MedSource-Group

Patients in Africa spend more available income on medicines than anyone else, yet the medicine is difficult to access and when available, the quality is often substandard. Pharmaceutical intermediary margins in African countries can be as high as 90%, due to a fragmented landscape of dispensers, distributors, and wholesalers.

MedSource provides a user-friendly pharmaceutical procurement platform that delivers a vetted market to distributors; and negotiated prices, quality-tested medicines and supplies, and inventory financing to dispensers – down to the most remote community drug outlets in Kenya. This is critical because in Kenya, the community pharmacy is the first point of call for primary care for about 70% of patients and serves as a critical interface with the health system. The impact of MedSource is evidenced throughout the system: double-digit savings on medicines for customers; service from trained pharmacists and certified pharmacy technicians; and regular access to stocked supplies and quality-tested medicines.  

Kenya’s pharmaceutical industry consists of three segments: manufacturers, distributors, and dispensers. All play a major role in supporting the country’s health sector, which has an estimated 5,000 health facilities countrywide and consumes roughly 8% of the country’s GDP. The entire pharmaceutical value chain is subject to breakdowns, which directly impact the consumers’ ability to access affordable, quality drugs and pharmaceutical supplies. These include:

• Dispensers’ limited access to cash flow and credit limits procurement volume discounts, resulting in higher prices paid that are passed on to consumers
• Unreliable delivery of drugs by suppliers
• Limited transparency about quality throughout the supply chain, from distributors to patients
• Counterfeit medicines, Kenya is 1 of the 88 countries where 42% of the world’s fake medicines are dumped
• Limited access to credit and inadequate cash flow to procure products results in stock-outs and loss of sales
• Lack of manufacturer price discipline, for example in the prices of drugs for chronic conditions, which increase by 10%-20% every year on average
• High prices for patients and payers, because intermediaries’ margins account for an excessively high 50% of a pharmaceutical product’s final price

MedSource’s two principal beneficiaries are suppliers and members. A supplier is a manufacturer, importer, wholesaler, distributor, or similar entity legally registered and licensed to store, sell, and deliver pharmaceuticals and health care products. A member is any party who purchases pharmaceuticals and health care products from a supplier under agreed-on pricing and terms and conditions of supply and is licensed to dispense them to patients. Conveying savings and market share to these two parties directly benefits consumers by improving their access to quality and affordable pharmaceuticals and related supplies.

MedSource uses procurement volume to negotiate discounted prices with suppliers, and distributes the savings to members, and ultimately, patients. Patients can count on price reductions of 10-30%, improved access to better-quality, legitimate medicines, and pharmacy technicians, who are better trained and equipped to execute their functions.

Members benefit from our innovative platform, savings as high as 24%, capacity-building programs, access to competitors’ prices, transparency from purchase to receipt of goods, and access to both credit and transaction data.

Similarly, suppliers gain from the aggregation of members, increased market share, the ability to track products in real time to the point of dispensing, data on demand and pricing variability, and credit protection.

The pharmaceutical industry in Kenya consists of three segments: manufacturers, distributors, and dispensers. All these play a major role in supporting the country’s health sector, which has an estimated 5,000 health facilities countrywide and consumes roughly 8% of the country’s GDP. The dispenser at the community pharmacy serves as a critical interface with the health system since it is the first point of call for primary care for about 70% of patients.

Manufacturers. Kenya has 23 pharmaceutical manufacturers in country. According to a recent report in the Africa Business periodical, Kenya is currently the largest producer of pharmaceutical products in the Common Market for Eastern and Southern Africa region, supplying about 50% of the region’s market. Kenya’s prescription pharmaceuticals market is worth over US$500 million.

Distributors. The Kenya Medical Suppliers Agency, a division of the Ministry of Health, carries out most distribution of pharmaceutical products in Kenya. It distributes drugs to both government health facilities and private health facilities. Around 70% of Kenya’s pharmaceutical products are imported from other countries, with India and China together accounting for 50 percent of the total imports.  The Kenyan government gives a 15% price preference for all medicines produced in Kenya and 10% for all imported medicines traded by 42 companies with at least 51% Kenyan ownership.

