Shareholders vs Social Conscience?

Today ethics seem to have won a much deserved battle against the lure of money. Andrew Witty, the new CEO of GlaxoSmithKline – the second biggest pharmaceutical in the world – has announced three major revolutionary moves that are expected to make the CEOs of rival companies wet their pants.

1. Slash drug prices to 25% or lower compared to the UK/US price for the poorest 50 countries in the world. Also make drugs more affordable for developing countries such as Brazil and India.

2. Reinvest 20% of local profits into hospitals and clinics in the 50 most underdeveloped countries.

3. Allow access to intellectual properties crucial for developing cures for neglected diseases.

Andrew Witty

While some people worry the moves will be frowned upon by GSK's shareholders. I doubt it has jeopradised GSK's stock market position in anyway, if not improved it.

People in underdeveloped countries are unlikely to be able to afford the UK/US prices in the foreseeable future. They either die or rely on limited drug distribution by charities. By making the drugs affordable, almost every poor person can have direct access to the much needed drug. This will dramatically increase the sales units in such areas. If GSK can manufacture the drugs locally, not only would this further aid local developments but can keep manufacture and distribution costs low as well.

In business, growth accounts for everything. With businesses achieving saturation in the USA and in Europe, third world countries are an ostensible target. Of course a company would want a slice of India and Brazil – they are the two of the biggest and fastest growing economies in the world.

Pharmaceutical companies are so keen on HIV research because this is a disease that affects 33 million people on earth. Think how many tablets they can sell and the potential profit? The sad truth is, rare diseases do not attract massive investment in research. The number of people suffering these diseases is not high enough to justify the research cost. It is not that uncommon diseases have no cure. No company can be fussed to pour money into research that guarantees only a meagre return. Even if they have succeeded in finding such cures, the prices of the drugs would have to be unreasonably high to offset the research costs.

By opening up the patent to these diseases, hope might befall those who are suffering the diseases that “interest” independent researchers but not the money-headed big pharmaceuticals.

Having said all this, Andrew Witty’s decisions are without a doubt unprecedented and plausible. We shall wait and see how it works out.

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