On Jan. 11, just after London-based GlaxoSmithKline became the world's largest drug company, its new CEO, Jean-Pierre Garnier, spoke to the company's 100,000 employees via satellite. There was the predictable pat on the back for surviving a tough merger between Glaxo Wellcome and SmithKline Beecham, impressive statistics--every minute 1,100 people receive a prescription for a GSK product--and plenty of inside jokes. But tucked in just before Garnier's conclusion was a call to arms. "The pharmaceutical industry today sells 80 percent of its products to 20 percent of the world's population," said Garnier. "I don't want to be the CEO of a company that only caters to the rich... I want those medicines in the hands of many more people who need them."
Maybe Garnier, head of the world's largest maker of AIDS drugs, was feeling the heat from the street. A growing army of activists, charities and governments are attacking European and American pharmaceutical giants--Big Pharma--over the high cost of AIDS drugs in the developing world. Last week activists from Pretoria to Philadelphia protested the opening of a trial in South Africa, where 41 major drug companies are suing former president Nelson Mandela and other government officials over a law they say threatens their patents. Last month members of ACT UP stormed GSK's investor-relations offices in New York, hurling "blood money" and empty pill bottles, chanting, "GlaxoSmithKline! Global serial killer!" And radicals aren't the only ones upset. In Britain, money manager Friends Ivory & Sime, with about £1 billion invested in GSK, and other institutional investors recently met to see whether the company do more to combat the AIDS crisis in Africa. "Dare to Lead," Oxfam's new report on GSK, warns that drug companies face "a major reputation risk" over the issue. Even John Le Carre is firing shots. His latest novel, "The Constant Gardener," puts drug executives in the villain roles once reserved for Soviet apparatchiks.
Big Pharma has a big problem. In the early 1990s companies created exotic and effective combinations of drugs to stall HIV, the virus that causes AIDS. But the better the "cocktail," the more expensive. As a result the developing world--home to more than 34 million HIV-infected people, 95 percent of the global total--was shut out. Big Pharma always said poor countries didn't have the doctors to administer the complicated drug regimes and, besides, profits from selling patented drugs provide the seed money to develop new ones. But as AIDS ravaged the planet, outrage focused on Big Pharma as never before. The companies had to do something.
Last week they did. Besieged by increasing condemnation--as well as competition from the makers of generic AIDS drugs--U.S.-based Merck & Co. announced it was slashing prices on two protease inhibitors, potent cocktail components, to one tenth of their U.S. prices. The offer was soon undercut by Hetero International, an Indian generics producer, which said it would sell generic versions of the same drugs for $347 a year. Similarly, when five major companies joined a U.N. initiative to increase access last May, Garnier slashed the price of Combivir, GSK's combination AIDS drug, to $2 a day for the developing world. Then Cipla, another Indian generic firm, offered a cocktail for $600 a year. "For now, GSK's price is sustainable," says company spokesman Philip Thomson. "But it might not stick."
It is not a position Big Pharma is used to. The massive multinationals, especially the five largest firms (GSK, Merck, Pfizer, Novartis and Bristol-Myers Squibb), basically control the world's drug supply. The industry giant, GSK, has revenues of $26.3 billion a year and the largest arsenal of AIDS drugs. The challenge, as Garnier noted in his address, is to find a business model that will allow companies to increase access, make a profit and invest millions in R&D.
Technically, GSK and others can afford to write off their sales to the Third World. Africa constitutes a tiny sliver, about 1 percent, of global drug sales. But the company fears "parallel trade," drugs sold cheaply to the developing world that make their way back to higher-priced markets through back channels. It also worries that Westerners will want lower prices, too. "The developed world must be willing to pay reasonable prices for medicines in order to cover costs for developing countries," Garnier wrote Romano Prodi, president of the European Commission, last fall. "Essentially we must be allowed to generate revenue for R&D in Europe, the United States and Japan, while transferring the benefit of this research, basically for free, to the developing world."