The mark-ups at each point in the system vary across product lines. If the distributor buys from an importer, the mark-up is, on average, 25%; however, it can be as low 10% depending on market dynamics. If the distributor imports the goods directly, the average mark-up is about 35%; again, market forces can drive this down to 15%. In some instances, a distributor sells the goods to sub-distributors who add their 10-25% mark-up. Some manufacturers pass special prices to specific distributors, which leaves them with more flexibility for mark-ups; others, such as GlaxoSmithKline, pass on uniform rates to their distributors.

Dispensers. At present, there are about 5,200 retail dealers in Kenya, staffed by registered pharmacists and/or pharmaceutical technologists. Another approximately 15,000 outlets are not fully licensed or manned by qualified personnel. These pharmacies customarily apply a 33% mark-up on retail drugs. Prescription drugs account for roughly 78% of the market; however, the fastest growth is in the sale of over-the-counter products. It is important to note that the government dispenses pharmaceuticals through its own hospitals and clinics.

The entire pharmaceutical value chain is subject to breakdowns, all of which affect consumers’ ability to access affordable, quality drugs and pharmaceutical supplies. These include:

• Dispensers’ limited access to cash flow and credit limits procurement volume discounts, resulting in higher prices paid that are passed on to consumers
• Unreliable delivery of drugs by suppliers
• Limited transparency about quality throughout the supply chain, from distributors to patients
• Counterfeit medicines, Kenya is 1 of the 88 countries where 42% of the world’s fake medicines are dumped
• Limited access to credit and inadequate cash flow to procure products results in stock-outs and loss of sales
• Lack of manufacturer price discipline, for example in the prices of drugs for chronic conditions, which increase by 10%-20% every year on average
• High prices for patients and payers, because intermediaries’ margins account for an excessively high 50% of a pharmaceutical product’s final price

MedSource was officially launched in Nairobi in October 2018 as a group purchasing organization (GPO). We provide an enabling technology-based pharmaceutical procurement platform, which allows dispensers to purchase a diverse range of medical products from prequalified distributors, who pay an administrative fee to MedSource, as a percentage of purchases. Participating manufacturers and distributors agree to advantageous pricing for MedSource members based on anticipated sales volumes and associated increased market share. In addition, manufacturers partially support the distributors’ discounts for selected products through rebates passed on to distributors through MedSource. These processes and terms are captured in contracts between MedSource and manufacturers, and between MedSource and distributors, and can ultimately translate into high-quality products at measurable savings for consumers.

The key services we offer include group purchasing against a product catalogue containing prices pre-negotiated with distributors and manufacturers; credit access to facilitate efficient ordering and encourage distributor participation; capacity-building programs for dispensers; and a state-of-the-art platform to support communication with all partners, ensure service quality, and authenticate payments. 

COVID-19 positioned MedSource as a critical player in the ecosystem. Medical supplies related to Covid-19 prevention and control have been in high demand and have represented a considerable portion of MedSource’s overall product movement. MedSource expanded the availability of PPE, diagnostics, and therapeutics in their catalogue. Concurrent with the heightened demand for Covid-19 related goods, there has been a tightening of credit facilities to MedSource’s distributors and members. MedSource’s inventory financing scheme has provided a much-needed safety net to members otherwise impacted by reduced access to credit and supplies. Covid-19 has made it more imperative that MedSource scale quickly.

MedSource collects and analyzes data around sales, market penetration, savings to dispensers, and revenue levels. Analyses show steady growth of our primary beneficiary market: small to medium-sized providers, who do not normally enjoy access to competitively priced, quality pharmaceuticals, related supplies, and other health care products.

Presently, we seek to advance operations in Kenya and expand our business model into adjacent countries. In Kenya, we plan to deliver products to the far reaches of the health system, including the public and faith-based outlets. Collaboration with local and multinational manufacturers will also contribute to our growth, as will access to inventory financing, an enhanced ERP and point-of-sale system, ensuring transparency and savings to the last mile. As the MedSource experience in Kenya matures, plans are taking shape to expand the business model into new, adjacent geographies, such as Tanzania, Uganda, and Ethiopia, where we believe the MedSource model will succeed.  

