GSK price-cutting emboldens Russian government

GlaxoSmithKline is butting heads with the Russian government over the price of HIV meds. The government wants a 15 percent discount off its current pricing deal; Glaxo says cutting the price that much would leave margins too slim. Glaxo has been shaving prices in emerging markets all over Asia, so it's not averse to discounting in emerging markets. But Russia's request would take prices "lower than required to support a viable business model," Glaxo's general manager in Russia, Fabio Landazabal, wrote in a recent letter (as quoted by the Wall Street Journal).

Already Glaxo has cut prices on its HIV meds for the Russian market. In 2006, the company reduced the price of Combivir by 66 percent, Epivir by 75 percent and Ziagen by 56 percent, the journal reports. Those price cuts were designed to help the Russian government get more AIDS meds into the hands of more patients. Cutting those prices a further 15 percent "is clearly not sustainable nor appropriate if applied to middle-income countries," Landazabal went on.

Glaxo views Russia as a "middle-income" market rather than a poor country--and CEO Andrew Witty's focus has been on discounting prices primarily in poorer nations. Which highlights a problem with this country-by-country price-cutting: What if every country wants the same discount GSK is offering the poor? That appears to be Glaxo's fear. A company spokesman told the WSJ that the company has laid out its problem to the Russians: Any further price cuts there would hamper Glaxo's ability to sell its drugs at higher prices in other middle-income countries.

- read the Journal story