Project ImpactProject Impact

Making Medical Making Medical Technology And Technology And Services Affordable Services Affordable And Available To And Available To The Economies Of The Economies Of Developing Developing CountriesCountries

4 Billion at Bottom of Pyramid Per capita less than $1,500 A billion people have per capita income

less than $1/day. Income gap between rich and poor is

growing: richest 20% account for 85% of income

Extreme inequity of wealth distribution reinforces view that poor cannot participate in global economy

Could swell to more than 6 billion people next 40 years

Bottom 4 billion of humanity represent multi-trillion $ market

Social ObjectivesSocial Objectives

Focus on ‘pricing’ disparity’ where goods and services that Focus on ‘pricing’ disparity’ where goods and services that provide for basic human needs, such as sight or hearing (or provide for basic human needs, such as sight or hearing (or life itself!), are receding further and further from the reach of life itself!), are receding further and further from the reach of the poor.the poor.

Demystify costs, gain control of means for production and Demystify costs, gain control of means for production and pricing to make products affordable to poorer two thirds of pricing to make products affordable to poorer two thirds of humanityhumanity

Create service delivery models to provide affordable and Create service delivery models to provide affordable and high quality products and services where price and quality high quality products and services where price and quality become driving forces to convert need into demand become driving forces to convert need into demand

Aravind Eye HospitalAravind Eye Hospital

220,000 eye surgeries per year (10% of surgery 220,000 eye surgeries per year (10% of surgery in US)in US)

2 million patients/year examined/treated2 million patients/year examined/treated 47% pay nothing, 18% pay two-thirds cost, 35% 47% pay nothing, 18% pay two-thirds cost, 35%

pay well above costpay well above cost For every $1 spent, $1.60 is earnedFor every $1 spent, $1.60 is earned Able to be self sustaining and grow while staying Able to be self sustaining and grow while staying

true to social mission of serving poortrue to social mission of serving poor Replicated in Nepal, India, Egypt, Malawi, Replicated in Nepal, India, Egypt, Malawi,

Kenya, Guatemala, El Salvador, others Kenya, Guatemala, El Salvador, others

Dr. VenkataswamyDr. Venkataswamy

Surgery at Aravind

Financial ViabilityFinancial Viability

0

1

2

3

4

5

6

7

8

9

10

79-80 81-82 83-84 85-86 87-88 89-90 91-92 93-94 95-96 97-98 99-00 01-02

Year

Million $

Revenue Expense

Through a unique fee system & effective management, Aravind provides free eye care to 2/3 of its patients.

For each $1 spent, $1.60 is earned

Free Camp 47%Paying 35%

Subsidized 18%

A R A V I N D E Y E C A R E S Y S T E MA R A V I N D E Y E C A R E S Y S T E M

Other Countries:Bangladesh

Bulgaria

Cambodia

Egypt

Indonesia

Kenya

Malawi

Nepal

Zambia

Zimbabwe

Guatemala

El Salvador

Tanzania

Lions - 87Sight Savers - 39CBM - 20WHO, Orbis,Seva, others - 15Total: 161

Location of ParticipatingLocation of ParticipatingHospitalsHospitals

Lumbini Eye Hospital Surgery, Income, Expenses & Profit US$Yr. 2000 Yr. 2001 Yr. 2002 Yr. 2003

Surgery Volume 19,802 22,139 25,839 26,931 Income 671,204 811,042 965,539 988,567 Expenses 463,484 662,888 709,924 717,418 Profit 207,720 148,154 255,616 271,149

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1 2 3 4

Profit

Expenses

Revenue

Al Noor/Magrabi Eye Hospital, Cairo

Principles of Cost Principles of Cost RecoveryRecovery

Understanding the local paying capacity Understanding the local paying capacity Pricing for affordabilityPricing for affordability Pricing for all economic strata-multi-tiered pricingPricing for all economic strata-multi-tiered pricing Improving efficiency to decrease costsImproving efficiency to decrease costs Improve quality to create market demandImprove quality to create market demand Satisfying customers/being accountableSatisfying customers/being accountable Consumers become program plannersConsumers become program planners Increase volume to lower unit costs and pricesIncrease volume to lower unit costs and prices Choice to use profit & production capacity to serve poorChoice to use profit & production capacity to serve poor Nestle control in hands of those doing the workNestle control in hands of those doing the work Shift of resources from operating costs to start up Shift of resources from operating costs to start up

costs for new programscosts for new programs

Why is medical technology not affordable?