MedSource, the first pharmaceutical group purchasing organization (GPO) in Africa, has implemented an innovative technology-based business model in Kenya that gives its members (small and medium hospitals, pharmacies, and clinics) access to quality-assured medicines at discounts formerly enjoyed only by larger players.  Today, the enhanced platform forms the engine of the MedSource business model, driving transparency and efficiencies of scale.

In short, MedSource seeks to reduce costs while promoting quality across the entire pharmaceutical supply chain through its membership of hospitals, clinics, pharmacies, distributors, and manufacturers. This is done by:

• Working with suppliers (manufacturers, importers, and distributors) to streamline access and reduce the overall cost of medical supplies.
• Aggregating purchases from our members and directing them to a selected group of suppliers, resulting in larger volumes for those distributors and manufacturers.
• Not purchasing or stocking medications or related health commodities. Instead, we provide our members with a platform through which they can place orders directly with the suppliers at MedSource-negotiated price points.

MedSource does not change how its members operate and conduct business with their own suppliers, particularly regarding ordering, stocking inventory, payment, and other routine logistics. Members can view all available prices from various distributors and manufacturers, observe stock levels and ultimately place orders from their preferred supplier in a simple and efficient way.

Finally, MedSource offers inventory financing, which allows smaller volume members to place larger orders with upfront financing through an arrangement with Standard Chartered Bank – a service that has contributed considerably to MedSource’s revenue.

As of the date of this application, MedSource is serving over 450 members, who, in turn, reach roughly 5 million patients with the products we offer through our online catalogue. By this time next year, we anticipate increasing our members to 2,000 (based on current growth rates) to 20 million patients. In five years, we project a total of 45,000 members, with a patient reach of 1 billion, based on expansion into Tanzania, Ethiopia, and Uganda. 

As previously mentioned, MedSource’s platform generates a wide range of data and analytics that serve to gauges the company’s performance. Every week, the CEO provides updated sales and revenue figures to the stakeholders; similarly, MedSource produces a Monthly Performance Brief for board members and stakeholders that uses routine data to report on key performance indicators, such as: sales against targets, profit and loss, trend variance of cash flows, growth of membership, membership onboarding flow analysis, product movement and savings, market penetration, and revenue generated through the inventory financing service, as well as payment rates.

Presently, MedSource has a staff complement of 25, broken down into 8 permanent staff; 14 contracted staff (the sales team); and 3 interns who work on a part-time basis. 

MedSource was the brainchild of Management Sciences for Health (MSH), a global non-profit working to strengthen health systems and the delivery of health services throughout the developing world. MSH leveraged nearly 50 years of global public health and supply chain experience, and more than a billion dollars in grants and contracts, to create MedSource, believing that a private-sector model could fill critical gaps in the pharmaceutical system related to pricing, pooled procurement of quality goods, use of technology, real-time data generation, expedited business-to-business brokerage, and transparent transactions. The design of the private-sector model was informed during two years of engagements with more than 10 drug manufacturers, over 30 distributors, 500 dispensers, a host of professional associations, and key informant interviews with Ministry of Health officials and pharmacy regulators.

In March 2017, the MedSource Group was incorporated in Kenya. Seven months later, MedSource was launched in Kenya with the express purpose of aggregating purchase volumes of independent pharmacies and other facilities in Kenya to lower prices, improve quality, and expand access for patients. The current complement of MedSource staff draws on its in-house expertise, as well as that of MSH. Staff boast a total nearly 100 years of collective experience in a number of important areas including: supply chain management; IT and data analytics; service delivery; insurance; drug design, regulatory compliance, and manufacturing; private sector advocacy; all areas of finance and accounting, including credit management, investor relations and board interaction; start-ups; bio-medical devices; and marketing and sales strategy.

