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What is the modern business model?

GlaxoSmithKline (GSK) CEO Andrew Witty is leading the front on modernizing pharmaceutical multinational companies (MNCs) with his recent announcement for a customized drug pricing scheme for emerging market economies like India. He outlined the new approach clearly in several interviews such as this one:

"Our strategy is to grow our business in middle-income countries by increasing the volume of products we sell," Chief Executive Andrew Witty said in an e-mailed interview. Extending Glaxo's flexible pricing program for such nations would "improve the affordability of our medicines, increase access for patients with lower income levels and be profitable for GSK," he said. In December 2008, shortly after he took over as CEO,  Witty signaled his intention to make GSK a lead player in the global development business of increasing access to medicines: "I believe the pharmaceutical industry has a huge role to play. But we need to take much more of a leadership role. Historically we have always reacted to problems. In the future I want us to be proactive, genuinely finding new ways to increase research, increase access and eradicate disease."

And proactive he has been.  See here for a chronological list of different policy announcements about GSK's commitment to the developing world from the reduction of its prices for patented medicines in LDCs in 2009 to a recent announcement in January 2010, at the Council of Foreign Relations of an "open innovation" strategy to help deliver new and better medicines to the developing world especially for neglected tropical diseases.   In this excellent talk (and if you have time it is worth watching the video), Witty walks us through the three ways in which he is changing GSK business model around open innovation, in addition to offering customized pricing to countries.  These include  1) greater flexibility around intellectual property and knowledge sharing; 2) creating partnerships for researchers to have access to GSK's industrial scale expertise, processes, facilities and infrastructure in addition to their knowledge and know-how; and 3) releasing access to new compounds for others to join GSK researchers and accelerate discovery.

So, what's different about this model? 

It strikes me as a win-win approach-one where both GSK AND its country partners are likely to benefit. For GSK, it will create a space to compete in future markets with local firms.  For example, as the pharmaceutical sector grows in India, Witty is anticipating competition and jumping in now to ensure access to these markets and to information. For LDCs and emerging market partners, the GSK approach has the potential to increase access to medicines, to direct financial investment to pharmaceutical infrastructure development, and to increase access to knowledge and know-how for their scientists, encouraging them to actively participate in the discovery and development of products.  

How is GSK making this happen?

  1. Tapping talent from other countries to accelerate the discovery process of new and better drugs.   GSK is smartly engaging the growing scientific and technical talent in countries like India. This will enhance their discovery and development processes for drugs by offering Indian scientists actual knowledge about different compounds that can be used in drug development, access to high tech labs, infrastructure and the ability to pursue research projects that they have identified. 
  2. Forging early partnerships with pharmaceutical companies in the developing world by increasing GSK's flexibility around intellectual property. As patents expire and emerging market pharmaceuticals ramp up their R & D efforts, GSK will perhaps be in a better position, relative to other pharmaceuticals MNC, to access this information. It recognizes the value of partnerships in a very real and productive way--generate knowledge, share it with others for their use, and others who generate knowledge will likely share it with you for your use.

Andrew Witty, the economist (yes, and apparently one of the only to head a pharmaceutical MNC!) CEO seems to be thinking well ahead of his peers; other pharmaceutical MNCs are silent on these issues; supposedly staying clear of these countries (LDCs and emerging) right now, still unsure of the potential return on their investments in high volume markets. Witty, on the other hand, seems to be anticipating serious market shifts and designing GSK's current operations to maximize its profits while doing some greater good.  In his words he is building a company that is “constantly earning the trust of society, not just by meeting society's expectation, but by striving to exceed them, because if you don't have that trust of society -- the society in which we all operate and the societies we strive to serve, then you really, in my view, don't have a long-term, sustainable business model.” He is modernizing his company from within and in the way it deals with external partners so that the discovery and development of drugs is a more global and dynamic process that never stops.  It's still too early to tell if GSK's approach will lead to a "successful" model,  but certainly worth watching closely to see how it strikes the balance between making markets for itself and making drugs more accessible to the poor.

Disclaimer

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.