WTO keeps drug prices high under Agreement on WTO keeps drug prices high under Agreement on Trade-Related Aspects of Intellectual Property Trade-Related Aspects of Intellectual Property Rights (TRIPS). Patents on life-saving drugs are Rights (TRIPS). Patents on life-saving drugs are treated the same way as patents on ice-cream treated the same way as patents on ice-cream machines. machines.

Bureaucratic Imperative of Medical Industry: The Bureaucratic Imperative of Medical Industry: The ‘ethical’ responsibility of “ maximizing return on ‘ethical’ responsibility of “ maximizing return on investment” to share-holders reduces the investment” to share-holders reduces the accessibility and affordability of technology accessibility and affordability of technology oriented medical care in developing countriesoriented medical care in developing countries

Western companies do not simplify and make Western companies do not simplify and make appropriate for developing countriesappropriate for developing countries

AurolabAurolab

Established in 1992 as non-profit business trustEstablished in 1992 as non-profit business trust Organizational mandate to maximize product Organizational mandate to maximize product

availability and affordability to the pooravailability and affordability to the poor Proven track record in the manufacture of : IOLs, Proven track record in the manufacture of : IOLs,

suture, drugs, eye glassessuture, drugs, eye glasses Associated with Aravind Eye HospitalAssociated with Aravind Eye Hospital One of largest IOL manufacturer in world; 600,000 One of largest IOL manufacturer in world; 600,000

per year sold to 86 countries per year sold to 86 countries FDA and CE Mark regulatory fulfillmentFDA and CE Mark regulatory fulfillment Uses profit and production capacity to serve the Uses profit and production capacity to serve the

poor and build capacitypoor and build capacity

Reinventing PricingReinventing Pricing

Pricing is the Issue, Not CostPricing is the Issue, Not Cost

Intraocular lenses: Intraocular lenses: $100+ vs. $4.5$100+ vs. $4.5 Suture: Suture: $200 vs $200 vs $30 $30 Pharmaceuticals: Pharmaceuticals: $60 $60 vs. vs. $.91 $.91 Hearing aid:Hearing aid: $1500 vs. $50$1500 vs. $50

Aurolab Overall Revenue Breakdown

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

Yr. 2002 Yr. 2003

Net Income

Expenses

Aurolab 2003 Net Income

IOL, $1,543,478

Suture, $406,304

Pharma, $338,043

Aurolab Financial SustainabilityAurolab Financial Sustainability $4.3 million in Annual Sales$4.3 million in Annual Sales 52% Margin ($2.2M Net Income)52% Margin ($2.2M Net Income) Sustained Growth, little marketing costsSustained Growth, little marketing costs

IOLImplantationinto the lensbag

IOL

Cornea

Lens bag

Iris

Clean Room Final Quality Control

Next Generation IOLNext Generation IOL

Hydrophobic Acrylic Foldable IOLHydrophobic Acrylic Foldable IOL Alcon has 50% and AMO 20% of IOL market with this Alcon has 50% and AMO 20% of IOL market with this

materialmaterial 13M IOLs sold WW in 2002; 1.4M in USA13M IOLs sold WW in 2002; 1.4M in USA Foldable IOLS account for 96% of US Market Foldable IOLS account for 96% of US Market $ 1.6B US Market$ 1.6B US Market Developed novel biocompatible material exceeding Developed novel biocompatible material exceeding

material properties of competitionmaterial properties of competition Production in less than a yearProduction in less than a year Give IP and know how to Aurolab for social mission and Give IP and know how to Aurolab for social mission and

license to others for Project Impact financial return to license to others for Project Impact financial return to support new technology developmentsupport new technology development

Suture:Cold FormingNeedles

Suture: Micro grinding needle tip

Dr. P. BalakrishnanManaging DirectorAurolab

How Affordable Technology How Affordable Technology Drives SustainabilityDrives Sustainability

