Glaxo Smith Kline

Glaxo Smith Kline - Section C International Issues in...

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Unformatted text preview: Section C International Issues in Strategic Management _ _ w _ CASE 6 ~mithKline’s Retaliation ainst Cross-Border Sales of Prescription Drugs Sam Smith Skull and Rebecca J. Morris Wanwns JMMINENT WITH Inst), THE newness Bean MARKET was ENTERING rrs rocnrn year, personal savings'were at an all-time low, and the American consumer was valiantly _' growing the economy at a meager 1.4% annually. Against this backdrop healthcare costs were ‘ spiraling upward year after year. The aging of the largest single population cohort in American history (the Baby Boomers) resulted in greater utilization of healthcare services. Concurrently, the cost of the services themselves (prescription drugs, physician visits, and hospitalizations) was increasing. Cumulatively, these services were responsible for a double— digit increase (10% per capita) in healthcare costs in 2001, the first time in more than a decade that healthcare costs had accelerated so rapidly.1 Reaching $1.4 trillion, healthcare costs escar lated to 14.1% of the gross domestic product (GDP).2 GlaxoSmithKline plc (GSK), a prescription drug and personal hygiene consumer prod— ucts company based in Britain, found itself coping with a new challenge during this period as Americans, especially senior citizens, developed various tactics to deal with the rising drug costs. Discovering that prescription drugs could'be acquired from Canadian pharmacies via the Internet at prices substantially lower than those available at pharmacies in the United States, resourceful Americans began to consistently adopt the practice.3 The flow of drugs from Canadian pharmacies to American consumers-captured the attention of GSK and their concern grew as the practice spread. Late in 2002 they attempted to curb the flow of prescrip- tion drugs out of Canada into the United .States by limiting the drugs shipped to Canadian ______-_______._.___..—-———— Copyright CC) 2003 by Professors Sara Smith Shull and Rebecca J. Morris, both of the University of Nebraska at Omaha, and The Business Case Journal. This case cannot be reproduced in any form without the written permission of the copyright holders Professors Sara Smith Shall and Rebecca J. Morris and Society for Case Research. Reprint permission is solely granted to the publisher, Prentice Hall, for the books, Strategic Management and Business Policy—10th and 11th Editions (and the International version of this book) and Cases in Strategic Management and #10111 and 11th Editions by the copyright holders. The copyright holders, are solely responsible for Business Policy the case (translation, any form of electronics or other media) or sold (any form case content. Any other publication of of partnership) to' another publisher will he in violation of copyright law, unless Professors Sara Smith Shull and Rebecca J. Morris, and the Society for Case Research have granted an additional written reprint permission. This case was published in The Business Case Journal, Volume 11, Issue 2; Winter 2003/2004, pp. 32—55. ' 6-1 Exhibit 1 Comparative Patient Drug Costs for GlaxoSmithKline Products (Dollar amounts in 11.5. dollars) SECTION 0 International Issues in Strategic Management pharmacies.‘ This challenged pharmacies to provide adequate prescription product for their Canadian customers while shipping product to American customers south of the border. However, GSK discovered Americans, especially seniors, to be loud, persistent, and effective protesters when they threatened to limit drug supplies to Canadian pharmacies. Kate Stahi, the 83-year-old metro president of the Minnesota Senior Federation was defiant: “People in America, including Minnesotans, pay the world’s highest prices for drugs. Now, if they (GSK) are going to boycott us, we’re going to boycott them?“ Una Moore echoed support for sanctions against GSK. A retired licensed practical nurse with no pension, she had been com- pelted to purchase drugs from Canada for years. “I’m terrified that the other companies will follow Glaxo. We have to get together and find a way to beat these guys.”" The Basis for GlaxoSmithKline’s Decision The late 19903 and the early years of the let century set the stage for GSK’s decision. Seeking relief from escalating healthcare costs, many Americans, especially senior citizens, sought alternate channels for acquiring the prescription medicines upon which they increas- ingly relied. Publicizing the increasing costs and promoting a political agenda, U.S. con- gressmen from states along the Canadian border began to host bus trips’for senior citizens across the border in order to procure prescription drugs at costs as much as 