Last week's price cuts show Big Pharma is moving--to a point. The South African lawsuit suggests that GSK and its allies are keen to protect their patents, even at the risk of looking like Scrooge. At issue: South Africa's 1997 Medicines Act. Designed to increase access to cheap drugs, the law would allow parallel importing--global comparison-shopping for drugs--and compulsory licensing, which lets companies make a drug without the patentholder's consent. South Africa's Pharmaceutical Manufacturer's Association (PMA), on behalf of the drug companies, says the law violates the World Trade Organization's Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) by unfairly singling out patented drugs. Under Section 15C of the law, "the minister can wake up one day and decide that seven out of Glaxo's 10 products are necessary [to protect] national security, and abrogate patent rights on them," says Mirryena Deeb, PMA's chief executive. GSK executives in Britain insist the case is not about health. "It's essentially about a vague law on patents," says Vikki Ehrich, head of GSK's external relations for HIV/AIDS. "Patents do not block access to medicines."
What blocks access, argue the drug companies, is a lack of political will and health-care infrastructure in AIDS-devastated countries. Under TRIPS, countries are allowed to issue compulsory licenses if they declare a national emergency. South Africa, despite its 4.5 million AIDS cases, has not. Some AIDS activists say the government, keen to attract foreign investment, is afraid that invoking TRIPS on AIDS drugs would send a hostile signal to would-be investors.
But the Pretoria High Court clearly believes the case is as much about public health as patents. Last week the presiding judge ruled that AIDS activists could join the government's side, and postponed the case until April to allow PMA to respond to points raised by the Treatment Action Campaign, an AIDS activist group. Toby Kasper, coordinator of the Access to Essential Medicines Campaign for Medicins Sans Frontieres in South Africa, thinks the suit smacks of hypocrisy. "[Drug companies] make a lot of noise about wanting to improve access to medicines," he says. "Now here's a chance for them to do something about it, and they're suing to block it."
For Big Pharma's challengers in the developing world, the battle is only beginning. A Kenya-based Jesuit, Father Angelo D'Agostino, grew so tired of burying children at his Nairobi orphanage that last month he accepted an offer by Cipla, the generics firm, to provide GSK's patented antiretrovirals at one fifth the price charged by the company. In Thailand, Lufthansa air crews have hand-carried nearly expired AIDS drugs donated by Frankfurt pharmacists to Bangkok hospitals. Last month, when officials from the U.S. trade representative's office called on the WTO to press a complaint over a Brazilian law that Washington says discriminates against foreign-made goods (read: pharmaceuticals), Brazilians and their supporters jammed the WTO's switchboard in Geneva, demanding that the plaintiffs lay off. Now Health Minister Jose Serra warns that Brazil plans to override patents on two key AIDS drugs made by Merck and the Swiss firm Roche.
The drug companies' de facto surrender to tiered pricing may ease the war against them. But will it alleviate the AIDS crisis? Back in 1997, when tiered pricing was still considered blasphemy, Peter Young, the manager in charge of HIV at Glaxo Wellcome, came up with a strategy to do it. Ethically, Young argued, it was wrong to have a drug that was too expensive for the market that needed it most. Commercially, he said, high prices kept GW out of a promising market. The company gave the go-ahead for local managers to cut prices for the combination therapy Combivir, with the idea that increased volume would compensate for lower prices. It didn't work. Glaxo managers, responsible for regional profits, worried about losing money, since governments were too poor to commit to minimum volumes.
Now GSK is working on a plan--to be completed by June--that would give its managers a proper incentive to cut prices. But changing from a company that sells a few pills at high prices in the developing world to one that sells high volumes to the masses will require a revolution in the corporate culture. "It means talking to governments without money, people without money, working with health-care providers," notes David Earnshaw, until last month a GSK manager in Brussels. "These are people most of the managers have never talked to. Garnier is a man of vision. The problem is the corporate clones around him."
Garnier's new strategy will face another challenge: the poor don't have enough money to afford even cheap drugs. Since May, GSK has twice approached Kenya's Ministry of Health to offer a 20 to 52 percent reduction on AZT, 3TC and Combivir. Julius Meme, permanent secretary at the ministry, calculates that even with 85 percent discounts, Kenya would have to spend $12 billion yearly to treat its 2.2 million AIDS patients. "The whole health budget is $9 billion," he says. "There's nothing to negotiate because we cannot afford it."
Accordingly, Big Pharma says the protests cloud the core issue: a lack of aid from the North to buy drugs. "Somebody has to write the check," says Joseph Saba of Axios International, a Dublin firm working to build public- and private-sector cooperation on drug access. If Jean-Pierre Garnier wants to solve his PR problem and make a difference in the poor countries, his work has just begun.