Availability of affordable intraocular lenses have Availability of affordable intraocular lenses have enabled eye care programs worldwide to provide enabled eye care programs worldwide to provide better quality visual outcomesbetter quality visual outcomes

Vision with IOL attracts surgical patients at early Vision with IOL attracts surgical patients at early stage when more still work and can contribute stage when more still work and can contribute toward costtoward cost

Programs become ‘market driving’ to increase Programs become ‘market driving’ to increase market demand which has led to financial market demand which has led to financial sustainabilitysustainability

Playing the GamePlaying the Game

Beg others to help you or: gain control of Beg others to help you or: gain control of technology, production, distribution and pricing technology, production, distribution and pricing

Transform corporate behavior by playing the Transform corporate behavior by playing the corporate game and being competitivecorporate game and being competitive

Difficult to change corporate behavior by Difficult to change corporate behavior by pronouncement; better to compete on their pronouncement; better to compete on their ground to get them to change how they price ground to get them to change how they price their product for poorer marketstheir product for poorer markets

Effect of Aurolab pricing lowers prices worldwideEffect of Aurolab pricing lowers prices worldwide

Tech Transfer Modus Tech Transfer Modus OperandiOperandi

Starting assumption: things don’t really cost that Starting assumption: things don’t really cost that much to makemuch to make

Demystify cost and technologyDemystify cost and technology Find R&D people who have worked in leading Find R&D people who have worked in leading

companies with large R&D budgets companies with large R&D budgets Gain control of technology, production, distribution Gain control of technology, production, distribution

and pricing and pricing Scale costs to result in affordable pricing to end Scale costs to result in affordable pricing to end

useruser Transform the market place by being price Transform the market place by being price

competitivecompetitive

What can medical companies do to put me out of business?

Grand gestures instead of small gestures Find ways to sell products in poor countries at

lower prices in a way that does not compromise profitability in developed country markets

Develop distribution that minimizes leakage into higher priced developed country markets

Put more money into developing country diseases

Practice generosity

The Global Challenge of The Global Challenge of Hearing ImpairmentHearing Impairment

WHO estimates 250 WHO estimates 250 million disabling hearing million disabling hearing impairment impairment

Average Price in 2003 Average Price in 2003 was US $1,500was US $1,500

Hearing aid companies Hearing aid companies are oriented to high are oriented to high profit margins and low profit margins and low volumevolume

Only 6 million sold Only 6 million sold /year but only 12% go /year but only 12% go to developing countriesto developing countries

Need is at least 32 Need is at least 32 million units/yr.million units/yr.

Poor quality “low-priced” Poor quality “low-priced” hearing aids create hearing aids create client dissatisfactionclient dissatisfaction

Lack of cost-effective, Lack of cost-effective, financially self-financially self-sustaining service sustaining service delivery models for the delivery models for the lower economic groupslower economic groups

Affordable Hearing AidAffordable Hearing Aid

Affordable Hearing Aid Affordable Hearing Aid Digitally programmable hearing aid usually priced at $1500 is Digitally programmable hearing aid usually priced at $1500 is

being sold for $0 to $200being sold for $0 to $200 Manufacturing operational January 2003Manufacturing operational January 2003 Per unit cost under $50Per unit cost under $50 US FDA approval & CE Mark CertificationUS FDA approval & CE Mark Certification Clinical trials completed at U. of Washington with successful Clinical trials completed at U. of Washington with successful

resultsresults Sustainable service delivery models developed that deliver Sustainable service delivery models developed that deliver

hearing aids to all economic stratahearing aids to all economic strata Multi-tiered pricing implemented locally & globallyMulti-tiered pricing implemented locally & globally 2nd generation high powered digital almost complete2nd generation high powered digital almost complete Partnerships developed with Lions, PDA, Al Noor, and other Partnerships developed with Lions, PDA, Al Noor, and other

social enterprise distributorssocial enterprise distributors

Affordable AIDs Drugs?Affordable AIDs Drugs? 42 million HIV positive 4% get antiretroviral treatment in poor

countries Feasibility study:

US $40/yr/patient drug cost?US $40/yr/patient drug cost? Legally possible to produce with violating Legally possible to produce with violating

trade agreements?trade agreements? Create market driving service delivery model Create market driving service delivery model

(bottom up) to create market demand instead (bottom up) to create market demand instead of top down?of top down?