80% lower than those available in the United States. Logistically, relatively small numbers could participate in this practice and make savings on drugs worth the cost of the trip. Americans traveling in Europe, Canada, and Mexico might also acquire small amounts of prescription drugs for per- sonal use at a cost much lower than that available in the United States. However, it was not until the Internet became routinely available in homes, public libraries, and kiosks that pre- scription drugs from around the world were available at the touch of a button to Americans. In a relatively simple process, seniors and others c’ould take a prescription written by an American physician, send it to a Canadian pharmacy, and within days receive their drugs at home at a substantial discount to what that product cost in the United States.7 The practice grew rapidly in the early years of the let century, as political agendas and budgetary con- straints stalled a Medicare prescription drug benefit in the United States. By late 2002. Over a million senior citizens indicated that they were 866 'ng prescription drugs over the Internet from an estimated 123 Canadian pharmacies. Precise sales figures attributed to the praC‘iCB were private record; however, Manitoba pharmacies alone claimed $250 million in sales from approximately 400,000 U.S. customers during 2002.“ Prices for GSK drugs from a van“ ety of sources are provided in Exhibit 1. GlaxoSmithKline was beginning to feel the economic effects or“ American consumfiIs aditional in" acquiring prescription drugs fromCanada at lower cost, circumventing the tr was-rm mas-.mmmms ms: mass“: mawmtauwm [x GlaxoSmithKline's Retaliation Against Cross-Border Sales of Prescription Drugs scription drug market. Therefore, responding to the growing popularity of cheaper Canadian drugs among American consumers, GSK defended premium pricing in America. , ',.“Prescription drugs are generally cheaper in Canada (than the US.) primarily because prices A are controlled and capped by Canada’s Patented Medicines Prices Review Board (through a national health insurance plan) reiterated the management of GSK on a corporate Website.9 “But even without price controls, prescription medicines, like most other products, would probably still be cheaper in Canada due to lower wages and buying power there. A Dodge Caravan costs $31,000 in the U._S. but just $21,000 in US. dollars in Canada,” the site contin- ued,A1so, in January 2003 in an action GSK closely compared to that of other consumer good manufacturers, they threatened to stop supplying drug wholesalers and retailers in Canada, unless Canadian pharmacies ceased their cross-border sales. “In response to (US) dealers importing cars from Canada to resell, some US. auto-makers threatened to void their war- ranties or hold back other incentives from the (offending) dealers,” declared GSK-,1“ ostensibly providing a rationale for their own actions. GSK delayed the deadline once, allowing Canadian pharmacies more time to “self-certify” that they were not exporting drugs to the United States. Then GSK finally cut off the product supply near the end of February 2003. GSK was the only pharmaceutical manufacturer that initiated such action, although all com— panies selling prescription drugs inAmerica were affected." The reaction to the GSK decision was immediate and vocal, affecting the public image of the company worldwide. Perceived as mean-spirited, bullying, greedy, and insensitive, GSK faced angry consumers, who for years had tolerated double-digit price increases for their medicines.12 Detroit resident William Finton, a 65-year-old semi-retired accountant who pur- chased chronic medipations from Canadian pharmacies, remarked, “It really doesn‘t take a rocket scientist to figure out that they are making excessive profits. Of course they have a lot of expenses in producing these drugs, but once they make the cost'back, it really shouldn’t be this expensive.”13 “They are beginning to make the tobacco companies look geod,” quipped Todd Lebor, an equity analyst-for Morningstar. 