Important note: Information in this article was accurate in 2009. The state of the art may have changed since the publication date.
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Wall Street Journal - June 12, 2009
Jeanne Whalen And Andrew Osborn
The British pharmaceutical giant, one of the world's biggest sellers of HIV medications, refused a recent request from the Russian government to supply it with HIV drugs in coming months at prices 15% less than in their previous supply deal. Glaxo officials said the reduced price would leave it too little profit.
The two sides will have another chance to come to terms next month, when, Glaxo said, the Russian government hopes to conclude a new supply agreement with the company.
The disagreement comes at a time when Glaxo is rethinking its strategy in emerging markets, seeking to find the right balance between profit margins and market share in an area that has become a crucial source of growth as sales in developed countries slow.
On Thursday, Glaxo Chief Executive Andrew Witty said the company has begun cutting prices in some Asian markets in an effort to increase its business by making its products more affordable.
"We're ready to be flexible in our business model to be sure [Glaxo] is suited to the markets where we're working," Mr. Witty said, adding that the price reductions have already boosted sales volumes.
In some markets, though, drug companies are finding governments driving a hard bargain on price. The 15% reduction sought by the Russian government, the country's principal buyer of HIV drugs, would have resulted in prices "being lower than required to support a viable business model," Glaxo's general manager in Russia, Fabio Landazabal, wrote in a recent letter. "Pricing of this level is clearly not sustainable nor appropriate if applied to middle-income countries."
Mr. Landazabal was responding to an HIV-patient advocacy group in Russia, which wrote to Glaxo this month to complain that a prolonged standoff could cause a shortage of drugs for HIV patients. Many of the 55,000 Russians taking antiretroviral medication for HIV need Glaxo drugs, the International Treatment Preparedness Coalition in Eastern Europe and Central Asia wrote in a letter addressed to Mr. Witty.
"We believe that your current policy in the Russian Federation threatens their lives and well-being," the letter said.
In his response, Mr. Landazabal said Glaxo is "committed to ensuring that supply of anti-retrovirals are not disrupted." He also pointed to voluntary price cuts Glaxo made in 2006 on HIV drugs sold to Russia. Those cuts reduced the price of Combivir by 66%, of Epivir by 75% and of Ziagen by 56% "to support the government's plans to significantly increase the numbers of patients accessing treatment," he said.
The Russian government was offering to pay $93 for a month's supply of Combivir in the recent tender, according to the International Treatment Preparedness Coalition. A Glaxo spokesman declined to comment on the company's HIV-drug prices in Russia, calling them confidential.
A spokeswoman for Rospotrebnadzor, the Russian agency responsible for the government's offer, declined to comment on Glaxo or the offer's terms, but she dismissed worries that drugs, which the agency passes on to Russia's state-run health-care system, could be in short supply. "Everything will be fine. Everything will be delivered," she said.
A Glaxo spokesman said the company has explained its position to the government, arguing that if it cuts prices more in Russia, the company would have a harder time selling its drugs at fair prices in other middle-income countries.
In a telephone interview Thursday, Mr. Witty said Glaxo has cut prices by 30% to 50% on a variety of products in the Philippines, including the epilepsy drug Lamictal, the antibiotic Augmentin and drugs for hepatitis, hypertension and other diseases. It also has reduced the price of its cervical-cancer vaccine in Thailand, Malaysia and other countries. The company is considering more cuts in other Asian markets, he said.
Write to Jeanne Whalen at jeanne.whalen@wsj.com and Andrew Osborn at andrew.osborn@wsj.com
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