Hello again, reader; we have been seeing a lot of each other this week. This is my promised post on GSK’s recent announcement of a set of initiatives to help fight disease in the 50 poorest developing countries. I’ll go through some background about GSK’s business model and what has been happening to them recently, and then we’ll take a look through what the responses to the initiatives have been, and what my take on it is.
Background
GSK is the result of a set of mergers in which all the pharmaceutical companies in the UK ate each each, producing one company that could well have been called GlaxoWellcomeSmithKlineBeecham, but for reasons of simplicity became GlaxoSmithKline. GSK are one of the world’s largest investors in drug research, investing £3.2 billion in 2007, according to their website (though compare this to the £6.27bn spent on “Selling, general and administration”; this is separate from manufacturing costs, and I expect a large dose of that goes on paying for advertising, lobbying and their executive salaries). GSK’s business model involves developing effective drugs, putting them through clinical trials, and patenting them, in order to make money from exclusive access to the drug (the whole process takes about a decade, and costs around half a billion pounds, per drug). The cash and effort that they put into these developments is impressive, and isn’t available from anywhere else (the operating budget of the Wellcome Trust is about £600m, and they are considered Crazily Rich by the standards of non-profit funding bodies), and as such their business model requires them to charge far more for their drugs than the manufacturing cost. And they defend these sales with high vigor, leading to the lies and lawsuits mentioned in my previous post.
In 2007, the Guardian reported that shareholders were not happy with the way GSK was going, citing a general dislike for unwieldy GSK had become, and suggesting that GSK should become more of a drug manufacturing company and invest less in development (with the additional load being taken up by outsourced research). As I mentioned before, they have been cutting research jobs recently, though this is also going to have a lot to do with the financial downturn. They have also been losing profits more generally, and having to do a bit of ‘restructuring’, especially since one of their diabetes drugs is suspected of causing heart disease
The flipside of all this is the generic manufacturing companies; companies that produce drugs without licensing them from a big pharma company. In many countries, patent law is (or was) far looser; for instance, for about 30 years India refused to acknowledge international drug patents (up until they joined the Agreement on Trade Related Aspects of Intellectual Property Rights), and as such was home to lots of companies churning out cheap off-license drugs that were imported throughout the developing world. I do not believe that these companies are Knights or Saviors; they are just companies that did not have to invest in drug development, and thus could sell drugs for close to manufacturing costs and still turn a profit. However, the prices that GSK charges for their drugs (especially their HIV antiretrovirals) is far out of reach of a large number of individuals in the developing world, and thus the generic drugs save the lives of a lot of people. As mentioned in the previous post, GSK has been part of international efforts to shut down the sale of generic drugs, which makes sense given their business model, but also costs the lives of people who (not to say that GSK is especially more guilty of this than other big pharma companies).
It is in this context that you should consider GSK’s plans. It is in some ways a big step; allowing access to their patents is a big deal for them, as their business model is based on keeping them under lock and key (it may be connected with the desire to outsource research). We can also see that the lowering of drug prices in developing countries is likely to be as much about driving generic drugs out of the market (or at least attempting to reduce price difference and thus undermine the argument for keeping generics permitted).
Reactions
There have been some interesting reactions to the news. In the original Guardian article, it was noted that GSK only has operations in 18 of the 60 least developed countries, meaning that their promise to re-invest profits will only mean anything in less than a third of the countries they listed. The article also had a quote from Doctors Without Borders, saying that while they welcomed the decision, they found the lack of a commitment to a HIV patent pool disappointing, and The Times reported Access to Essential Medicines encouraging GSK to join the UNITAID HIV Patent Pool.
The HIV advocacy organization Health GAP has an in depth look at the decision; they point out that 25% of western prices is still far too expensive for a lot of the world’s poor, and that there are plenty of places people outside of the poorest 50 nations that cannot afford the drugs. GSK could well use this change in policy to justify a renewed attack on generic drug production, which would leave large groups of people worse off than they are now (unable to afford the 1/4 price drugs, but unable to get access to generic drugs).
Blog reactions seem to be somewhat sparse, most of them only linking back to the article without much in the way of comment. Out of the Black speculates that GSK may be anticipating a general backlash against large businesses in the mid-term, once people have moved on from getting angry about banks to getting angry at corporate irresponsibility in general, and building up good-will might be a way of avoiding this. This makes a lot of sense; if GSK can point to their work as an example of how they self-regulate (and especially if other companies take up their offers of research collaborations), they may be able to avoid regulation.
So…?
This announcement is, in general, a good thing. It definitely signifies a change in the way the GSK directors are thinking; even if it is entirely cynical, it is still a good change. In terms of what it means, I suspect that a lot of the speculation above has some truth to it. GSK probably want to paint themselves as Good Guys, driving drug development and investing in the developing world, and thus implicitly paint the produces of generics as Bad Guys (people making a quick quid without any lasting investment in medical technology or infrastructure). Doing so may shield them from any Big Business backlash, and will give them a stronger platform to try and oppose generic drugs without triggering the mass protest accompanies previous attempts. The fact that they make relatively little profit in these poor countries compared to their main markets, and they are already scaling back their research in general, means that they do not have an awful lot to lose in cutting profits and giving access to patents for drugs of low-income.
Once again, I do not know that these are their motivations, and even if such considerations play a part, I have had personal contact with a few high-ups in GSK and know that there is a genuine desire amongst them to improve human health; the recent decision will have been strongly motived by this desire. But, we shouldn’t let this be an excuse to drop our guard; GSK still has a strong profit motive (it has to, to stay afloat with an unpredictable business model), and as such we need to keep watch to make sure that no-one is going to use these positive developments as a platform from which to make money by making people worse off.
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Update: Doctors without borders have issue a statement on the subject, which covers a lot of what I said above.
