By: Tido von Shoen-Angerer
24 November 2010
GlaxoSmithKline (GSK) was caught red-handed last week selling Synflorix, a vaccine that protects children from pneumococcal disease, for USD $150 in Uganda — European prices, in effect — when at the same time, the pharmaceutical company is withholding the same vaccine from an international subsidy that hopes to introduce it in developing countries for $21 per child.
The incident exposed the deep contradiction between the image GSK’s new CEO Andrew Witty puts forward of promoting access to the company’s products in developing countries, and the profit-hungry reality on the ground. It also illustrates the problems associated with company-driven ‘tiered’ price discounts.
Offering a discount to the poor seems like an unequivocally good thing. But do price discounts really make medicines more affordable in developing countries?
Tiered pricing — when companies price their products at different levels in different countries — is first and foremost a profit-maximizing strategy, as any economics textbook will tell you. In order to make the most profits, companies seek to achieve in each country the most favorable balance between the price and the volume they can sell at that price.