1“ Joe Graedon, an author of a syndicated col- umn dedicated to drug issues, wrote of GSK’s crackdown to limit Canadian drug supply, “It’s like attacking apple pie, Mom, and Chevrolet.”15 A coalition of ten leading American and Canadian healthcare and business organiza— tions began a national advertising campaign harshly criticizing the drug maker for its ban (Exhibit 2). They maintained that GSK was keeping Americans, especiallyseniors, from accessing more affordable prescription medications than could be acquired in the United States.16 Peter Wyckoff, executive director of the Minnesota Senior Federation, a coalition member, declared, “we see this as an issue of unbridled greed, hurting the health and safety of American citizens who have no choice but to look at less costly alternatives (than drugs available in the United States).”” The coalition members collectively purchased a full—page ad in the New York Times encouraging healthcare professionals and consumers to pressure GSK to reverse their decision. They insisted that GSK renew delivery sof their products to Canadian pharmacies, despite a high likelihood of exportation across'the border to the United States. The coalition encouraged readers to contact their legislators and the CEO of GSK, Jean Pierre Garnier, to complain about the ban. They also encouraged senior citizens to consult with their pharmacists and physicians to investigate whether comparable generic agents were available, or whether patients could be switched to drugs manufactured by GSK’s competitors and achieve the same therapeutic goal. Consumers were encouraged to sell off GSK stock and boycott over—the—counter or personal hygiene products manufac- tured by GSK. Jimrn Axline, president of the National Association of the Terminally Ill, a nonprofit organization serving families facing terniinal illness said, With this campaign, we’re delivering our message loud and clear to Glaxo, that you cannot steal access to affordable drugs from those who are dying and expect to get away with it. We’re urg- ing consumers and healthcare professionals to call their Senators and Congressmen and Glaxo’s U.S. CEO, and tell them to give our patients back their affordable drugs.” Wm mew A;-ku.\‘i:ra-Kg.l(n1=-. 5 its-twaciruzi 2AEALQNX‘CLHJDA-flétt «are: xvi/«swa- a; s2V?;¥-Mu:.;;.-;4 Ti ——-———-—-i § H7 SECTION 0 Exhibit 2 Coalition Ad Critical of Glaxo l . International Issues in Strategic Management Glaxo is taking away _ yOur right to affordable prescription The world's second largest dwp maker. GlaxoSrnilhKliI-Le, has stopped providing its drugs to Canadian pharmacies and wholesalers who supply an estimated one million uninsured and undarinsurad American seniorswilh affordable, high qLiaIity medications. lf Glaxo gets its way, all drngmakers will likely follow its lead and eventually strip seniors oftheir well-astonished rightto access affordable drugs from alternative sources. .t. Fight Back to Stop Glaxo Now: i Conbacrtha ILS. Congress switchboard in Washington; House and Senate members. and call them to share your concerns. lJr. visi addresses and send them a note. 2 Call Glaxo's toll-free consumer hotline atl-EBS-825-5249. press 3. then press 2. and give your views to the live operator. ) DC at 1402-2244121, ask for fire names and phone numbers of your {www.congressnrg to learn your iagislators' a-mall 3 Write Giaxo‘s U.S. CEO and tell him to stamina restrictions being placed on Canadian drugs: Mr. Jean-Pierre Garnier, CEO. ESK U.S. Pharmaceuticals. Five Moore firive, R0. Box 13353, Research Triangle Park, NC. 27709 I ll you have been buying your Glaxo drugs from a Canadian pharmacy and cannot afford the high us, pharmacy prices. check with your doctor to see limere is a comparable drug mode by another drugmaker thatyou can switch to. 5 Consider selling any Glaxo slnpkthat you currently hold either direciiy arthroth a pension lune]. Glaxo stock is listed as'GSK' l on the New York Stock Exchange, 5 You may wantto consider switching from these Glaxo over-the The company's products include the following brands: Beano, Citrucel. Contac, Gerhol. Sominex, Nyml. Nicoéerrn, Nicorette, Teena. Tums and Warm. -oountar treatments to those made by other manufacturers, :_ Sensadyne, Polidern. Polls: mismasngeuamugmwymminimumadmonimwmamnnuMmmmMaummdmp amniiemuiezuiablwelwmwmg immaqawaauammureplm moatforltlomuwpnqm only Wmnionarp Seulwimi' timed: mmm‘ “mm mourn-swaman; cmssburderpharmacycom l . .‘am-M melflwlimldfld mcmmmmmm WWflfilhfliI-lhlll Newman.“ng Wmmmemmm “barman-phrde mammaan mmmm For more inrmnao'on orir' your orgam'zeuon is interested in joining the coalition, cal! 1-773-769-1 : i i i 9 ; : A )xmvammmesmmvm 9:.“ . wwwmgmm-cmawmnmas . i i gs; . 3:51]: GIaxoSmithKljne's Retaliation Against Cross-Border Sales of Prescription Drugs GSK spokeswoman Nancy Pekarek maintained, This is not a financial issue for GlaxoSmithKline. The amount of money we estimate is involved with Internet sales from Canada is less than one percent of our sales in the United States. But, obviously Internet sales are growing, and, as the business increases, so does the potential risk to patients.” Meanwhile, the press and coalition sought to portray GSK as a powerful company more concerned with profits than the health and well-being of American and Canadian consumers. Elizabeth Wennar, MD, spokesperson for the Coalition for Access to Affordable Prescription Drugs, a Vermont-based advocacy group said, Strong profit growth is Glaxo‘s chief