E-DRUG: GSK Access to Medicines: The Good, the Bad, and the Illusory
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Prof. Brook K. Baker, Health GAP
Feb. 15, 2009.
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 50 least developed countries to no more than 25%
of its first world prices. 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
50 of the poorest 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.
Likewise, a 75% reduction, 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 in the
50 least developed countries listed 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 leave 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 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 at 100% rate of gross
profit nor could they get it when competing with multiple competitors. We
must ask ourself whether its 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 it 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 diseases - for medicines
that will only be sold in developing country markets and which therefore
have little profit potential - it is absolutely against Indian and Chinese
generics competing with it 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.
Professor Brook K. Baker, Health GAP
Northeastern U. School of Law
Program on Human Rights and the Global Economy
400 Huntington Ave.
Boston, MA 02115
617-373-3217 (office)
617-259-0760 (cell)
B.Baker@neu.edu