GSK Access to Meds Announcement

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GSK Access to Medicines: The Good, the Bad, and the Illusory

The US Global AIDS Plan

Feb. 15, 2009

by Prof. Brook K. Baker, Health GAP

GlaxoSmithKline, the British pharmaceutical company that is number two in global sales, is being hailed for its breakthrough announcement concerning price reductions in selected countries and its offer to make its patented products and processes available for R&D targeting neglected disease, including tuberculosis and malaria. Glaxo promises to reduce its drug prices on all medicines in least developed countries to no more than 25% of its first world prices (subject to manufacturing costs). It also agrees to invest 20% of its expected LDC profits to expand health care capacity in least developed countries.

There is some truly good news in the GSK announcement. First, as a matter of principle, it has recognized that poor people in poor countries need access to the entire portfolio of medicines that pharmaceutical companies make. It removes the price-discount embargo on medicines for diseases other than the big three - AIDS, TB, and malaria - so that patients with diabetes, heart disease, and asthma can now have more affordable access to needed medicines. Second, Glaxo has opened its patent treasure-chest and promised to grant product and process licenses to a patent pool for research into neglected diseases, including tuberculosis and malaria. In addition, it has asked researchers to join it at it Tres Cantos tropical disease research facility in Spain for what will hopefully be open-source collaboration on the rapid development of medicines for neglected diseases. Finally, Glaxo has promised to commit a portion of its profits from least developed country sales to the development of health care capacity. Although these contributions are likely to be modest, the principle is still an important one.

However, the Glaxo announcement contains some bad news as well. The biggest problems with the announcement are: (1) that the price discount affect only least developed countries; (2) that the 75% price discount, even in these selected countries, will result in prices that are far too expensive for governments or poor consumers who must pay out of pocket from daily earning less than $1-2/day; and (3) the lower prices might be used to justify even more vigorous opposition to the issuance of compulsory licenses in developing countries.

Unfortunately, there are many lower-middle income countries and even higher middle-income countries where monopoly prices affordable only to local elites price the vast majority of patients out of the market. In essence, Glaxo will continue to charge profits maximizing prices in all middle-income countries even though those prices are affordable only in the affluent private sector. Although Glaxo has stated its intention to be more flexible in pricing medicines to affordability in middle income countries, this promise has not yet been quantified.

Likewise, a 75% reduction (perhaps more when justified by manufacturing costs), though significant, still results in a price that is prohibitive for cash strapped governments and even poorer consumers. Where there are other purchasers, as with the Global Fund, and GAVI, and PEPFAR, those lower prices will result in continued guaranteed sales at a more affordable price. But without such subsidized drug purchasing mechanisms, chronic disease medicines will still remain unaffordable, especially when compared with the much lower prices that might result from generic competition (more on this below).

Despite this actual unaffordability, Glaxo might use its price reductions to oppose the lawful issuance of compulsory licenses by developing countries. We have seen virulent opposition by Big Pharma to licenses issued by Thailand and Brazil, and we can expect the opposition to be more robust were a developing country to issue compulsory licenses to medicines for non-neglected, chronic diseases.

There is other bad news as well. Although Glaxo remains in discussions with the UNITAID patent pool on the idea of donating its HIV/AIDS medicines, it has not yet committed to allowing follow-on innovation for these life-saving medicines. Nonetheless, it is vitally important that it do so so that there can be new therapeutically appropriate fixed-dose combinations and new pediatric formulations - products that are not being produced under the current patent regime. In particular, Glaxo holds the licenses for 3TC, an important ARV, that is a cheaper alternative to Gilead's embricibatine, and could be much more widely used in newly recommended first and second line combo therapies.

The Glaxo announcement is illusory largely because its publicity, at least with respect to access to existing medicines, far outweighs its effect. Currently, Glaxo sells only $43 million worth of medicines per year to the least developed countries discussed in its announcement. (In comparison, the U.S. spends approximately that much every hour.) In fact, it currently only has corporate operations in 18 of 60 least developed countries.

Likewise, its 75% price reduction still leaves it with a hefty rate of profit even in the poorest countries. How do we know this? Well, Glaxo has estimated that 20% of its LDC profits will amount to roughly $4.2 million/year. If you multiple this by five, you get the total profit - $21 million. This $21 million is nearly one half of the overall sales - $43 million.

A 100% profit over marginal cost of production is pretty good, but more importantly the Glaxo 12.5%-cost/12.5%-profit price needs to be compared to the price that might be generated by robust generic competition. Here, HIV/AIDS medicines probably provide the best example. For example, the first-line ARVs that cost over $10,000 per patient per year in the U.S. and Europe are now available for as little as $87/year from multiple Indian generic producers. It turns out that generics not only make medicines more cheaply than Big Pharma in its U.S. and European facilities (assuming economies of scale have been reached), but that they do not expect a 100% rate of gross profit or need to support high overhead, especially when competing with multiple competitors. We must ask ourselves whether it’s better to get a medicine for a penny on the dollar or a quarter on the dollar - not much of a question is it?

If Glaxo really wanted to ensure that poor countries got the biggest bang for the buck and the cheapest prices for medicines of assured quality, it would license its medicines to multiple generic companies for sale in developing countries. It could collect reasonable royalties on greatly expanded sales that could reach poor and working class patients as well as privileged elites. And it would allow those generics to engage in follow-on innovation to try to come up with improved formulations and combinations that would better serve patient needs in resource poor settings.

Why hasn't Glaxo adopted this superior access alternative? Well, Glaxo has been transparent on this issue. Although it is willing to have generics take over some of the R&D for so-called neglected tropical diseases and for resulting medicines that will only be sold in least developed country markets that have little profit potential, it is absolutely against Indian and Chinese generics competing with it in middle-income countries, even on neglected disease medicines, let alone on medicines that treat conditions prevalent in both the North and the South. It is on this basis that it is currently excluding HIV/AIDS medicines from the neglected disease patent pool, and it is for this reason that it is not choosing to license generics to make cheaper versions of medicines for heart disease, diabetes, psychiatric disorders, and cancer.

The optimist might look at the Glaxo initiative and praise it as the first brave step in a new business model for Big Pharma, an emerging model that can be further refined, improved, and expanded through advocacy and reasoned discourse. The pessimist might look behind the headlines and calculate the limited real world impact on availability and the negative effects on the generic industry and on developing countries' willingness to issue compulsory licenses or join patent pools to incentivize generic competition and access to cheaper medicines of assured quality. The pragmatic activist, however, must take a dispassionate approach and continue to press for even larger price reductions, even more innovation, and even more access to affordable medicines.