concern, not the quality care and the well—being of seniors who cannot pay the exorbitant American prices for their life-saving drugs. If patient care was a genuine worry, Glaxo would have come forward much earlier. They wouldn’t have waited nearly three years (during Internet growth)-while Canadian pharmacies have grown to serve millions of uninsured and underinsured Americans. Simply put, Glaxo wants a much bigger piece of the sales action?" _ Glaxo insisted that the decision was simply a tactical maneuver to protect American patients” safety from risks attributed to quality assurance lapses in the reimportation process. However, the Minnesota Senior Federation believed that the drug company was really con- cerned with the “safety of its sales and profits.” Barbara Kaufman, president of the senior group, declared, “The idea that shipping drugs north to Canada . . . and throughout the United States . . . is safe, while shipping drugs south to the US. is dangerous is ludicrous.”21 Joe 7 Graedon, in his syndicated column, cast even further doubt on the patient safety rationale for the crackdown, calling it “smoke and mirrors” and emphasizing Canada’s own interest in pro— tecting its citizens. “Canadian authorities have rigorous federal supervision of medicines,” he said. “You have to assume that if you shop for your Advair at a pharmacy ll‘l Toronto, it’s going to be just as good as Advair in downtown Durham (North Carolina)?” Kris Thorkelson, representing the Manitoba International Pharmacists Association, agreed saying, - 32 - The shipping of drugs across the border and elsewhere has always been and wilt continue to be safe, ensuring product integrity, and Glaxo’s claims about safety are without foundation. Drugs :2 _ are shipped great distances in similar circumstances every day with no threat to their integrity. l The same thing happens in the US. and elsewhere, yet the manufacturer is not raising the issue I! there. Glaxo uses the same shipping techniques to move its products to wholesalers and retail— ers all over North America.23 [5 Industry watchers suggested that the most obvious motivation for the GSK action was the ._ erosion of its American profit picture. A PR newswire out of St. Paul, Minnesota, reinforced i this notion by suggesting that Glaxo was attempting to take away the rights of senior citizens ! L under the guise of safety.24 Formal legal implications were also raised.15 “What they are doing is restraint of trade,"26 said Phil Mamber, president of the Massachusetts Senior Action Council. . . GlaxoSmithKline, while spending hundreds of millions of dollars annually to advertise ;' its drugs, was losing control over something it couldn’t buy: its image. The crackdown on ' reimportation of Canadian drugs via the Internet had become a lightning rod of controversy, featuring vulnerable, typically elderly patients on one side and a large, multinational, and successful corporation on the other. “(Ironically) GSK is feeding a climate of antipathy toward drug companies that could, in the long term, result in new laws that could have an impact on their sales,”27 warned Frances Cloud, a pharmaceutical analyst with London’s Nomura Securities. Joe Graedon, co—hosting the public radio program, “The People’s Pharmacy,” agreed, (The crack-down) risks alienating a lot of Canadians, and it risks alienating Americans who are fed up with subsidizing the cost of drugs for the rest of the world. The only explanation I can i imagine for why GSK would be willing to risk that is because so many people are now buying their medicines from Canada that GSK is starting to see the effect on the bottom line.25 In 2003, the pharmaceutical industry introduced their products into a marketplace decid- edly different than other industries. Individuals did not enter the healthcare services market- place for discretionary purchases. Healthcare services, at one juncture or another, were essen— tial in the lives of most people to maintain optimal health or to treat acute and chronic diseases. However, access to healthcare services and prescription drugs was variable, based on gender, geographic location, socioeconomic factors, and race. Complicating the data inter- pretation was the'weak economy and the prolonged ennui of the American stock markets, While many seniors partook of an active, secure, and stimulating retirement, others, just years short from anticipating a secure retirement, were contemplating remaining at or returning to work, unwillingly, to make ends meet.” GlaxoSmithKline plc Exhibit 3 Profit and Loss Sammy: _ Glaxo'Smifl-rlfline, pic (Dollar amounts in millions, except per—share data) GlaxoSmithKline plc (GSK) was a multinational concern formed from the acquisition of SmithKline Beecham by Glaxo in late 2000. Headquartered in