|GSK vaccines head Moncef Slaoui|
Those doubting GlaxoSmithKline's ($GSK) new volume-based pricing strategy need to remember one thing, according to company vaccines head Moncef Slaoui: Sky-high drug prices won't last forever.
"Our conviction--with the board, [CEO] Andrew Witty and the other executives--is that the current pricing model is unsustainable in the long run," he told the Philadelphia Inquirer.
That's part of the company's justification for placing a bigger focus on vaccines and consumer health products--two traditionally lower-margin businesses that it beefed up with its recent multibillion-dollar Novartis ($NVS) asset swap. The British drugmaker sent its cancer drugs to Switzerland, gaining most of Novartis' vaccines unit in return and setting up a Glaxo-controlled OTC joint venture.
The deal has drawn criticism from industry watchers and investors, especially in light of GSK's recent pharma performances. The unit has continued to slide on payer pressure to lead drug Advair, which has forced the company to offer discounts on the moneymaker--and it'll depend on vaccines and consumer health to close the gap.
"Putting your faith in over-the-counter goods like toothpaste is a gamble," one shareholder told the Financial Times this spring.
Glaxo, though, thinks it's getting ahead of the curve, blazing a new path that other companies will take once payer crackdowns put an end to lofty drug prices. PBMs Express Scripts ($ESRX) and CVS ($CVS) have already helped pare down hep C drug prices by touching off a war between competing meds Harvoni from Gilead ($GILD) and Viekira Pak from AbbVie ($ABBV). And with the launch of its recent heart failure therapy, Novartis offered up a pay-for-performance plan with its high price tag to appease payers.
The rise of immunotherapies will only force the issue further, Slaoui believes. Merck ($MRK) and Bristol-Myers Squibb ($BMY) already have the cancer therapies on the market, and pharma peers including Roche ($RHHBY), AstraZeneca ($AZN) and Pfizer ($PFE) have their own prospects coming up the pipeline.
But with the drugs sometimes only prolonging lives by a matter of months, "at some point, society is going to ask the question: Is this the best allocation of our resources or shouldn't we ask the system to price medicines lower?" he said. "Our analysis is that something is going to have to give and part of that give is on the pricing dimension, because it is quite disproportionate."
If Glaxo's predictions are wrong, though--and big volume doesn't spell big sales in vaccines and OTC--it could be CEO Andrew Witty paying the price. "Mr. Witty is running out of time," Liontrust Asset Management fund manager Stephen Bailey told Bloomberg in May. "He's either got to deliver in the next 12 months or step aside."
- read the Inquirer piece
- read the Inquirer piece
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