
available to the focus countries but not provided under either the
Emergency Plan or the other initiatives.

Table 1: Prices for the First-Line Regimens

                Price in U.S. dollars per person per year (difference
                           compared to the Emergency Plan)
                                  Using lowest-priced              Using 
                                  ARVs provided under lowest-priced ARVs 
             Using lowest-priced      the World Bank,          generally 
             ARVs provided under      UNICEF, and the available to focus 
Regimen    the Emergency Plan          Global Fund          countries 
d4T + 3TC                $562          $219 (-343)        $150 (-412) 
+ NVP                                              
ZDV + 3TC                 675           307 (-368)         225 (-450) 
+ NVP                                              
d4T + 3TC                 471             471 (-0)          433 (-38) 
+ EFV                                              
ZDV + 3TC                 584            544 (-40)          506 (-78) 
+ EFV                                              

Source: GAO.

Notes: GAO calculations based on price survey of ARV manufacturers.
Calculated using prices quoted during June and July 2004. The lowest price
for each regimen could consist of three single ARVs, a double-ARV FDC plus
a single ARV, or a triple-ARV FDC. See app. II for more detailed
information on prices.

Differences in the price of a regimen per person per year can translate
into millions of dollars of additional expense when considered on the
scale of the Emergency Plan's goal of treating 2 million people by the end
of 2008. For example, the price for the regimen that WHO recommends as the
first choice for rapid scale-up in settings with limited health care
resources (d4T + 3TC + NVP) is $343 more per person per year under the
Emergency Plan. Thus for every 100,000 patients on this regimen for 5
years, the plan could pay over $170 million more than the other
initiatives for purchase of these ARVs. The overall impact of these price
differences over the life of the plan and on the treatment goal is
difficult to estimate precisely because, for example, the mix of ARVs and
treatment regimens that will be used as the Emergency Plan expands is
unknown and product prices may change.

  Coordinator's Office Has Taken Steps to Expand Selection of ARV Products It
             Provides, but Patent Requirement Is Potential Barrier

The Coordinator's Office has taken steps to expand the selection of
quality-assured ARV products it provides to the focus countries to include
the preferred FDCs and lower-priced generics. However, the patent
requirement could present a barrier to expanding the selection.

Coordinator's Office Has Made Efforts to Expand the Selection of Quality-Assured
ARV Products It Provides

The Coordinator's Office has worked with FDA to expand the selection of
quality-assured ARV products, particularly the preferred FDCs, that the
Emergency Plan provides to the focus countries. The selection of ARV
products provided is currently limited primarily by the plan's quality
assurance requirement. The Coordinator's Office has been encouraging
manufacturers to seek FDA approval for their ARV products, and thereby
satisfy the plan's quality assurance requirement.16 FDA officials told us
that the agency has been helping existing and potential manufacturers of
ARV products, particularly FDCs, to prepare applications for submission to
FDA. Several manufacturers told us that they have been working with FDA to
develop applications. One of the manufacturers we spoke with announced in
October 2004 that it had submitted an application, and the others told us
that they intended to do so. FDA officials said that these applications
would have priority for review and that they expect to be able to act on
complete applications within several months of submission. In addition,
the Coordinator's Office has worked with FDA to clarify that FDCs are
eligible for expedited review and to assemble into a single guidance
document several sets of regulations and guidelines that pertain to this
expedited review.17 As part of this guidance, FDA has included a list of
combinations of ARVs for which FDA believes there are sufficient publicly
available safety and effectiveness data that an application would not need
to include additional clinical studies.

16A generic manufacturer may seek FDA approval for a U.S. patented
medication if marketing of the generic version in the United States would
occur after expiration of that patent. See, 35 U.S.C. 271(e)(1). FDA may
issue tentative approval for such a product that is shown to be safe and
effective for its intended use but may not yet be marketed in the United
States due to the unexpired patent.

17Regulations that give FDA greater flexibility to rapidly review and
approve medications intended to treat certain severe diseases are
contained in 21 C.F.R. Part 312 and 21 C.F.R. Part 314.