London, England, the com— pany employed more than 100,000 people and distinguished itself as the largest pharmaceu— tical company in'Europe and the second largest pharmaceutical company in the world. Seeing the United States as a key market, GSK struggled to establish itself as the fastest- growing pharmaceutical company there. The 2000 merger resulted in a broad product line that included prescription drugs, vaccines, and consumer health products. Therapeutic tar- gets for GSK products included depression, infectious disease, asthma and ’chronic obstruc- tive pulmonary disease, migraine headaches, non-insulin dependent diabetes mellitus. chemotherapy-induced nausea and vomiting, and congestive heart failure. Blockbuster prod- ucts (global sales > £1 billion per annum) included Paxil (depression), Augmentin (Gram positive aerobic bacterial infection), Advair (asthma), Flovent (asthma), Imitrex (migraine headache), and Avandia (non—insulin dependant diabetes mellitus). Consumer health prod— , ucts included Aquafresh toothpaste, Nicorette patches and gum (smoking cessation), and Turns (calcium supplement] heartburn relief). GSK was in strong financial condition30 as shown in Exhibit 3. In 2002, they experienced an increase of 7.8% in global sales of pharmaceutical products to nearly $27 billion. US. sales of pharmaceutical products increased by 13%. An essential market, the United States represented 54% of all GSK sales. GSK commanded 8.8% of the market share for prescription , skit?»havepskwavthrzmr‘ >::::L‘ts:fiiwa\x:\w£*.\ massesmmtxwasmew drugs in 2001.“ See GlaxoSmithKline’s 2002 Annual Report for complete financial state- ments at wwmgskcom. Six therapeutic drug groups experienced significant global growth in 2002. Within cate- gories, individual agents also demonstrated significant sales growth. Key figures for these drugs are shown in Exhibit 4. GlaxoSmithKline devoted $4.35 billion to research and development expenditures in 2002, an increase of 14% over 2001. The product “pipeline” included 123 products in clinical development, which consisted of 61 new chemical entities, 23 new vaccines, and 39 line extensions. One agent was in Phase III clinical trials for the prevention of prostate cancer. Five new products were expected to be launched for marketing over the next two years. In a practice defined as “innovative lifecycle management,” GSK’s research organization also sought to extend the patent life of established agents by releasing slightly altered forms of already marketed agents. Wellbutrin, an antidepressant, was reformulated as a long-acting, once daily formulation, and was expected to be released in 2003. Research and development was also committed to extending product lines. Pharmaceutical manufacturers were allowed to resubmit drug applications to the U.S. Food and Drug Administration (FDA) for already marketed agents in order to advertise the drug for expanded uses. GSK expected that new indications approved by the FDA for established agents would contribute to future growth. While physicians often prescribed drugs for “off- labe ” use, FDA approval legitimized such use and decreased attendant liability. Also, phar— maceutical manufacturers were prohibited by the FDA from encouraging the use of agents for non—approved indications, severely limiting marketing potential. Finally, acquiring new indi- cations for older agents could effectively extend the period of patent protection and discour- age generic competition. GSK aggressively sought expanded indications for Paxil, Coreg, Augmentin, and Advair during 2002.32 Marketing and general administration costs decreased in 2002 to $12,062 million, a decrease of 0.4%. GSK continued to expand their sales force with a particular focus on new product launches. Emphasizing an international presence, GSK participated in community service initia— tives around the world. Working with the United Nations, the company established fixed, not- for—profit pricing for anti—retroviral (HIV/AIDS) and anti—malarial drugs to public sector cus— tomers and nonprofit organizations in the least developed countries and in sub-Saharan Africa. GSK also established preferential pricing to employers that provided HIVIAJDS treat— ment to their employees in the sub-Sahara. In the United States, GSK initiated the Orange Card program in January 2002, in order to provide medications to the poor that did not have public or private prescription drug Coverage. GSK reported worldwide community investment and charitable donations of $104 million in 2001, 2.3% of net income. qwnumq-dw-n-mu The Pharmaceutical Industry Exhibit 5 Promotional Activity Spending of Pharmaceutical Companies as a Percentage of Total Promotional Spending SECTION C International Issues in Strategic Management In 2001, prescription drug spending was the fastest growing component of national health expenditures, totaling $141 billion, or 10%, of U.S. national health expenditures,33 Prescription drug spending had grown 15.7% from the $122 billion spent in 2000. In 2002, drug sales growth slowed but still rose 12%, essentially due to the industry’s ability to raise drug prices in the United States by an average of 4%, nearly double the rate of inflation.