So what is the fair value of deworming medicine? Part 2

Let’s look at one indicator of fair value of deworming meds on the international market – list prices and actual transactions.

Why?  As I understand, the biggest med in financial statements of U.S. relief and development NPOs is mebendazole. The usual dosage is 500 mg. I also understand that particular dosage is not approved for distribution in the United States.  Since you can’t use or distribute that dosage of that medicine in the U.S., seems like we should look at international pricing instead.  In addition, after FAS 157 went into effect, the principal market should be considered.

One source for international pricing is the International Drug Price Indicator Guide.

Here’s a description of the guide on the homepage:

The International Drug Price Indicator Guide contains a spectrum of prices from pharmaceutical suppliers, international development organizations, and government agencies. The Guide aims to make price information more widely available in order to improve procurement of medicines of assured quality for the lowest possible price. Comparative price information is important for getting the best price, and this is an essential reference for anyone involved in the procurement of pharmaceuticals.

Management Sciences for Health (MSH) has published the International Drug Price Indicator Guide since 1986 and updates it annually.

What data does this Guide have? Indicators of pricing for a huge number of medicines.  For each medicine there is information listed for suppliers and buyers.  Those categories are defined here:

Suppliers who maintain a warehouse and supply items directly to customers. All these suppliers provide a wider range of products than shown in this Guide. For a complete list of products, contact the vendor directly.

Buyer, usually government agency international competitive bidding, or tender, prices from public sector sources. These are actual prices obtained by the organizations listed and are included for information purposes. It is not possible for a reader to place an order with any of these organizations. These prices should not be used as international reference prices since they may only be available to the organization conducting the tender or procurement. This is especially true in domestic tenders, because local manufacturers may not sell internationally.

To me, that means the information listed for suppliers is their list, or offer, price. I think it means you can buy this medicine from that vendor at the listed price for the specified year.  Might be able to do better or worse on an actual purchase, but those are the list prices.

The buyer information, I think, means these are actual purchase prices paid by various agencies in actual transactions.  While adjustment may be necessary for what an NPO might pay compared to a government agency, these are actual transactions.

Seems to me the information here would be a very good indicator of international drug prices.

In addition to containing list prices and actual transactions, the price is attractive – free.

If I’m confused about what is contained in the International Drug Pricing Indicator Guide or misunderstand the data, please correct me.

If you know of another source for international drug pricing, please let me know.

So here is some pricing information. I’ve provided the links so you can check out my comments.

All of the following data is for one dose of 500 mg mebendazole expressed in US dollars.

Here are the highest and lowest prices in the Guide for suppliers and buyers for 2010.

Supplier

  • $0.0200 – UNFPA – UN Population Fund
  • $0.0920 – MEG – Medical Export Group

Buyer

  • $0.0171 – CAMERWA – Centrale d’achat des Médicaments Essentiels, Consommables et Equipements Médicaux du Rwanda
  • $0.1827 – SAFRICA – South Africa Department of Health – this is for one tablet packaging

Here are the high and low prices per unit for suppliers and buyers for 2008:

Supplier

  • $0.0119 – UNFPA – UN Population Fund
  • $0.0290 – IDA – IDA Foundation

Buyer

  • $0.0213 –Senegal– Pharmacie Nationale d’Approvisionement du Senegal
  • $0.1286 – SAFRICA – South Africa Department of Health

To give a longer time horizon, here are the high and low prices for suppliers and buyers of the same med in 2005:

Supplier

  • $0.0115 – UNFPA – UN Population Fund
  • $0.0914 – IMRES

Buyer

  • $0.0084 –SENEGAL- Pharmacie Nationale d’Approvisionement du Senegal
  • $0.0390 –Nicaragua- Ministerio de Salud de Nicaragua

Looks like the South Africa Department of Health prices are an outlier for some reason.

It helps to see all those highs and lows together, so here is the compressed data.  I also listed the second lowest supplier price for each year.

Supplier

  • $0.0200 –$0.0119 –$0.0115 – lowest of list price each year
  • $0.0325 – $0.0164 – $0.0140 – second lowest list price for each year
  • $0.0920 – $0.0290 –$0.0914 – highest of list price each year

Buyer

  • $0.0171 – $0.0213 –$0.0084 – lowest of actual purchases each year
  • $0.1827 – $0.1286 – $0.0390 – highest of actual purchase each year

As an aside, a comment in the FASB Nonprofit Advisory Committee’s meeting on 3-1-12 suggested there is one provider that is distorting the market, I noticed there are five suppliers listed for the three years of data I listed: UN Population Fund, Medical Export Group, Missionpharma, IDA Foundation, and IMRES. I included the second lowest list price above.

