GlaxoSmithKline's (NYSE:GSK) latest move to develop malaria treatments is getting a lot of good press. As noble as the gesture is, the pragmatist in me thinks the company didn't have much choice.
The company is giving scientists access to 13,500 compounds that it thinks might have the potential to fight malaria. In addition, it is teaming up with RNAi-specialist Alnylam Pharmaceuticals (NASDAQ:ALNY) to use its intellectual property to help scientists develop drugs for various neglected tropical diseases.
Further, Glaxo is planning to take just a 5% profit above the production costs for the malaria vaccine it's developing, when it comes time to sell it in developing countries (where most of the malaria cases are, by the way). But, and this is where I get tripped up, Glaxo says it hopes wealthy nations will step up and help buy the vaccine for the poor nations. It's that part -- depending on rich-nation subsidies -- that I have a hard time seeing as a sustainable business model.
Other companies such as Genzyme (NASDAQ:GENZ) and BioMarin Pharmaceutical (NASDAQ:BMRN) have made a living developing drugs for neglected diseases, but that's only because governments and insurers are willing to pay the large price of the drugs -- upwards of $300,000 per year for some. That allows Genzyme, for instance, to donate a portion of its Gaucher disease treatment to patients in poor countries. Without the rich nations paying, the poor nations would get very little.
Now Glaxo and other companies like Pfizer (NYSE:PFE) and sanofi-aventis (NYSE:SNY) that have jumped into emerging markets say they can make up for lower revenue per pill through larger volume and lower cost of sales in the developing countries. But to get that large volume, they're depending on rich nations paying a large part of the freight, which makes me doubt the sustainability of this move.
And, it makes me question the nobility of Glaxo opening access to more than 13,000 potential malaria drug candidates. Are they really that valuable to begin with?
You may feel good about investing in drug companies because they're in the business of saving lives, but keep in mind that they're ultimately in business to make money. It may be a good idea to keep your donations separate from your investments, rather than trying to mix the two by investing in philanthropic companies.
