Glaxo new build decision defies laws of time and space. Or have I misread the story?

March 23, 2012

Tudor Rickards

The day after the Budget, Glaxo announces plans to build a new factory in Ulverston, England, influenced by financial changes favourable to the industry. The timing seems to defeat principles of business decision-making processes until we look more closely at the story

The Mail outlined the background to the decision which will create 1000 jobs in England and Scotland in the pharmaceutical industry

Britain’s £10billion pharmaceutical industry was given a welcome boost yesterday as drugs giant GlaxoSmithKline announced plans to create 1,000 jobs. The company, which employs 15,000 UK workers, confirmed it is pumping £500million into its manufacturing sites. This includes building a new factory at Ulverston, Cumbria – the firm’s first in 40 years. GSK’s move was influenced by tax cuts in the Budget on money invested in research and development. Sir Andrew Witty, GSK’s chief executive, said the introduction of a ‘patent box’, which cuts corporation tax rates on profits from UK innovations, fuelled the decision.

As well as building the new factory, it will inject £100million into Scottish sites at Irvine and Montrose, and £80million at its site in Ware, Hertfordshire, to boost capacity for inhalers and at Barnard Castle, County Durham, for skin-care products.

A lightning fast reaction?

Good news for Britain. But how was the company able to make the announcement within hours of the budget announcement? Perhaps in part because as the article continued:

Sir Andrew, who is part of the Prime Minister’s business advisory group, said: ‘The patent box has transformed the way in which we view the UK as a location for new investments.’

First new build for forty years

The BBC reporting threw more light on the developing story

Glaxo made its announcement after Chancellor George Osborne confirmed in the Budget on Wednesday that the government would go-ahead with the introduction a so-called patent box.
These allow corporations to pay a lower rate of tax on profits generated from UK-owned intellectual property.

“The introduction of the patent box has transformed the way in which we view the UK as a location for new investments, ensuring that the medicines of the future will not only be discovered, but can also continue to be made here in Britain,” said Glaxo chief executive Sir Andrew Witty. “Consequently, we can confirm that we will build GSK’s first new UK factory for almost 40 years.”

A little more history

Tucked away at the end of the BBC article was a little more history of the way the decision was reached. Glaxo said last year that it would build a new facility at one of four potential sites in the UK if a patent box, [the favourable change in intellectual property taxation] first proposed by the Labour government in 2009, was brought in.

News breaks quickly but may have been a while in the making

So maybe the decision reported as if it followed the announcement in the budget was actually the public announcement of a carefully planned business strategy. It would have involved quite a bit of behind-the-scenes negotiations.

Something old, something new?

Another fact not mentioned in the current news story: Glaxo has a great deal of local knowledge of Ulverston. The image (from the company website) is of the plant built there in 1948.


Big Pharma’s Philanthropy

June 7, 2011

Drug giants announce a plan to deliver vaccines at cost to the poorest regions of the world. Moral leadership or pragmatic response to protestors?

Tudor Rickards

This week [June 2011] a plan was announced by GlaxoSmithKline (GSK), Merck, Johnson & Johnson and Sanofi-Aventis to cut drug prices through an international vaccine alliance. A week later, Bill Gates and Pime Minister David Cameron got in on the act supporting Gavi.

Gavi

Gavi is a partnership for funding mass vaccination programmes in developing countries. Glaxo CEO Andrew Witty told the BBC about the plan:

If you’re in Kenya or a slum in Malawi or somewhere like that there is no capacity for those people to contribute to [profits to invest in future drugs], so they have to be helped out by the contribution from the middle and the richer (countries).

He struck a balance between the philanthropic benefits of the scheme, and the business model of Big Pharma to generate funds for future investment by maintaining high prices on their proprietary drugs.

Enter Bill Gates and David Cameron

A week later, Bill Gates and Prime Minister David cameron pledged their support to GAVI

The medical plight

The medical plight of many countries is illustrated by the case of Dr Freddie Coker, a pediatrician in Sierra Leone’s capital Freetown. Dr Cocker tells of his fight against diseases which result in child mortality rates of 50% which could be saved by drugs if made available.

“I’m very excited. As a doctor, I usually spend sleepless nights trying to see how much I can contribute to reducing the infant mortality rate among under-fives in my country. I’m quite happy.”About 40% of cases we see are due to diarrhoea diseases. The mortality rate can be as high as 50%.”The earlier a child is commenced on treatment, the better the outcome.”


The next step in a long campaign

Students studying leadership will be familiar with the case of Glaxo Smith Kline’s Jean Pierre Garnier (Dilemmas of Leadership, Chapter nine). The case outlines the dilemmas of morality versus profits.

Some call him a humanitarian. He has been awarded the Legion d’Honneur by the French government. He has indisputably taken GSK several rungs higher on the ladder of altruism than any other drug company. But at the end of the day, he says, he runs a for-profit company. And if people are still dying of AIDS in Africa, it is because their governments are ineffective, or do not care. It is not to do with the greed or indifference of the pharmaceutical companies. His vision is clear. He is willing to supply not just antiretrovirals but other medicines poor countries need for epidemics, such as malaria, at cost, he says. Combivir, [a dual combination AIDS drug], sells at $1.70 a day. For a Malawian woman .., it might as well be the price of a flight on Concorde. His answer is twofold: order from GSK in bulk, perhaps for the whole of sub-Saharan Africa, and the price will drop. Secondly, persuade the rich countries to support the Global Fund so that poor countries will have the money to buy GSK’s drugs.

A moral dilemma

Drug companies face a dilemma between two morally right options. The first is to do everything possible to ameliorate suffering through their medical products. The second is to secure enough revenues to invest in the drugs of the future. Big Pharma receives criticisms for its financial model and its marketing methods for influencing the medical professionals. Is this story a case of moral leadership from within their ranks? Or is it pragmatism, and at least partially a result of protests and stakeholder pressures? And in any case, should the ends be welcomed, regardless of the motives?

To go more deeply

News Medical provided a summary of editorial opinion pieces on this story.