Affordable Pricing refers to agreement provisions that address pricing requirements for lower income markets. There are varying definitions of “Affordable Pricing”, but it can generally be considered as a price lower than that charged for high income countries, and which normally covers the developer’s manufacturing costs plus a reasonable margin to help ensure the commercial sustainability of the product.

Affordable pricing provisions are an important component of access to medicines because they help to ensure that the product can be made available to purchasers in or for lower- and middle- income countries (“LMICs”) at a reasonable cost.

The achievement of an affordable price could involve the use of LMIC manufacturers who are able to sustain lower manufacturing costs and therefore charge a lower price for the product. This approach also helps to fulfill additional equitable access objectives through the transfer of technology and knowledge to LMIC manufacturers.

Provisions related to more general pricing terms can be found under Payment Structures.

Some questions to consider when developing an affordable pricing provision

• How is an affordable price determined?
• Should there be a difference between the pricing for public sector and private sector purchasers?
• Should prices be tiered by country or region and over what time period?
• Does the funder have the right to audit the developer’s calculation of ‘affordable price’?
• What are the remedies if an ‘affordable price’ is not achieved?

Example approaches found in the MAPGuide

• How is an ‘affordable price’ determined?
  • Some agreements in the MAPGuide include a definition of “Affordable Price” such as “the lowest sustainable, competitive price for the Product(s) which covers the cost of raw materials, manufacturing, distribution and operational overheads, and includes a reasonable margin to help ensure the economic sustainability of the production and distribution of the Product(s).”
  • Other MAPGuide provisions that address affordable pricing do not have a detailed definition but state that the price will not be below the developer’s manufacturing cost, and it will be a commercially sustainable price.
  • Some agreements in the MAPGuide also have a reference to an upper price limit, but the details have been redacted from publicly available documents.

• Should there be a difference between the pricing for public sector and private sector purchasers?
  • Some agreements in the MAPGuide make a distinction between sales to public and private sector purchasers in certain countries, with an obligation to provide preferential pricing to the public sector.
  • The organizations included in the definition of “public sector” can vary between agreements, but they often include government ministries, intergovernmental organizations (e.g. WHO), and non-profit organizations.

• Should prices be tiered by country or region and over what time period?
  • MAPGuide provisions with tiered pricing mechanisms often set the pricing groups based on the lower-, middle- and high-income country classifications published by the World Bank.
  • The tiered pricing mechanisms used in an agreement depend on the agreement type and purpose. For example:
    • There are some agreements in the MAPGuide related to the supply of raw materials for vaccine manufacturing. These agreements specify different purchase prices for the materials depending on the country in which the final manufactured vaccine is sold.
    • Licensing agreements usually have payment structures based on payment of royalties from the licensee to the licensor, calculated as a proportion of the licensee’s sales revenue. Some agreements in the MAPGuide specify lower royalty rates, or even no royalties, on sales to lower-income countries. In some cases, royalty free sales are limited to specified time periods, such as during a WHO-declared Public Health Emergency of International Concern (“PHEIC”).

• Does the funder have the right to audit the developer’s calculation of ‘affordable price’?
  • Some funding agreements in the MAPGuide include a provision that allows the funder to audit the developer’s financial records related to cost of goods calculations or other manufacturing costs. An audit of this nature could be used both to satisfy the funder of the accuracy of a cost presented by a developer, and to enable the funder to periodically review the likelihood of a developer achieving an ‘affordable price’.
  • Some provisions in the MAPGuide also allow the audit of sales records to verify that the actual product prices charged to purchasers are in compliance with the pricing commitments set out in the agreement.

• What are the remedies if an ‘affordable price’ is not achieved?
  • If it appears that a developer will not be able to manufacture a product at a cost that will result in an affordable price, some funding agreements in the MAPGuide allow a funder to take actions such as proposing new manufacturing partners, or exercising their right to contract directly with another manufacturer (also see Ensuring Continuity for discussion of these rights).
  • If an audit of sales records indicates that a party has not complied with its affordable pricing commitments, some MAPGuide provisions allow the other party to impose mandatory price adjustments.