GSK tries volume, goodwill, over margins in Africa

Africa is a tough market for Big Pharma. It has lots of need but so little money that selling branded drugs there has generally been a very targeted proposition. British drugmaker GlaxoSmithKline ($GSK) is taking a new approach, compressing drug prices and trying to make up in volume what is lost on margin. It may serve as an important test in a world in which compulsory licensing serves as a huge stick.

Branded drug companies usually handle patient assistance programs separate from their sales efforts. But GSK has a least-developed countries (LDC) unit that is judged on volume. It is charged with focusing half its effort on making money and half on building reputation, Reuters reports. The LDC group is trying the approach in 40 African nations and 10 in Asia. The idea is that GSK can cash in on that reputation when the countries develop economically.

"Not all the least-developed countries will be LDCs forever and now is a really good time to invest to build a GSK footprint that benefits patients today and benefits our business in the longer term," unit head Duncan Learmouth tells Reuters.

So far, the unit is making very little money, but is growing fast. Sales this year are expected to be about £150 million ($234 million). That is twice the sales of last year and triple from 2010, Reuters says. Its margin will be about 20% compared with GSK's usual 32%. 

One of the biggest challenges for Big Pharma is that poorer nations are frustrated seeing there are drugs that can save lives but their populations will never be able to afford them. The drugs they can afford too often turn out to be substandard or even counterfeit. That tension prompted India this year to grant its first compulsory license of the Bayer cancer drug Nexavar to Natco Pharma. Natco is selling its copycat version for $176 per month, compared with Bayer's $5,600 monthly price. China now has a compulsory licensing law and Brazil, a very promising market, is considering it.

GSK's program isn't the only approach. The Wall Street Journal reports that Gilead Sciences ($GILD) will work with generics makers Mylan ($MYL), Ranbaxy Laboratories and Strides Arcolab on low-cost versions of its HIV drug emtricitabine in developing countries. 

The GSK approach recognizes the market inequities and may be a way to get ahead of such showdowns. "It's a difficult political argument to say the U.S. or Europe should have the same prices as Tanzania," Learmouth says.

- here's the Reuters story 
- see more from The Wall Street Journal

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