Good evening, reader. As you may or may not have seen, all the newspapers today are reporting on the announcement by the drug company GlaxoSmithKline that they are starting a set of initiatives to help fight disease in the 50 poorest developing countries. Specifically, they have pledged to cap prices in these country at 25% of the UK price (which is cheep, but not as cheep as generic, non-branded drugs), to re-invest 20% of profits in these countries as aid and health care development, and to form a ‘patent pool’ to allow other companies and research bodies access to their patents for the development of drugs to aid the developing world (but this pool would not include HIV patents relating to HIV drugs, which is odd).
GSK has a bit of a tainted history, with a few things in their past to be ashamed of. For instance, they were one of the 39 pharmaceutical companies that attempted to sue South Africa top stop them importing genetic drugs, about which the CEO of GSK understatedly commented “I don’t think anybody can claim that was handled well”. They were also accused of covering up evidence that their antidepressant drug Paroxetine was addictive. They have recently been cutting down on research (as well as generally cutting jobs across the board); I’m not sure if that is related to their current proposals. Either way, I could imagine that clawing back a bit of good PR would be on the cards for GSK management. I also don’t rule out the possibility that Andrew Witty, who has only been CEO since May of last year, has a genuine desire to help the needy, and is willing to persuade his shareholders to take a hit in profits for the greater good.
I haven’t been able to find much out about this. The newspapers are reporting plenty, but I couldn’t find a GSK press release about it, and while Doctors Without Borders were called for comment some of the newspapers, their website doesn’t currently have anything on it. Likewise, I haven’t been able to find much in the way of reactions throughout the blogosphere yet. Thus, this post is just a brief prelude, without much in the way of analysis; I will try and get more information in the next few days, and put up a post with more on what is going on, and how it relates to the structure and function of the pharmaceutical industry in general.
Strictly speaking, It would be illegal for GSK to reduce its shareholders profits purely for the common good. It would therefore seem most likely (although as you point out, with limited information) that there is an expected overall profit from both the positive publicity and from becoming the dominant supplier in the relevant countries (for the latter they could technically be accused of uncompetitive practice, about which I, obviously, don’t give a monkey’s). It is also possible that the Government has applied some commendable arm twisting, although I feel this may be wishful thinking.
Still, unless a first step to a plan for world domination, can only be regarded as a good thing.
Well there are other ways it could be arguably a bad thing. I expect there is an attempt to paint themselves as the Good Guys (socially responsible drug distributors and researchers, doing all them can to keep a sustainable source of medicine to developing countries into the future) to contrast themselves with the manufacturers of off-license generic drugs (the Bad Guys, who just make a quick buck off current drugs and undercutting big pharma without investing anything in development of new ones). Once they have the high ground, they are in a far better position to launch lawsuits like the South Africa one to shut down generics.
I am not entirely unsympathetic to that argument; I think people tend to see manufacturers of off-license, or patent-breach drugs as white knights, whereas they are really just companies who did not have to pay millions in development costs and thus can sell drugs far cheaper while still making a profit; and while GSK does make a lot of money, it also invests a lot of money in drug research. However, the generic companies still DO sell drugs cheaper, meaning that people who cannot afford medicine from the developers can nonetheless get access to it, and shutting these companies down will mean more people will get ill. Shutting them down will cause heavy short-term damage to public health.
As for reducing shareholder profits for the common good, I’m not totally sure that that is correct. As far as I can tell from reading around, the CEO is either the head of the Board of Directors, or answers to the Board of Directors, either way their legal responsibility is governed by the Companies Act 2006, specifically Part 10: A company’s directors. The relevant sections are S171, “Duty to act within powers”, which specifies that they can only do things that are consistent with the companies constitution and their own appointed role, and S172 “Duty to promote the success of the company”, which basically says that directors have a responsibility to ensure that the company is successful for the benefit of the shareholders, with respect to a number of criteria including “the impact of the company’s operations on the community and the environment”. The latter section also contains a clause saying that a company can have an aims other than member benefit, and if this is so the directors have a duty to fulfill that aim. So, it looks like the CEO of GSK would be entirely within his legal rights to cut profits for the sake of saving lives, either by saying it benefits the community, or by saying that it is an aim of GSK to benefit human health, in both cases providing the shareholders agree that he has to power to make such decisions. All of which looks plausible.
The standard disclaimer applies (i.e. that I have no idea how law works, and formed the above legal decision based on wikipedia’s pages on Corporate Law, Directors’ Duties and CA2006, and by skim-reading CA2006)
S172, in full, reads:
(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers, customers and others,
(d) the impact of the company’s operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
A little bit more wikipedia-ing shows that the stuff I mentioned in my last post is very new (all coming in with CA2006), and was pretty controversial. Up until 2006 companies were basically legally required to just make profit, but that was changed a few years ago in the UK.
I remember once phoning the number on the back of a ribena carton (I was very very bored at the time) just to see who would answer. I got the GSK headquarters and had a bit of a ‘omg drug companies are taking over the world!’ panic moment.
i am impressed actually at their decision to do this. And thank you for making me aware of it, I really don’t read newspapers very often nowadays.
Certainly got us thinking here are work, expect a few replies later.