Big pharma has been a persistent villain in the public’s consciousness over the past year in the wake of exorbitant drug price hikes, including on ancient medications. But drug makers don’t necessarily have to conform to some Monopoly man caricature to be successful, according to the chief executive of pharma giant GlaxoSmithKline (GSK).
Outgoing GSK chief Sir Andrew Witty laid out a straightforward manifesto to drug pricing, especially when it comes to vaccines, at Fortune’s Brainstorm Health conference on Wednesday. His message: Pharma can do good while still turning a profit.
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“There’s no sustainability in doing things at a loss,” he told moderator Clifton Leaf, deputy editor of Fortune. “And I think while donations are terrific, it’s not sustainable either. So you have to find a business model where everything you do in it at least covers your marginal costs.”
So what does that mean? For GSK, it means making at least some profit in every single market, no matter how small that profit may be. Some investors might balk at that strategy and demand a greater return. But there’s also a compelling logic to the idea.
“We literally rank the world by [gross national income] per capita” when it comes to certain drugs such as vaccines, said Witty. Glaxo then applies a tiered pricing strategy based on economic need. And on the flip side, organizations like Gavi, the massive global public-private vaccine partnership, ensure a certain amount of purchases (albeit for a significantly reduced price) as long as companies commit to providing a reliable stream of treatments.
It’s a low-margin, high-volume proposition. But it’s one that Witty deeply believes is integral to serving the world’s “other six billion” who don’t live in middle-to-high income nations while hewing to the profit motive. He points to successes such as the part GlaxoSmithKline has played in reducing childhood mortality in sub-Saharan Africa by investing in an expensive vaccine manufacturing plant in Singapore.
GlaxoSmithKline took the number one spot on Fortune’s Change the World list this year.