“ Two sectors comprised the industry: research—based pharmaceutical companies that devel. oped new branded agents, and generic houses that marketed previously branded drugs that had lost patent protection. The average revenue growth for the branded pharmaceutical industry slowed from 9.5% in 2001 to 4.5% in 2002.35 The top ten companies accounted for 60% of all U.S. drug sales_ Slowing revenue growth was primarily due to the entry into the market of generic formula- tions of previous blockbuster products,36 such as Prilosec (omeprazole) and Prozac (fluoxe- tine). Concurrent with eroding profits, research and development costs were rising, accelerat- ing to nearly a 17% increase in 2001 up from 8% in 1999. Research and development spending increased 16.6% to $30.3 billion from 2000 to 2001, claiming 13% of revenues. However, the rate at which branded pharmaceutical manufacturers were launching block- buster products appeared to be slowing.37 New molecular entities (unique active ingredients at their initial introduction to the pharmaceutical marketplace that had the potential to become blockbuster products) declined to 15 in 2002 compared with the 23 entities brought to market in 1990. Coacerns developed that revenue loss to generic formulations was not being offset by the introduction of new agents. Therefore, branded pharmaceutical companies sought snatc— gies to sustain growth that were less research intensive. “Life cycle management” became a strategy to leverage the potential of existing, already ,marketed agents.33 This strategy included line extension, the introduction of slightly altered formulations in order to gain patent protec- tion. Aggressive protection of intellectual property through litigation against encroaching generic competitors was another strategy commonly used to manage the life cycle of existing agents. _ In 2001, the average branded pharmaceutical company committed 31% of revenues for ' selling, general, andadministrative expenses. Few companies specified the advertising and - promotion component of this expense; however, it was estimated to be as high as 12% of rev- enue in 2001. Marketing spending was divided into direct to consumer advertising (DTC). physician advertising and detailing, and provision of free drug samples as shown in Exhibit 5- DTC grew the fastest of the three categories, at a rate of 33% between 1996 and 2000- Marketing dollars were committed to free samples in the hope that patients would not be switched to competing products when a formal prescription was written. Branded pharmaceutical manufacturers remained highly profitable throughout 200.1 with an average 20% profit margin, and were predicted to experience accelerated grown} 1“, 2003. Analyst David Reisinger stated, “Despite earnings disappointments, the pharmaceuucal: mmwamnxvmmm" it 3: industry maintains a very healthy financial position and generates healthy cash flow.”39 Variance in financial performance of individual companies was predicted to continue, how- ever, ultimately separating winners and losers. The generic drug industry enjoyed explosive growth of 55% in 2001, to nearly $6 billion, and benefited from the patent expirations on several blockbuster branded agents. Although growth slowed in 2002, the fundamentals of the industry remained strong. Cost containment efforts by insurance plans and healthcare systems routinely encouraged the utilization of generic products. In order to encourage use of generic products, such plans offered low out— of—pocket co-payments for these agents, significantly lower than the out-of—pocket cost for comparable, branded agents. However, no generic manufacturer had yet to be included in the top ten US. drug companies as of 2001. Indeed, generic drugs accounted for 47% of the dis— pensed prescriptions in the United States, but only 8% of dollar sales, highlighting the cost differential between generic and branded agents. Both sectors continued to experience high profits and healthy cash flows. Both outper— formed the S&P during the period 1998~2002. While the average stock price to earnings (PIE) multiple for the S&P 500 during that period was 24 times, the average PIE multiple for branded companies was 28 times, while generic manufacturers experienced a stock price that was 29 times earnings. ' Health Insurance Coverage in America The vast majority ofAmer-icans in 2003 relied on healthcare insurance benefits to shield them from the major financial impact of illness or accident. In general, Americans that had access to prescription drug coverage during this period did so as part of general healthcare insurance coverage. The Henry Kaiser Family Foundation tracked annual changes in health insurance coVerage for all Americans, and in January 2003 released annual statistics for 2001.