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USAID was major buyer of health products for poor

countries

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Agency spent about $600 million annually on malaria, HIV

tools

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Loss of predictable orders could drive up prices

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Nonprofit CEO says freeze has created 'huge mess'

By Jennifer Rigby and Lisa Baertlein

LONDON, Feb 21 (Reuters) - The U.S. government's foreign

aid freeze has upended the supply chain for medical products

crucial for fighting diseases including HIV and malaria in some

of the world's poorest countries, and life-threatening gaps

could persist for months, according to two sources familiar with

the sector.

The U.S. Agency for International Development (USAID)

usually places around $600 million of orders annually for

products such as medicines, diagnostic tests and equipment like

bed nets, as part of one of its biggest health supply contracts

including HIV, malaria and reproductive health.

But the freeze has put orders and forecasts, particularly

those made months in advance, on hold. That will likely have

far-reaching implications for deliveries, cost, and timings,

according to two sources with knowledge of the global health

supply chain and others working in the sector.

Companies including the U.S. firm Abbott,

Switzerland's Roche, and India's Cipla are all

likely to be affected, alongside others including Hologic ( HOLX )

, Viatris ( VTRS ), Hetero and Aurobindo, the

first of the sources told Reuters.

"We are monitoring the situation closely. Our highest

priority is to ensure that patients have continuous access to

our diagnostic tests and treatments around the world," said a

Roche spokesperson in response to Reuters' questions. The other

companies either declined to comment or did not respond. The

U.S. State Department did not immediately respond to requests

for comment.

The first source said waivers from the U.S. government,

intended to allow lifesaving work to restart, only applied to

orders already moving around the world. Even those were not

fully functional as the USAID payment system remained down, he

said. Future funding and orders were more uncertain, even for

companies where the raw materials have been assembled or the

manufacturing capacity booked, he added.

Medicines and diagnostic tests for HIV and malaria, as well

as preventive tools like bed nets and contraceptives, could be

impacted, he said.

"There will be a huge backlog," said Fitsum Lakew Alemayehu,

the African Union liaison manager at WACI Health, an African

advocacy organization. "In Africa, millions have been on those

treatments."

'BULLWHIP' EFFECT

The dismantling of USAID has already had significant impact

across the globe, including shuttering HIV clinics, stranding

emergency food aid, and halting research.

For medical supplies, the freeze could also hit prices,

because companies have been able to operate more efficiently

knowing that they would continue to get orders from USAID, all

of the sources said.

Prashant Yadav, a medical supply chain expert and senior

fellow at the nonpartisan Council on Foreign Relations think

tank, said the upheaval could upend this system of advance

demand forecasts entirely, hitting prices and ultimately risking

budget shortfalls across other buyers, like governments and

global health funders.

He said it was an example of the "bullwhip" effect in supply

chains, where "any small changes, even if they are for a short

duration of time, get amplified at every level in the system".

The term is derived from a scientific concept in which movements

of a whip are amplified from the origin - the hand cracking the

whip - to the endpoint.

Even if the aid freeze ends after a 90-day review, as the

Trump administration originally suggested, restarting production

will be complex and there could be legal issues, several experts

said.

"This is a huge mess to untangle," said Tom Cotter, chief

executive officer at Health Response Alliance, a nonprofit

organization dedicated to ensuring equitable access to health

services during emergencies.

(Reporting by Jennifer Rigby, additional reporting by Maggie

Fick in London, Rishika Sadam in Hyderabad)