Emergency Plan May Not Be Able to Provide Generic ARVs Unless Patent Barrier Is
Addressed

The Emergency Plan may not be able to expand the selection of ARV products
it provides to include lower-priced generic ARVs unless the Coordinator's
Office addresses a potential barrier presented by the applicable patent
requirement in the Foreign Assistance Act of 1961. Although the selection
of ARV products available under the plan is currently limited primarily by
the quality assurance requirement, if generic ARVs receive FDA approval,
the patent requirement could be a barrier to expansion. Because all five
of the first-line ARVs are currently under U.S. patents,18 even if a
generic ARV were to receive FDA approval, thus meeting the plan's quality
assurance requirement, the patent requirement would prevent its purchase
unless the patent holder had granted permission. If such permission is not
granted, this requirement could prevent the purchase of generic ARVs,
including generic FDCs, that have met the plan's quality assurance
requirement.

The Coordinator's Office has the authority to provide ARV products
notwithstanding the patent requirement.19 We asked officials from the
Coordinator's Office whether the Coordinator would use this authority in
order to purchase an FDA-approved generic ARV for which permission could
not be obtained from the patent owner. Officials from the Coordinator's
Office told us that they could not address hypothetical situations but
that the Coordinator would consider using his authority to make funds
available to purchase these products notwithstanding this requirement if
the ARV in question is critical to the plan's treatment responsibilities
and no readily available substitute exists. It may not be possible for
most generic ARVs to meet these conditions because generics are by
definition substitutes for existing products. In addition, a
representative of one of the generic manufacturers we spoke with told us
that the company is concerned and is hesitating to apply to FDA because it
has sought, but not yet obtained, assurances from the Coordinator's Office
that once its products have met the plan's quality assurance requirement
these products will be eligible for purchase under the Emergency Plan.

18The patent on ZDV is due to expire on September 17, 2005. The patents on
the remaining first-line ARVs are scheduled to expire between December
2008 and May 2013.

19This authority is provided in the foreign operations appropriation,
which largely funds the Emergency Plan. For each of the last 3 years, the
foreign operations appropriation has made funds available for the
prevention, treatment, and control of HIV/AIDS "notwithstanding any other
provision of law." Consolidated Appropriations Act, 2004, Pub. L. No.
108-199, 118 Stat. 3, 175 (appropriation for fiscal year 2004) (specifies
exemptions unrelated to the patent requirement); Consolidated
Appropriations Resolution, 2003, Pub. L. No. 108-7, 117 Stat. 11, 187
(appropriation for fiscal year 2003); and Foreign Operations Export
Financing, and Related Programs Appropriations Act, 2002, Pub. L. No.
107-115, 115 Stat. 2118, 2146 (appropriation for fiscal year 2002).

                            Concluding Observations

During its first year, the Emergency Plan has provided a limited selection
of ARV products that does not fully support the treatment strategies of
the focus countries and is not optimally coordinated with other
multinational initiatives because it does not include the FDCs and
lower-priced generics that the majority of these countries prefer. Better
coordination with the focus countries and with other treatment initiatives
could facilitate more rapid implementation of the Emergency Plan.
Moreover, given the intended scale of the plan, lower prices for ARVs
could result in savings of hundreds of millions of dollars, which could be
used to treat additional patients or to support other aspects of the
program. The Coordinator's Office has taken steps to expand the selection
of ARV products that meet its quality assurance requirement-with special
focus on FDCs-by working with manufacturers and FDA to increase the number
of products that have FDA approval. If applications proceed as anticipated
by ARV manufacturers and FDA, we expect that FDA-approved generic ARVs
will be available early in 2005. However, unless the patent holders for
these ARVs give permission or the Coordinator's Office exercises its
authority to purchase these products notwithstanding the patent
requirement, the selection of ARVs provided under the Emergency Plan may
not expand rapidly enough to address the AIDS emergency.

                       Agency Comments and Our Evaluation

We provided a draft of this report to the Department of State, HHS, and
USAID. Written comments submitted by the Department of State on behalf of
itself, HHS, and USAID are reprinted in appendix III. In its comments, the
Department of State expressed concern about how our report addressed the
issue of ARV quality and urged us to mention prominently in the report
recent changes in the list of products that are prequalified by WHO.
However, we stated in the draft report that concern about quality is the
primary factor limiting the selection of ARVs provided under the Emergency
Plan and the other initiatives. Our draft report recognized that quality
assurance is a critical concern, and provided background information on
the quality assurance requirements of the Emergency Plan and the other
initiatives and specified the quality assurance processes applied to each
ARV product. However, as the draft report stated, evaluating the quality
assurance processes used by each initiative was beyond the scope of our
work. We have updated the draft report to reflect all changes in the
availability of ARV products, including those highlighted by the
Department of State.

