Policy Innovations Digital Magazine (2006-2016): Commentary: Shallow Cuts

British pharmaceutical giant GlaxoSmithKline was lauded in headlines for its recent announcement that it would voluntarily act to improve access to medicines in developing countries. But will GSK's measures really enhance the health of the global poor?

GSK's CEO, Andrew Witty, made three main pledges:

1. To reduce the price of medicines it sells in fifty least-developed countries (LDCs) to at most 25 percent of American and British prices;

2. To reinvest 20 percent of the profits it makes in those fifty poor countries into health-care infrastructure in those countries; and

3. To support a patent pool for neglected diseases.

All three pledges seem impressive. Yet each is considerably less significant than it first appears.

Reducing prices of medicines is an extremely important first step to improving access in developing countries. Pharmaceutical companies often fiercely resist calls for "price discrimination," or charging different prices in different countries. Despite the drop in price of some HIV/AIDS medications due to significant public outcry, prices of patented medicines in developing countries are not normally priced in accordance with their average income levels. Viewed in this light, GSK's decision to voluntarily cut prices is of great symbolic value.

Would these price cuts enhance access to a significant degree? Even at 25 percent of American and British prices, most medicines produced by GSK will be well out of reach for the majority of citizens in the fifty poorest countries. According to the World Bank, the average annual income in Uzbekistan, the richest of the world's fifty poorest countries, is $730. That's 98.4 percent less than the average U.S. income. The average person in Liberia, the poorest of the fifty, makes a mere $150 annually, or 99.7 percent less than the average American. Consider asthma drugs, reported to be included in GSK's price cut. To take one unscientific but indicative example, the price in New York for GSK's bestselling asthma medication Advair starts at about $200 per inhaler. Dropping that price to $50 per inhaler wouldn't put it within reach of poor families.

Moreover, the income figures noted above are averaged across national populations. Inequality in the poorest countries is extremely high—a great deal of national income and wealth is concentrated at the top. For the 1.4 billion people who live below the World Bank's miserly $1.25 per day poverty line a 75 percent price cut is very unlikely to make much of a difference.

Of course, price reductions will make it easier for others—such as foundations, international agencies, or poor-country governments—to purchase such drugs for these poor people. But the prices that these groups pay will still be significantly higher than what they would pay for generic medicines of comparable value. The fall in prices when medicines come off patent can be dramatic. The cost of antiretroviral therapies for HIV/AIDS fell from $10,000 per year under patent to $87 per year off patent.

What of GSK's second pledge, which is to reinvest a fifth of the profits in healthcare infrastructure? According to Witty himself, GSK's sales in the fifty least-developed countries are minuscule. Out of some $40 billion in annual sales, only about $43 million are to the fifty poorest countries. Profits are a fraction of this: about $7 to 14 million each year. Witty suggested that based on those figures, about $1.4 to 2.8 million would be invested each year. Bear in mind that the money is to be spread out across fifty countries. Using Witty's higher figure above, this would result in an investment of roughly $50,000 per country. Welcome money, to be sure, but nothing that would enhance significantly the health status of the global poor. And of course these sales figures are pre–price cut. Profits may well drop along with prices.

What, then, about the third pledge, to create a patent pool for neglected diseases? A patent pool is an agreement between various patent-holders to share those patents with each other and with third parties, usually for some standard fee. A patent pool can help scientists share knowledge and simplify the often litigation-fraught process of innovation. While the patent pool proposed by GSK would likely bring some benefits, it has several important limitations.

First, as MSF (Médecins Sans Frontières) points out, the GSK patent pool doesn't include HIV/AIDS treatments. It is only for so-called neglected diseases, which are essentially diseases that occur only in developing countries. Yet innovation in HIV/AIDS medications is greatly needed in order to meet the particular needs of poorer populations. For instance, whereas there is a large population of children in developing countries who have HIV/AIDS, relatively few children in developed countries have the disease. These children need innovations in delivery mechanisms in order to receive proper treatment.

More generally, the problem with just putting patents into the public domain is that if the products are not yet developed or tested, someone must pay for the clinical trials. Clinical trials are very expensive, so merely having publicly available patents does not ensure that more medicines will be made available.

Finally, although a patent pool would facilitate innovation for neglected diseases, it wouldn't fundamentally affect the lack of economic incentives to invest in research in medicines that primarily affect poorer populations. Simply put, in order to be used, someone has to pay for medicines created out of the pool. Most neglected diseases are so neglected in great measure because they lack large numbers of well-heeled patients.

To address adequately the health needs of the global poor, much more systematic reform is needed. Our current system rewards the developers of new medicines primarily through sales at monopoly prices. As we've seen, this system leaves the poor and uninsured with limited access to the medicines they need. We need to find ways to provide innovators with incentives to develop new medicines that have significant health impacts rather than significant sales impacts. One way of doing this is to create so-called advance market commitments, in which donors pledge to reward firms that successfully develop drugs or vaccines of particular types or which result in specified health outcomes.

A comprehensive version of such a scheme, which we favor—the Health Impact Fund—would tie payments to innovating firms directly to the health improvements brought about by the drugs and vaccines that they develop. Such a scheme would not only provide a better set of incentives to develop medicines that would truly promote global health, but would also provide potentially lucrative new markets for pharmaceutical innovators. Insofar as GSK wishes to become a moral leader in addressing the health needs of the global poor, it should support such systematic reform efforts and encourage competitors to follow suit.