Being based in and incorporated as a Kenyan entity, MedSource boasts a young all-Kenyan staff, with an average age of 28, representing 8 tribes. The gender split is 60% female and 40% male. The CEO is a Kenyan, Indian-born national who has lived in Kenya and worked in Africa for 27 years.

MedSource’s values are embedded in its imperative to eliminate the barriers to making quality medicines available and accessible to all. This alone makes MedSource an organization that is mission driven and market adjusted.

MedSource boasts a highly professional staff who left other thriving concerns to join the MedSource crusade. The distribution of skills and areas of expertise necessitate the distribution of leadership across enterprise domains. MedSource must and does function has an integrated team, with team leads having considerable autonomy to do the work and solve problems in the most efficient way possible. 

MedSource is applying to Solve for three primary reasons: 1) to gain visibility among prospective funders and investors; 2) to secure $10K to augment our revolving inventory credit envelope; and 3) to receive coaching, in areas of software protection, scale-up, and investment strategies, from those interested in building private sector entities that are mission-driven to achieve social impact.

For several months now, MedSource has been told that a steady stream of investment funds will flow if another group provides some level of investment. We have maintained discussions with development banks (IFC, DFC), who claim our “ask” is too small; with private investors (BOD, Bamboo), who want to see another like investor make the first move; and with a host of multinationals, such as FinnFund, SwedFund, Global Fund, who will invest once MedSource turns a profit.

We are, as previously mentioned, in a not-so-sweet spot. Even a small award from the MIT Solve effort could project to the investment world that we are a worthy company.

What truly sets MedSource apart from other start-ups in the region is the fact that we were conceived by MSH after almost 50 years of work as a thought leader in the supply chain sector. That translates into 50 years of market research to identify the gap in providing timely, fair-priced, quality drugs and supplies to all accredited drug sellers. In a region where disposable income is minimal, being able to drive drug prices down by double-digits is a mission and a blessing. 

MedSource is currently wholly owned by Management Sciences for Health (MSH). The equity investment made by MSH to conceive, launch, and finance the company through the proof-of-concept stage, has been just about $5 million. This represents a fraction of the money spent by donors to strengthen the public sector supply chain. In less than 3 years, MedSource has created a vibrant ecosystem of medical suppliers, retail pharmacies, hospitals and clinics supporting the medical and pharmaceutical needs of more than 5 million patients. Moving forward, the company needs new capital to advance operations in Kenya and break even, and to expand into adjacent countries.

In Kenya, we will extend the geographic scope of the private sector by delivering products to the far reaches of the health system, including the public and faith-based outlets. MedSource will build trust in the private sector by providing transparency about sourcing and pricing and increasing its number of contracted members to achieve economies of scale. Intentional collaboration with local and multinational manufacturers will also contribute to our scale-up, as will our access to inventory financing, and enhanced ERP and point-of-sale system, which integrates inventory management, enabling improved delivery times to the last mile.

As the experience in Kenya matures, plans are taking shape to expand the business model into adjacent geographies, such as Tanzania, Uganda and Ethiopia. We will focus expansion efforts on geographies where MSH has a substantial presence, strong networks and a positive footprint; and where, market conditions are ripe for the MedSource model.  

In the spring of 2020, a team of researchers from the MIT Center for Biomedical Innovation (CBI) met twice with MedSource to explore potential research on technology adoption and behavior change. This research is critical since the success of digital platforms relies on being able to aggregate demand across many  small,  geographically  dispersed  retailers/dispensers.  Expanding  the  pool  of  members  utilizing  the platform is a gateway to several potential benefits: 1) more fairly-priced, high-quality drugs being available to patients  who need  them;  2) generating  critical  data  to understand  dynamics  in the supply  chain;  and 3) individual  and  collective  capacity  building  to  improve  business  operations that make the overall pharmaceutical supply chain more secure and reliable. To better understand the factors that lead to technology adoption, MIT proposed:

• Developing a systemic,  data-driven  methodology  that  integrates  advanced  statistical  analysis, mathematical models, and controlled field experiments to promote technology adoption and test the impact of the platform on behavior in the pharmaceutical supply chain and the resulting health outcomes.
• Conducting systematic field experiments to understand the effectiveness of the strategies developed for technology adoption and to measure behavior change upon joining the MedSource platform.
• Creating a set of mathematical  models useful for examining  market behaviors  and prescribing market design elements. This will lead to novel tools that can be integrated into the MedSource platform to meet various  impact  metrics. The Covid-19 pandemic halted progress on this collaboration, and MedSource is keen to renew discussions and seeks financial support for the field research. 