The Department of State also characterized figure 3 (see app. II) in the
report as misleading because not all of the generic ARV products are sold
on the market in all 15 focus countries. However, the draft report
explained that the laws of individual countries may not allow for the
purchase of some products. In response to the agency's concerns, we
clarified this further in notes to figure 3.

In addition, the agency expressed confusion over our use of the term
"generic" and offered the more formal term, "therapeutic equivalents,"
used by FDA. In the draft report, we used the word "generic" broadly to
mean a copy of an original product, regardless of whether FDA or another
national regulatory authority has determined the generic product to be a
therapeutic equivalent to an original product. We have further clarified
our use of the term in the report.

We agree with the agency's comment that it is important to distinguish
between issues of quality assurance and intellectual property, and these
issues were treated separately in the draft report. In addition, our
concern about the patent requirement being a potential barrier to
expanding the selection of ARV products provided under the Emergency Plan
is only with respect to those generic products that have first met the
plan's quality assurance requirement.

Lastly, the Department of State highlighted that the patent requirement is
a statutory restriction under the Foreign Assistance Act of 1961, as we
noted throughout the draft report. We revised the draft to further clarify
the source of the patent requirement. The Department also said that the
Coordinator's Office has decided to exercise its authority with respect to
the patent requirement "as necessary." However, because the comments did
not clarify when it might be necessary for the Coordinator's Office to use
its authority to make funds available to purchase products notwithstanding
the patent requirement, it remains unclear if all generic products that
have met the quality assurance requirement will be eligible for purchase
under the Emergency Plan.

In its comments, the agency also provided additional information on the
Emergency Plan's outreach activities and plans for bulk purchasing of ARV
products. The Department of State, HHS, and USAID individually submitted
technical comments, which we incorporated where appropriate.

As we agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this letter. We will then send copies to the
Secretary of State, the Secretary of Health and Human Services, and the
Administrator of the U.S. Agency for International Development and make
copies available to others who request them. In addition, the report will
be available at no charge on GAO's Web site at http://www.gao.gov.

If you or your staffs have any questions about this report, please call me
at (202) 512-7119. Another contact and key contributors are listed in
appendix IV.

Janet Heinrich Director, Health Care-Public Health Issues

Ap  Appendix I: Scope and Methodology

This report compares the selection of antiretroviral medication (ARV)
products that are being provided under the President's Emergency Plan for
AIDS Relief (Emergency Plan) with that provided under other initiatives
that also fund HIV/AIDS treatment programs in the focus countries, as of
December 2004.1 Our discussion is focused specifically on the ARVs that
are recommended by the World Health Organization (WHO) for first-line
treatment of HIV/AIDS in countries where health care resources are
limited. Our report also provides price information for the ARV products
provided under the Emergency Plan and under the other initiatives. We
report prices quoted, during June and July 2004, by 13 selected
manufacturers of ARV products that are generally available to the focus
countries. Lastly, we examine the efforts of the Office of the U.S. Global
AIDS Coordinator (Coordinator's Office) within the Department of State to
expand the selection of quality-assured ARV products provided at the
lowest possible price to the focus countries. Aspects of implementing
HIV/AIDS treatment programs other than the selection and price of
medications, such as human resources and supply chain management, and
treatments other than ARVs, such as medications to treat opportunistic
infections, are outside the scope of this report. Similarly, the HIV/AIDS
prevention and care objectives of the Emergency Plan are outside the scope
of this report. We conducted our review from January 2004 through January
2005 in accordance with generally accepted government auditing standards.