To simplify, I calculated an average of the 3 data points above:

  • Supplier – average of lows is $0.0145, average of second lowest is $0.210 $0.0210, average of highs is $0.0708
  • Buyer – average of lows is $0.0156, average of highs in $0.1168

Making it even more simple, the Guide points to list prices and actual purchase prices per pill of pennies per dose. The outlier on the high side is 5 for $1.00.

8 Responses to So what is the fair value of deworming medicine? Part 2

  1. Erik says:

    I think the key phrase from the pricing guide is, “These prices should not be used as international reference prices” That pretty much sums up the International Drug Price Indicator Guide.

    As an auditor, if you see an organization using this guide for their valuation, you would have to be pretty skeptical and doubt the reliability, considering the guide itself says that it is not reliable and should not be used for valuation.

    Therefore, this guide is not a source of drug price valuation.

  2. Leif says:

    The problem that organizations face in valuing pharmaceuticals is that free or low cost sources of information (such as Red Book, International Drug Price Indicator Guide, internet pharmacies, etc) and unreliable and do not represent commercial market values.

    Reliable sources of actually transacted international market data is available, but is more expensive than most organizations can afford.

    Pricing in the pharmaceutical and medical industry even in the US (or especially in the US) is a very closed, secretive industry in which finding prices for anything can be very difficult. Try shopping around for the price of a medical procedure, likely you won’t be able to find a price.

    Simply going on the internet, looking at the first pricing guide you find, and declaring that to be the authoritative source of commercial fair market values, is poor accounting. It seems in this instance, that further research is needed.

  3. Jim Ulvog says:

    Erik and Leif, thank you for your comments.

  4. Jim Ulvog says:

    Erik, thanks again for your comment.

    I read through the narrative in the front of the Guide looking for the quote you mentioned, but could not find it. I did find a number of disclaimers that I would expect in a pricing guide, but didn’t notice any comment that the prices aren’t reliable as a reference.

    Could you point to the page that has that comment you quoted?

    Thanks.

  5. Jim Ulvog says:

    Leif, thanks for your comment.

    I agree, more sources are needed. I’m doing this research in my spare time so I’m still learning. This Guide seems to be a reasonably sound resource.

    Do you have any ideas for other indicators of international prices? What else is out there? Any data from vendors? Any actual transaction information?

    Any ideas what the large R&D NPOs are using for their pricing information other than the Red Book?

  6. Leif says:

    2nd paragraph of 2nd quote from the Guide in your blog above, is where the quote from Erik looks like it is coming from.

  7. Jim Ulvog says:

    Leif, thanks for your comment and thanks for pointing that out.

  8. Jim Ulvog says:

    Let’s pull that paragraph apart.
    “Buyer, usually government agency international competitive bidding, or tender, prices from public sector sources.”
    This tells me the data in the guide is actual contract data from government agencies that purchased these medicines in the listed dosages for the described prices.
    “These are actual prices obtained by the organizations listed and are included for information purposes. “
    Again, actual transactions by the reporting organizations, which appear to be UN and national health agencies. Purpose is to inform other buyers of these meds.
    “It is not possible for a reader to place an order with any of these organizations.”
    Makes sense. Since these are purchases by the end user organizations, they won’t be selling them. To order meds, contact the suppliers. Their contact info is listed in the Guide.
    “These prices should not be used as international reference prices since they may only be available to the organization conducting the tender or procurement.”
    Don’t quote these prices because they may only be good for that agency. Notice the conditional comment.
    “This is especially true in domestic tenders, because local manufacturers may not sell internationally.”
    Need to find out where the meds came from since local manufacturer might not be able to export them.
    Since the valuation issue will require moving to level 3 of ASC 820, I’m not sure I see why half of one sentence is reason to remove a large volume of actual transactions by actual purchasers from the discussion. It’s a topic for another post, but even if the data needs to be adjusted to a different place in the distribution system, say from international wholesalers to something analogous to an end-user retail network, this is one set of relevant data points.
    Leif and Eric, if there is some qualifying comment somewhere in the Red Book comparable to the sentence above, would that invalidate the use of the Red Book as a source of pricing information over the last five or ten years?

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