The vision of the Reproductive Maternal Newborn Child and Adolescent Health (RMNCAH) investment framework in Kenya is where there are no preventable deaths of women, newborns, or children and no preventable stillbirths; where every pregnancy is wanted, every birth celebrated and accounted for; and where women, babies, children, and adolescents are free of HIV/AIDS, survive, thrive, and reach their full social and economic potential. The implementation of the RMNCAH investment framework will help Kenya achieve the maternal and child health Sustainable Development Goals by improving coverage for key indicators.

A major obstacle to achieving this vision is the weak supply chain management of essential RMNCAH commodities.

Pharmaceuticals are key to preventing, treating, and curing illnesses and conditions affecting women of reproductive age, children, and newborns. Relevant targets in the RMNCAH investment framework include full immunization (76%), contraceptive use by married women of reproductive age (73%), and the proportion of pregnant women tested for HIV who receive results and post-test counseling (75% by 2020). Reaching these targets will require availability of vaccines, contraceptives, HIV test kits, and supplies such as needles and gloves.

MedSource, out of its total product basket of over 13,000 products, facilitates the procurement of more than 1,450 primary health care products; more than 1,100 medicines from the essential medicines list; and nearly 300 products related to maternal, newborn, and child health, including 25 family planning products and 31 vaccine-related items. 

The effective management of a pharmaceutical benefits program requires informed decision-making based upon the collection and analysis of large amounts of high-quality medical information. Data analytics supports the ability to assess macro-level trends, supported by the ability to drill down into the data to identify outliers.

When analyzing pharmaceutical utilization data, MedSource focuses on the following key items:

• Medication, dosing, and duration appropriateness
• Spending trends by therapeutic class, chemical entity, and manufacturer
• Spending trends by brand and generic medications
• Waste, fraud, and abuse detection
• Potential health threats as predicted by trends in prescriptions and purchases

With the additional funds from the AI for Humanity award, MedSource will endeavor to improve the availability and use of pharmaceutical data and analytics, by incorporating a POS system to extend data-driven insights and decision-making, and to better profile the complex integrated delivery networks down to the end-user. The key applications will improve regulatory compliance reporting, marketing/sales support, and product/service uptake. These data can then be packaged and sold through a subscription to distributors and manufacturers providing a stream of financial sustainability to MedSource. 

MedSource currently has penetration into 65% of Kenya’s 47 counties. Across the country, MedSource has registered increased orders from members, including those residing in counties with low GDP per capita. This illustrates the important impact to providers who did not have previous access to favorable commercial terms in resource-limited settings.

The ability of small-scale, remote dispensaries to access inventory financing permits these outlets to retain high levels of product and eliminate the risk of stock-outs.

MedSource’s impact was illuminated during the Covid-19 epidemic.

The emergence of COVID-19 positioned MedSource as a critical player in the ecosystem. Medical supplies related to Covid-19 prevention and control have been in high demand and have represent a considerable portion of MedSource’s overall product movement. MedSource has expanded the availability of PPE, diagnostics, and therapeutics in their catalogue. Concurrent with the heightened demand for Covid-19 related goods, there has been a tightening of credit facilities to MedSource’s distributors and members. MedSource’s inventory financing scheme has provided a much-needed safety net to members otherwise impacted by reduced access to credit and supplies. Covid-19 has made it more imperative that MedSource scale quickly.

Receiving an award from the Global Fund would help support the creation of a POS system to better monitor product demand, sales and use by the end user. The award would also fund additional training for small community-based dispensaries in rational use of drugs, inventory management, and pharmacovigilance.