Another major pension fund has added to the pressure on pharmaceutical companies to cut the cost of antiretrovirals for the poorest nations. California Public Employees Retirement System (CalPERS), which holds $760 million of GlaxoSmithKline stock, is calling on the company to review whether it has made enough effort to reduce the cost of antiretroviral therapy.
The pension fund’s board are concerned that if GlaxoSmithKline cannot show it has taken all appropriate steps to reduce drug costs whilst protecting both the long-term health of the company and its reputation, the value of Glaxo stock will be reduced and the pharmaceutical sector in general will be subjected to tighter regulation and greater scrutiny over prices charged in the developed world.
Last month a group of UK and European pension funds called on pharmaceutical companies to address the possible negative effects of controversy over pricing of drugs for resource-limited countries, the first sign that pharmaceutical company behaviour and activist criticisms are causing serious disquiet among major shareholders in the pharmaceutical sector.
In a letter to GSK, CalPERS expresses concern over the pressure on the industry to operate drug supply to resource-limited countries at a loss, and asks GSK to evaluate within three months whether it has done enough to license its products to generic producers such as Aspen Pharmaceuticals in South Africa (now licensed to produce AZT and 3TC).
An independent third party, such as Doctors without Borders, will be asked to evaluate Glaxo’s report, making it doubtful that the company will be able to escape searching scrutiny on the issue.
GlaxoSmithKline argues that the company has already cut the price of Combivir to approximately $620 a year, a price that the company considers to be a `non-profit` level. However, this price compares with an offer of $204 a year for an AZT/3TC combination tablet by the Indian company Aurobindo and $265 for a AZT/3TC combination tablet from Ranbaxy that has been certified as acceptable quality by the World Health Organisation.
These prices reflect the lower production costs that can be achieved in the developing world, and the potential advantage of licensing from GSK’s point of view would be the avoidance of the need to build a large not-for-profit business. Although GSK has previously suggested that generic producers such as Cipla and other Indian companies will never have the manufacturing capacity to meet worldwide demand, this argument seems designed to deflect unlicensed generic competition rather than the possibility of multiple licensing arrangements that could eventually meet demand in Africa and Asia.
The danger must be, from a shareholder perspective, that unless GSK moves quickly to address the issue, the people who will conclude licensing agreements for AZT, 3TC and abacavir formulations with developing country pharmaceutical manufacturers will be Indian and Brazilian companies rather than GlaxoSmithKline. This will further undermine the industry’s efforts to maintain the global patent regime, the true source of long-term drug company profitability in the face of mounting pressure for its reform.