Compassionate Compassionate CapitalismCapitalism

Choice to use profit and production capacity to serve Choice to use profit and production capacity to serve poorpoor

Philanthropy that by-passes the middle man Philanthropy that by-passes the middle man Pricing for affordability to poor & generating sufficient Pricing for affordability to poor & generating sufficient

revenue to grow and flourishrevenue to grow and flourish Selling the product for the least amount of money rather Selling the product for the least amount of money rather

than the mostthan the most Profit is a means to an end and not the end itselfProfit is a means to an end and not the end itself Return on investment to the community (beneficiaries) Return on investment to the community (beneficiaries)

and not to shareholdersand not to shareholders

Financing DilemmaFinancing Dilemma

Under capitalizationUnder capitalization Lack of adequate financing mechanism for social Lack of adequate financing mechanism for social

enterpriseenterprise Traditional donors do not want to invest in Traditional donors do not want to invest in

anything with appearance of riskanything with appearance of risk VC’s want to know exit strategy and how much VC’s want to know exit strategy and how much

they will getthey will get Donors /investors convolute approach of social Donors /investors convolute approach of social

enterprise enterprise Inefficient capital market for social enterpriseInefficient capital market for social enterprise

Non profit “Merger and Acquisition”Non profit “Merger and Acquisition”

Northwest Lions Foundation for Sight and Hearing Northwest Lions Foundation for Sight and Hearing (NLFSH) and Project Impact developing a non-profit (NLFSH) and Project Impact developing a non-profit partnership; largest eye bankpartnership; largest eye bank

NW will ‘buy’ over time, the assets of AHAPNW will ‘buy’ over time, the assets of AHAP NLFSH shares responsibility for financing and NLFSH shares responsibility for financing and

executing AHAP’s core functions: product executing AHAP’s core functions: product development, distribution of hearing aids through non-development, distribution of hearing aids through non-profit channels, outreach to audiologists, and product profit channels, outreach to audiologists, and product fulfillment and service activities. fulfillment and service activities.

Project Impact to continue playing role in raising Project Impact to continue playing role in raising funds, developing international distribution channels, funds, developing international distribution channels, and technology development for AHAP.and technology development for AHAP.

What Project Impact GetsWhat Project Impact Gets

Assurance of sufficient capitalization and Assurance of sufficient capitalization and managerial wherewithalmanagerial wherewithal

Financial strengthFinancial strength Guaranteed financing for 4 years for new Project Guaranteed financing for 4 years for new Project

Impact technology development venturesImpact technology development ventures Part owner of commercial asset-future upsidePart owner of commercial asset-future upside Assurance of adherence to social missionAssurance of adherence to social mission Exit strategy that allows AHAP to be placed in Exit strategy that allows AHAP to be placed in

competent hands and allows us to stick with core competent hands and allows us to stick with core competenciescompetencies

Sleep well and wake up happySleep well and wake up happy

How Ashoka has HelpedHow Ashoka has Helped

Pro bono legal support of Fried Frank Shriver Pro bono legal support of Fried Frank Shriver Harris and JacobsonHarris and Jacobson

Donor / investor networkDonor / investor network Collegiality with other Ashoka fellowsCollegiality with other Ashoka fellows Declaration that the frog is really a princeDeclaration that the frog is really a prince Psychological benefit of stipend to support risk Psychological benefit of stipend to support risk

taking behaviortaking behavior Involvement with Ashoka to develop Social Involvement with Ashoka to develop Social

Financial SectorFinancial Sector

David Green Formula for David Green Formula for Getting By Getting By

Make do with very littleMake do with very little PerseverancePerseverance Embrace the possibility of failureEmbrace the possibility of failure Act in spite fear and uncertaintyAct in spite fear and uncertainty Plan for sustainability to get out of dependency Plan for sustainability to get out of dependency Boot strapping on a shoestring necessary in beginning Boot strapping on a shoestring necessary in beginning

but should be followed by proper capitalization, once but should be followed by proper capitalization, once certain risks have been reduced-- to reduce stress and certain risks have been reduced-- to reduce stress and have a life!have a life!

Thinking makes it soThinking makes it so Everyone has the same nerve endingsEveryone has the same nerve endings