Comparing Selection of ARV Products the Emergency Plan Provides to That Provided
                            under Other Initiatives

To compare the selection of ARV products provided under the Emergency Plan
to that provided under the other initiatives, we reviewed the requirements
that apply to the purchase of ARV products under the Emergency Plan.
Specifically, we reviewed relevant laws, regulations, and guidance from
which the plan's requirements arise. We also reviewed documentation from
the Coordinator's Office and the U.S. Agency for International Development
(USAID) to determine which products had been provided under the plan as of
December 2004. In addition, we interviewed officials from the
Coordinator's Office, USAID, and the Department of Health and Human
Services' (HHS) Office of Global Health Affairs, Centers for Disease
Control and Prevention (CDC), and Food and Drug Administration (FDA) about
experience within federal programs with purchasing ARVs for developing
countries. Lastly, we interviewed officials at the nongovernmental
organizations (NGO) that have received funding under the Emergency Plan to
purchase ARVs in the focus countries. These NGOs include Catholic Relief
Services Consortium, Columbia University Mailman School of Public Health,
Elizabeth Glaser Pediatric AIDS Foundation, and Harvard University School
of Public Health.2

1The focus countries are Botswana, Cote d'Ivoire, Ethiopia, Guyana, Haiti,
Kenya, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Tanzania,
Uganda, Vietnam, and Zambia.

To determine the selection of ARV products provided under the other
initiatives, we reviewed the requirements that apply to the purchase of
ARV products under the HIV/AIDS treatment initiatives funded by the World
Bank, the United Nations Children's Fund (UNICEF), and the Global Fund to
Fight AIDS, Tuberculosis, and Malaria (Global Fund). Specifically, we
reviewed guidance documents from the Global Fund, the World Bank, UNICEF,
and WHO related to the purchase of ARVs under these initiatives. We also
interviewed officials from these organizations regarding the requirements
that apply to the provision of ARVs under their treatment initiatives and
to confirm the accuracy of information obtained from their Web sites. In
our comparison we determined the quality assurance process applied to each
product, but we did not evaluate the different quality assurance processes
required under the Emergency Plan as compared with those required under
the other initiatives or determine the comparative quality of the
products.

Our review of the ARV products provided under the Emergency Plan and the
other initiatives focuses specifically on the ARVs that are recommended by
WHO for treatment of HIV/AIDS in countries with limited health care
resources. In order to determine the appropriate treatment recommendations
to focus on in this report, we reviewed literature on the use of ARVs in
general and in countries with limited health care resources in particular.
Our literature review included searches of scientific publications using
electronic databases, including the National Library of Medicine's PubMed,
as well as the Web sites of the New England Journal of Medicine, the
Journal of the American Medical Association, and The Lancet. We reviewed
literature on ARV treatment available from the Coordinator's Office,
USAID, HHS, FDA, CDC, the HHS Office of the Inspector General, the
Congressional Research Service, the Congressional Budget Office, and the
Institute of Medicine. We also reviewed treatment guidelines and related
documentation from WHO, the Global Fund, the World Bank, the Joint United
Nations Programme on HIV/AIDS, UNICEF, and the United Kingdom's Department
for International Development. We also interviewed officials from several
of these organizations. To understand the issues involved in providing
ARVs in countries with limited health care resources, we interviewed
officials from several NGOs that are working in these settings-including
Doctors Without Borders, the William Jefferson Clinton Foundation (Clinton
Foundation), the Bill and Melinda Gates Foundation, John Snow Incorporated
(JSI), Family Health International (FHI), and Management Sciences for
Health (MSH). We also reviewed documentation on the focus countries'
national HIV/AIDS strategies and treatment guidelines, including
information that we obtained from the Coordinator's Office and NGOs.3

2As of August 2004, the Harvard program had not finalized any ARV
purchases under the Emergency Plan.

               Determining Prices of ARVs for the Focus Countries

The prices we report are prices that 13 selected manufacturers quoted to
us during June and July 2004 for the focus countries. We surveyed the
manufacturers from which the major organizations that support treatment
programs in the focus countries have considered purchasing their ARVs.
These organizations include JSI, FHI, MSH, the Clinton Foundation, the
Global Fund, the World Bank, WHO, UNICEF, Doctors Without Borders, the
International Dispensary Association, and MissionPharma. We selected a
manufacturer for inclusion in our report if it makes at least one of the
ARVs included in the WHO-recommended first-line regimens and was selling
or willing to sell its ARV product to at least one of the focus countries.
Thirteen of the 15 manufacturers that we considered met these criteria and
were willing to quote their prices for the first-line ARVs for the focus
countries. We did not select products based on registration with the focus
countries' national drug regulatory authorities because information on
country-level registration was incomplete or not available.

