So what is the fair value of deworming medicine? Part 1

What’s the fair value?  That is the central question behind the whole issue of booking albendazole and mebendazole as GIK contribution revenue.

I will have several posts on this issue, including one or two on the accounting rules.  I’ll start with a very casual discussion, work towards more objective and verifiable valuation, and then discuss the accounting.

In recent weeks I’ve read two particular articles on health issues that describe the cost of a deworming regimen as an aside.   I doubt either of the authors or their editors knew how intense the valuation issue has become in the last 60 days.

So, let’s give the magazines and authors some slack.  Don’t pick on them too hard.  At the same time, their comments provide some background.

Here’s two weak data points for the cost of deworming meds:

First, an article in The Economist February 4 edition, Hot tropic, discussed new efforts by Bill Gates, the World Health Organization, and a number of pharmaceutical execs to take on 10 of the nasty diseases in the tropics.  These diseases, according to the article, haven’t gotten a lot of focused attention.

Amongst the other news in the article describing efforts to take on these devastating critters, there is this discussion of the cost factor of deworming medicines:

Mr Gates praises big returns for low costs. At 50 cents per child per year, treating intestinal worms is the most cost-effective way to raise school attendance, the Massachusetts Institute of Technology found. “Probably we should have gone after them earlier,” says Mr Gates. He hatched the new plan with pharma chiefs such as Andrew Witty of GlaxoSmithKline. Drug firms will donate 1.4 billion treatments each year.

Second, Christianity Today has a superb article in their February 2012 edition: Cost-Effective Compassion.

The best summary of the article is the subtitle in the print edition:

Economists rate the impact of 10 popular strategies for helping the poor.

The economists take a long look at the cost of various strategies and their impact.

For example, clean water prevents a host of illnesses for children and has a quantifiable reduction in infant mortality. If you get economists involved to do a careful, intentional analysis you can quantify the cost per saved life.

Let’s take a side trip to the issue of outcome measures.

One of the fascinating implications of the GIK valuation issue is the huge gulf between the impact of these meds and the astonishingly low-cost.  If it was possible to measure the outcomes from giving a child a handful of meds, the impact would make the $10 a pill number that is in discussion pale in comparison. 

The extension of life expectancies, increased quality of life, reduction in human suffering, increased education and resulting increased production in the economy would be a huge multiple of $10.  All from two doses per year of this little pill.

Measuring outcomes is hard work.  It is very, very difficult.  It requires accumulating a lot of data, tracking it over time, and isolating multiple interconnected variables.  Calculating outcomes is far more difficult than booking revenue from donated meds. 

As I talk in a later post about outcome measures, this article from CT will be a significant part of the discussion.  Check out the article.  It’s great for many reasons.

Back to the article. 

Number two on the most cost-effective list is deworming medicine.  Almost everyone who’s read this far in this post already knows intestinal worms are a serious and widespread problem.  For those who don’t yet know:

Intestinal worm infestation affects one in four people worldwide and is responsible for chronic poor health, listlessness, and learning impairment among children in developing countries. Albendazole and other medications are stunningly effective and very inexpensive, making de-worming another great case of “bang for your buck” effectiveness.

The article makes a very brief comment on the impact and cost:

A study by researchers at Berkeley and Harvard found that regular de-worming treatment in worm-infested areas of the developing world can reduce school absenteeism by 25 percent at a cost of only 50 cents per year per child.

That’s an incredible payoff – absenteeism drops a lot at minimal cost.  Cool.

The two articles refer to separate studies by a team at Massachusetts Institute of Technology and another at Berkeley and Harvard.  This was of low enough significance that neither author cited the specific studies. I haven’t bothered to track them down yet.

Another data point

Another piece of information about what it takes to buy a large volume of meds is found in Caroline Preston’s article in The Chronicle of Philanthropy, Aid Charities’ Accounting Practices Draw Criticism (article behind paywall).

In Feed the Children’s case, the group says it had a contract with an Indian drug maker, Micro Labs, in 2009 for $1,023,750 to manufacture, handle, and package 65 million pills but that the tablets themselves were donated. That would amount to about 1.6 cents a pill, though the charity says the contract was not based on such a calculation. The group has also acquired medicines from a European supplier in the past.

Keep that $0.0157 amount in mind as you read my next post.  Under 2 cents.

Two questions come to mind.

If you’re a nonprofit CFO whose employer records one-quarter or one-half of their annual income from mebendazole alone, would it be a good idea to know what’s in those studies?

If you’re a CPA auditing an NPO who generates half their income from donations of mebendazole, which makes the valuation estimate of that one medicine quite material to the financial statements, would it be worth a few hours of time to track down the studies and understand what they say? In the audit literature, seems to me those studies could be called contrary information.

Crowd-sourcing experiment

Let’s try a little bitty experiment in crowd-sourcing – Anyone know where those two studies could be found?

If so, you can leave a comment here or email me at gikvalue at earthlink dot net

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