Tuesday, February 17, 2009

GSK's drugs price cut plan

There is an interesting news story today, "Glaxo to cut prices in poor countries", posted in The Guardian (UK), Wall Street Journal, and possibly other papers. See for instance,

According to the report, the following have been announced by GSK CEO, Andrew Witty:

* cut prices in the world's poorest countries and invest 20% of its profit from those markets into building health clinics and other infrastructure.

* cut prices on its patented medicines in the poorest 50 countries in the world so that they are no higher than 25% of the price in developed countries.

* Witty also proposed that drug companies, nonprofit groups and others donate their patents related to neglected tropical diseases to a common pool, with the hope that such a pool would speed development of new drugs.

These corporate moves by GSK are laudable enough, but I think this is mainly driven by competition. For instance, the Pfizer-Wyeth merger can result in corporate and research synergy, they will be able to produce more new innovator drugs at a lower price, so if I were #2 or #3, etc. in global sales, I'd find other ways to withstand the competition since acquiring another big pharma company will be a difficult financial option at this time.

Meanwhile, finding the figures on net increase in revenues, etc. because of price differentiation or segmentation across countries and across product lines, can be very difficult. It may be possible to find price differential say, for the same patented drug between a European country and India or Brazil, etc. for a particular period of time, but finding the exact sales volume in each country or market being compared in a given year or months can be very tricky.

Price segmentation for similar or different product lines is a perfectly rational behavior by any firm in order to maximize revenue and profit.

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