Because some of the manufacturers we surveyed offer their products at
significantly lower prices to developing countries than to developed
countries,4 we requested price quotes specifically for the focus
countries. We did not attempt to determine the prices that specific
purchasers are paying for these products because at the time we conducted
our analysis there was limited experience in the focus countries with
using the funding sources discussed in this report for large-scale
purchase of ARVs.5 Because different manufacturers offer their reduced
prices according to differing criteria,6 in some cases the lowest price
offers are not available to all of the focus countries. Specifically,
Guyana and Vietnam are not eligible to purchase ARVs at some
manufacturers' lowest price. In addition to these two focus countries,
other developing countries outside the scope of this report may not be
eligible for the prices we present.

3Some of the focus countries were modifying their treatment guidelines at
the time of our analysis.

4This practice is known as differential pricing, sometimes also called
"tiered pricing."

To help ensure that the manufacturers' prices we present are as comparable
as possible across different manufacturers of the same ARV, we surveyed
manufacturers using a standard set of questions. We developed our
questions on the basis of our literature review and discussions with
various officials from U.S. government agencies, officials from other
initiatives, representatives from NGOs, and representatives from
pharmaceutical manufacturers. These questions took into account
differences in purchasing agreements, including price negotiation based on
volume and length of contract, inclusion of shipping and insurance, and
financing guarantees. Some of the manufacturers we spoke with told us that
they offer prices that are negotiable depending on the volume of the
purchase, the length of the contract for purchase, and the degree to which
financing can be guaranteed. Therefore we requested prices based on the
following purchase scenarios, all of which assume financing has been
guaranteed: (1) purchase of enough medication to treat 500 patients for 1
year, (2) purchase of enough medication to treat 10,000 patients for 1
year, and (3) purchase of enough medication to treat 10,000 patients for 3
years. All manufacturers were given the opportunity to provide prices
according to these scenarios, although some told us that their prices were
not negotiable. We developed the scenarios based on estimates of the scale
of existing treatment programs in the focus countries, and the potential
scale of programs over the next 3 years. We verified, with officials from
USAID and other experts in ARV procurement, that these scenarios
represented plausible purchasing arrangements both now and over the next 3
years as treatment programs expand in developing countries. Because the
price information we requested is considered proprietary by the
manufacturer, we could not directly assess the reliability of the price
data given to us. However, we checked the prices quoted to us against
other published sources from our literature search and manufacturers' Web
sites and determined they were reliable for our purposes.

5The three NGOs that have completed purchases of ARVs under the Emergency
Plan reported that as of September 2004 they have received prices that
were either similar to or higher than the prices presented in our report.

6Some manufacturers offer their lowest prices to Least Developed
Countries, or to countries in Sub-Saharan Africa, while others base their
discounted offers on the Human Development Index or the World Bank's
rankings of country income levels, sometimes in combination with estimates
of the prevalence of HIV infection among a country's adult population.

In some cases a manufacturer's prices include costs that other
manufacturers do not include-such as shipping and insurance charges. We
note where these differences exist, and have determined that they do not
undermine the essential comparability of the prices presented in our
report. In making this determination, we first requested specific
information from each manufacturer about what is included in its price and
the terms of the purchase agreements it uses. The manufacturers we
surveyed for this report used one of six standard agreements to cover
shipping and insurance (see table 2). We also asked multiple purchasers
about the shipping and insurance costs they have incurred when purchasing
ARVs. While systematic evidence was not available, the organizations we
spoke with provided estimates ranging from 3 to 15 percent additional cost
for shipping and insurance for large-scale ARV purchases. One NGO that was
purchasing ARVs under the Emergency Plan told us that purchasing the same
ARV product through two different distribution channels-one directly from
the manufacturer with shipping and insurance costs included in the price
and one through a distributor that added those costs to its price-made no
appreciable difference in the final cost of the product. We also found,
after reviewing responses to our survey, that manufacturers of both
original and generic products used a range of purchase agreements, both
more and less inclusive of shipping and insurance costs. Other factors
that may contribute to the total cost of ARVs to a specific treatment
program, such as taxes and distribution surcharges, are beyond the scope
of this report.

