The case talks about GlaxoSmithKline (GSK), its merger with Burroughs Wellcome, its commitment to developing countries, the pricing controversy and pricing pressures from multiple directions. GSK had to determine how to address the AIDS crisis in Africa while maintaining business viability in developing countries in the midst of all the pressures. In Africa, GSK confronted the reality of the AIDS crisis every day, and its decisions impacted thousands. Everyone–governments, nongovernmental organizations, the media, shareholders, and others–had an opinion, but there was no real answer to the question.
GSK had to determine how to address the crisis while maintaining business viability in developing countries in the midst of all the pressures. The first pharmaceutical company to discover the anti-retroviral drug for the treatment of the HIV virus was Burroughs Wellcome. The company thought that there is a small market for this drug and a short life cycle so they priced the treatment at about $10,000 a year. They received a lot of criticism for this. Critics argued that the research and development process was funded by government grants and therefore should begin generic productions immediately.
After fighting in court to protect its patent, the company prevailed. The research and development process was risky and expensive for pharmaceutical companies, so in the 1990s mergers and acquisitions started to occur. In 1995 GSK acquired Burroughs Wellcome, making the company Glaxo Wellcome, also making it a leader in AIDS therapy. In 2001 GlaxoSmithKline was formed by the merger of Glaxo Wellcome and SmithKline Beecham, becoming the world’s second largest pharmaceutical company. GSK continued its commitment to developing countries by offering vaccines at preferential prices.
As a corporate policy, though, GSK did not sell its drugs below production costs. Even though there was no known cure for AIDS, the introduction of ARVs made AIDS a more controllable illness. GSK combined a few of their drugs, which then became the company’s largest selling drug. As of June 2000 there were 14 FDA-approved HIV/AIDS drugs and GSK held patents on four of the fourteen. The introduction of ARVs questioned the quality of AIDS care between the poor and the rich countries. Most of the 36 million people in the developing world did not have access to the therapy.
Views on the problem differed extensively. Some people believed that governments are responsible to provide care for its citizens; others believed that it is the pharmaceutical companies’ duty to provide cheap/free treatments to those who desperately need it. Pharmaceutical companies started getting a lot of pressure from activists, media, critics, activists groups, etc. Many people believed that the patents are in fact the reason of the high prices in drugs and that is what kept the needed medicine out of the developing world.
Since most of the ARVs were recently discovered, their patents were not going to expire soon and therefore generic brands could not be produced. Pharmaceutical companies refused to lower prices in poorer countries. They argued that the price of the drug is not the issue, but rather social, political and managerial borders were the problem. The fact that poor countries have bad infrastructure, absence of roads, shortages of medical staff, and the lack of resources to provide basic health care to may citizens, all these issues were argued by the pharmaceutical companies to be the underlying problem.
Agencies such as the WHO, UNAIDS, the UN and its member countries, activists groups, the media, protestors- all pressured the pharmaceutical industry to lower prices to improve access to drugs for HIV/AIDS victims. In the late 1999, the industry responded. Five of the six big pharmaceutical companies agreed on a consensus draft to be presented to the UN agencies. Later the five companies and the UN issued a joint Statement of Intent for an accelerating Access initiative as a basis for differential pricing for HIV/AIDS medicines in the developing world.
Another issue for GSK was dealing with countries such as Thailand and Brazil that chose to allow local manufacturers to produce ARVs based on patented formulas. GSK was a strong opponent of intellectual property protection and for many years has lobbied the US government to support patent rights. However, the US government later reversed its position and said that it will not object to required licensing in situations where medical emergencies justified it. This was a potentially serious danger and risk to GSK’s ability to protect its patented product from generic competitors overseas.
They feared that other countries will follow what Thailand and Brazil have been doing. In 2001, India began manufacturing a generic drug that offered therapy for HIV/AIDS and priced it at $350 per patient per year, compared to the cost in developed countries of $10,000 per year. Shortly thereafter, many other pharmaceutical companies lowered their prices as well in the developing world, creating differential pricing. That actually created another threat to the patent holders of AIDS drugs. They feared that corrupt officials could get AIDS drugs and bring them illegally to European countries or the US and sell them at market prices there.
Corruption and re-exportation posed a major problem for GSK’s markets in developed countries. The media in particular made the HIV/AIDS drug pricing a social justice and a moral issue. The attacks and the extremely critical press of the pharmaceutical industry put a lot of pressure of GSK. Even though GSK and other pharmaceutical companies lowered prices and negotiated with governments in Africa to offer differential pricing, the media still blamed GSK and others that price was the primary barrier to drug access in the developing world.
Activist groups were also another critic that was concerned with social justice, consumer rights, and humanitarian belief. The power and influence of activist groups could not be ignored, because they were well organized, had money, and possessed a considerable leverage in shaping public opinion. GSK recognized this and was very responsive to major activist groups. GSK still continued to receive negative press coverage of its response to the AIDS crisis. They faced great pressure to further cut their prices. That turned into concern among the company’s shareholders about the reputation of the company.
GSK responded to the pressure by establishing a corporate social responsibility committee. Its purpose was to craft a policy response for GSK not only to the HIV/AIDS issue but to a broader issue of access to drugs in developing countries. So in 2001, GSK announced that it would extend its preferential pricing offer for HIV/AIDS drugs to NGOs, to employers in Africa who provided HIV/AIDS care to their employees. They lowered prices for these drugs, including some others, but the reduction was still not low enough.
The new prices would still remain out of reach for most patients in the developing world. Drug companies have come under intense pressure to lower the cost of these drugs so patients in poor countries can get them, and GlaxoSmithKline has come under particular criticism because of its size in the market. By focusing on just the price of drugs, the media and health activists perpetuate the misunderstanding that this is the largest barrier to effectively treating AIDS patients. Insisting that innovator or patented “brand-name” drugs are significantly more expensive is, however, fundamentally misleading.
Pharmaceutical company representatives, including those offering cheaper prices to WHO and the Clinton Foundation, explained to government negotiators that prices are scarcely the main barrier to procuring effective HIV/AIDS treatment: “It is not the money that makes a difference – the infrastructure to make the drugs available needs to be in place, the medical fraternity needs to be trained on the issue and systems need to be in place to monitor the administration of the medicines to keep a check on patients developing drug resistance.
” It is these medical infrastructure problems that need the attention of the media and health activists. Only then can we continue to help the world’s 40 million people infected with this deadly virus. Personally, I agree with some of the criticism that pharmaceutical companies are receiving, because they are trying to make huge profits with very low costs. At the same time I also partly agree that it’s not only the pharmaceutical companies’ fault and that price isn’t the only factor.
Who I think should pay for AIDS medication in developing African countries is developed one. Most specifically countries that are members of the G8 (Group of 8)- France, Italy, UK, US, Canada, Russia, Japan and Germany. Together these countries represent 65% of the world economy and have the majority of global military power. They have the money to help AIDS victims survive. Why should they do it? Because first, people are dying and other people can help them. It is that simple.
It is not a matter of who did what for whom; it is a matter of social responsibility. People are dying, there is a cure, yet they are still dying. For years most of the African countries have been colonized by rich European countries. They’ve used up their resources and cheap labor and then left them in the dirt. It is now their responsibility to take care of their previous colonies, not only because they used to rule them years ago, but because it is the moral and the right thing to do.