Table 2: Standard International Terms for the Shipping and Insurance
Conditions of Purchase Agreements

International commercial                                                   
terma                    Shipping and insurance conditions
Ex-Works (EXW)           The seller transfers the goods to the buyer at    
                            the seller's named place of business (the         
                            factory, warehouse, etc.). The buyer is           
                            responsible for the full risk of loss of or       
                            damage to the goods, clearing the goods for       
                            export, and any costs related to transport. EXW   
                            places the minimum obligation on the seller.      
Free on Board (FOB)      The seller clears the goods for export and is     
                            responsible for the risks and costs of delivering 
                            the goods past the "ship's rail" (that is, off    
                            the dock onto the ship) at the domestic port of   
                            shipment. The risks and costs related to          
                            transport are transferred to the buyer when the   
                            goods pass the ship's rail. This term is          
                            exclusively for maritime transport.               
Free Carrier (FCA)       The seller clears the goods for export and        
                            delivers them to a carrier selected by the buyer  
                            (at the domestic port, terminal, etc.). The buyer 
                            is responsible for the full risks and costs       
                            related to transport.                             
Cost, Insurance, and     The seller clears the goods for export and is     
Freight (CIF)            responsible for the risks and costs of delivering 
                            the goods past the "ship's rail" at the domestic  
                            port of shipment. The seller is also responsible  
                            for paying the costs of transport and insurance   
                            of the goods to the port of destination. Any      
                            additional risks or costs related to transport,   
                            including applicable import tariffs, are          
                            transferred to the buyer when the goods pass the  
                            ship's rail. This term is exclusively for         
                            maritime transport.                               
Carriage Paid To (CPT)   The seller clears the goods for export and is     
                            responsible for paying for carriage through to    
                            the named port of destination, including          
                            applicable import tariffs. The buyer assumes all  
                            risks once the seller has delivered the goods to  
                            the carrier at the port of shipment.              
Carriage and Insurance   The seller clears the goods for export and is     
Paid To (CIP)            responsible for paying for carriage and insurance 
                            through to the named port of destination,         
                            including applicable import tariffs. The buyer    
                            assumes all risks once the seller has delivered   
                            the goods to the carrier at the port of shipment. 

Source: International Chamber of Commerce.

aManufacturers offer prices for their medications in accordance with an
international system of shipping and handling terms-known as international
commercial terms, or incoterms-that describe various possible purchase
agreements. These incoterms are published by the International Chamber of
Commerce.

  Examining the Efforts of the Coordinator's Office to Expand the Selection of
                                ARVs It Provides

To examine the efforts of the Coordinator's Office to expand the selection
of quality-assured ARV products provided under the Emergency Plan to the
focus countries, we reviewed relevant laws, regulations, and guidance from
which the plan's quality assurance and patent requirements arise. We
interviewed officials from the Coordinator's Office and USAID regarding
how they interpret these laws, regulations, and guidance and how they
apply these requirements to the provision of ARVs under the plan. We also
interviewed officials from the Coordinator's Office regarding their
efforts to address potential barriers to expansion. Lastly, because the
Coordinator's Office is working with FDA to support the ability of
additional ARV manufacturers to meet the Emergency Plan's quality
assurance requirement, we interviewed officials from FDA regarding these
efforts.

Appendix II: Price Information from Survey of ARV Manufacturers  Appendix
II: Price Information from Survey of ARV Manufacturers

We surveyed the following 13 manufacturers during June and July 2004 to
obtain price quotes for the focus countries for the ARVs used to build the
WHO-recommended first-line regimens:

           o  Aurobindo Pharma Limited (Aurobindo)
           o  Boehringer Ingelheim (BI)
           o  Bristol-Myers Squibb Company (BMS)
           o  Cipla Limited (Cipla)
           o  Combino Pharm
           o  Cristalia Produtos Quimicos Farmaceuticos LTDA (Cristalia)
           o  Far-Manguinhos FIOCRUZ Ministry of Health (Far-Manguinhos)
           o  GlaxoSmithKline (GSK)
           o  Government Pharmaceutical Organization Thailand (GPO)
           o  Hetero Drugs Limited (Hetero)
           o  Merck & Co., Inc. (Merck)
           o  Ranbaxy Laboratories Limited (Ranbaxy)
           o  Strides Arcolab Limited (Strides)

           The price per person per year for each ARV product-stavudine
           (d4T), zidovudine (ZDV), lamivudine (3TC), nevirapine (NVP), and
           efavirenz (EFV)-is shown in figures 3 and 4. Figure 3 shows prices
           quoted for single-ARV products, and figure 4 shows prices quoted
           for fixed-dose combination (FDC) ARV products. For each product we
           indicate the type of standard agreement used to cover shipping and
           insurance charges and whether the manufacturer indicated that the
           price quoted was negotiable or based on a specific purchase
           scenario (see figure notes a, b, and c). Both figures also show
           which ARV products are provided under the Emergency Plan, which
           additional products are provided under the other initiatives, and
           which products are generally available to the focus countries but
           not provided under either the Emergency Plan or the other
           initiatives, as of December 2004.

Figure 3: Manufacturers' Prices for First-Line ARV Products for the Focus
Countries (prices per person per year in U.S. dollars)

Notes: Data from GAO survey of ARV manufacturers during June and July of
2004, the Coordinator's Office, USAID, WHO, the World Bank, UNICEF, and
the Global Fund. Numbers in this figure may not sum to numbers shown in
table 1 due to rounding. As of December 2004, the ARV products shaded in
black have been approved by FDA or another acceptable regulatory
authority; those shaded in gray have been prequalified by WHO; and those
without shading have been neither approved by FDA or another acceptable
regulatory authority nor prequalified by WHO. We did not determine whether
the different quality assurance processes result in medications of
differing quality. Because laws of a country may affect whether a
particular ARV product is available there, not all ARV products are
available in all of the focus countries. Guyana and Vietnam are not
eligible to receive the prices shown for some of the products shaded in
black. Information about the 100-mg dose of ZDV and the 200-mg dose of EFV
is provided in fig. 3 but not included in fig. 2 and table 1.

aManufacturer indicated that price quoted was nonnegotiable.

bManufacturer indicated that price quoted was based on a 1 year / 10,000
patients per year purchase scenario.

cManufacturer indicated that price quoted was negotiable, but not based on
any specific purchase scenario.

Figure 4: Manufacturers' Prices for FDC ARV Products for the Focus
Countries (prices per person per year in U.S. dollars)

Notes: Data from GAO survey of ARV manufacturers during June and July of
2004, the Coordinator's Office, USAID, WHO, the World Bank, UNICEF, and
the Global Fund. Numbers in this figure may not sum to numbers shown in
table 1 due to rounding. As of December 2004, the ARV product shaded in
black has been approved by FDA or another acceptable regulatory authority;
those shaded in gray have been prequalified by WHO; and those without
shading have been neither approved by FDA or another acceptable regulatory
authority nor prequalified by WHO. We did not determine whether the
different quality assurance processes result in medications of differing
quality. Because laws of a country may affect whether a particular ARV
product is available there, not all ARV products are available in all of
the focus countries. Guyana and Vietnam are not eligible to receive the
price shown for the product shaded in black.

aManufacturer indicated that price quoted was negotiable, but not based on
any specific purchase scenario.

bManufacturer indicated that price quoted was nonnegotiable.

cManufacturer indicated that price quoted was based on a 1 year / 10,000
patients per year purchase scenario.

Appendix III: Comments from the Department of State  Appendix III:
Comments from the Department of State

AAc  Appendix IV: GAO Contact and Staff Acknowledgments

                                  GAO Contact

Michele Orza, (202) 512-7119

                                Acknowledgments

Other key contributors to this report are George Bogart, Chad Davenport,
J. Alice Nixon, Nkeruka Okonmah, and Roseanne Price.

Related GAO Products  Related GAO Products

Global Health: U.S. AIDS Coordinator Addressing Some Key Challenges to
Expanding Treatment but Others Remain. GAO-04-784. Washington, D.C.: July
12, 2004.

United Nations: Reforms Progressing, but Comprehensive Assessments Needed
to Measure Impact. GAO-04-339. Washington, D.C.: February 13, 2004.

Global Health: Global Fund to Fight AIDS, TB and Malaria Has Advanced in
Key Areas, but Difficult Challenges Remain. GAO-03-601. Washington, D.C.:
May 7, 2003.

Global Health: Assessment of First Year Efforts of the Global Fund to
Fight AIDS, TB and Malaria. GAO-03-755T. Washington, D.C.: May 7, 2003.

The Global Fund to Fight AIDS, Tuberculosis, and Malaria Has Been
Established but It Is Premature to Evaluate Its Effectiveness.
GAO-02-819R. Washington, D.C.: June 7, 2002.

Foreign Assistance: USAID Relies Heavily on Nongovernmental Organizations,
but Better Data Needed to Evaluate Approaches. GAO-02-471. Washington,
D.C.: April 25, 2002.

Global Health: Joint U.N. Programme on HIV/AIDS Needs to Strengthen
Country-Level Efforts and Measure Results. GAO-01-625. Washington, D.C.:
May 25, 2001.

Global Health: U.S. Agency for International Development Fights AIDS in
Africa, but Better Data Needed to Measure Impact. GAO-01-449. Washington,
D.C.: March 23, 2001.

Global Health: The U.S. and U.N. Response to the AIDS Crisis in Africa.
GAO/T-NSIAD-00-99. Washington, D.C.: February 24, 2000.

(290336)

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Highlights of GAO-05-133, a report to congressional requesters

January 2005

GLOBAL HIV/AIDS EPIDEMIC

Selection of Antiretroviral Medications Provided under U.S. Emergency Plan
Is Limited

In developing countries, only about 7 percent of people with HIV/AIDS
receive treatment. In 2003, the Congress authorized the President's
Emergency Plan for AIDS Relief, a 5-year, $15 billion initiative under the
Office of the U.S. Global AIDS Coordinator. The Emergency Plan focuses on
15 developing countries, with a goal of supporting treatment for 2 million
people. Treatment regimens use multiple antiretroviral medications (ARV),
which can be original or generic. Fixed-dose combinations (FDC) combine
two or three ARVs into one pill.

Questions have been raised about whether the plan is providing ARVs
preferred by the focus countries at reasonable prices. GAO compared the
selection of ARVs provided under the plan with that provided under other
major treatment initiatives, compared the prices of those selections, and
determined what the Coordinator's Office is doing to expand the plan's
selection of quality-assured lower-priced ARVs.

The Emergency Plan provides a smaller selection of recommended first-line
ARVs than other major HIV/AIDS treatment initiatives in developing
countries. The plan's selection includes six original ARV products-the
only ARVs that have met the plan's quality assurance requirement-and does
not include some FDCs that are preferred by most of the focus countries
because they can simplify treatment. In contrast, the other initiatives
provide a selection that in addition to the six original ARVs includes
generic ARVs and more of the preferred FDCs.

The original ARVs provided under the plan are generally higher in price
than the generic ARVs provided under the other initiatives. The
differences in the prices, quoted to GAO during June and July 2004 by 13
manufacturers, ranged from $11 less to $328 more per person per year for
original ARVs than for the lowest-priced corresponding generic ARVs
provided under the other initiatives. At these prices, three of the four
first-line regimens recommended by the World Health Organization could be
built for less-from $40 to $368 less depending on the regimen-with the
generic ARVs provided under the other initiatives than with the original
ARVs provided under the plan. Such differences in price per person per
year could translate into hundreds of millions of dollars of additional
expense when considered on the scale of the plan's goal of treating 2
million people by the end of 2008.

The Coordinator's Office has worked to expand the selection of
quality-assured ARVs-including FDCs and lower-priced generics-that it
provides to the focus countries under the plan. The selection of ARVs
available under the plan is primarily limited by its quality assurance
requirement. The Coordinator's Office is working with manufacturers to
take the steps necessary for more ARVs to meet this requirement. However,
if generic ARVs meet the plan's quality assurance requirement, a statutory
prohibition on the purchase of any medication manufactured outside the
United States if the manufacture of that medication in the United States
would be covered by a valid U.S. patent could become a barrier to
expansion because all ARVs are currently under U.S. patents. Unless the
patent holders for ARVs that have met the plan's quality requirement give
permission or the Coordinator's Office exercises its authority to purchase
these products notwithstanding the patent requirement, the selection of
ARVs provided under the Emergency Plan may not expand rapidly enough to
address the AIDS emergency.

In commenting on a draft of this report, the Department of State, the
Department of Health and Human Services, and the U.S. Agency for
International Development expressed concern about how GAO addressed ARV
quality. In the draft report GAO described the quality assurance
requirements used by the Emergency Plan and the other initiatives and
stated that quality is the primary factor determining the selection of
products provided under each. However, evaluating the quality assurance
processes used by each initiative was outside the scope of GAO's work.
*** End of document. ***