“0 On average, one in six non-elderly Americans was uninsured during the year. Also, the probability of becoming uninsured varied depending on age, income, work status, race, ethnicity, and other demographic factors. Despite the economic boom of the 1990s, approxi— mately one million adults joined the ranks of the uninsured each year during the decade. The rate slowed perceptibly, even decreased in 1999 and 2000, but began to increase again with the economic downturn in 2001, as the percentage of Americans with employer-sponsored health insurance decreased for the first time since 1993. At the end of 2001, the number of uninsured individuals reached 40.9 million, while the total of uninsured was estimated to be over 43 million in 2003. The 2001 census counted 281.4 million Americans. Hence, 15.3% of Americans were uninsured in 2003. Meanwhile, family incomes for the poor (< 100% of poverty level) and near-poor (between 100%—200% of poverty) shifted downward after 2000. Non—elderly adults with low incomes were the least likely to have job—based insurance during 2001. Less than half of the persons in low-income families that had two full—time workers had-job-based coverage and over 25% were completely uninsured. As a group, only 17% of the poor and 43% of the near poor received a health insurance benefit. Finally, employees in service and labor jobs were far more likely to be uninsured than those with tech- nical, professional, sales, and managerial jobs, even within the same industry and employer. While Medicaid eligibility requirements for children were more relaxed, adults faced higher hurdles. Therefore, nearly 20% of American adults under the age of 65 were uninsured during 2001, compared to only 12% of children. Racial and ethnic disparities were also detected in patterns of healthcare coverage. Even after adjusting for income differences, minority groups were less likely to have access to health insurance. While minority groups ” six Glflosmflflneis Retaliation Against Cross-Border Sales of Prescription Drugs a l;i .\ SECTION C International Issues in Strategic Management uninsured. E i 1 comprised 30% of the non—elderly population in America, they represented nearly 53% of the l The Weak Economy Affects Healthcare Benefits l | ! ‘t mn—~e—fi Employers succeeded in modifying insurance benefits during the stagnant economy by transferring greater out-of-pocket costs to employees, or simply declining to contribute to a _ I ‘ premium for health insurance at all. More than 43 million Americans were essentially with- i out healthcare insurance. Many of these people were working but unable to afford their con- i tribution to the insurance premium. Caught in a paradox, they had incomes too high to be eli- : _ i gible for public healthcare coverage, such as Medicaid. At the same time, middle class senior 1 E citizens that relied on Medicare supplemental insurance benefits as part of a pension package ' ' watched as one company after another, old-guard and new, discontinued such coverage. In 1998, 66% of large employers offered retiree health and prescription benefits to retirees. By 2000, less than 40% of such employers did so. Of those that continued to provide health ben- efits, only 79% offered any type of prescription coverage.“ By 2003, only 30% of retired seniors carried Medicare supplemental health insurance provided by a former employer."2 At the same time, 9% of large employers reported in a 2003 survey that they were very likely to eliminate retiree benefits by 2004 for new and current employees that had not yet retired and 6% reported that they would eliminate employee health benefits entirely.43 A study by the Employee Benefit Research Institute published in 2003 provided some insight into the finan- cial ramifications of being elderly and insured only by Medicare.44 They estimated that indi- viduals retiring at 65 in 2003 and living until age 85 could expect to pay $100,000 per per- son out—of—pocket for healthcare over that period. Those that would retire in 2013 (at 65 years and surviving 20 years) could expect to pay atleast twice that amount when including Medicare premiums, drugs, and all other out—of-pocket costs. Prescription Drug Utilization and Spending " for Prescription Drugs Prescription drug use accounted for only 5% of national health expenditures as late as th 1970s. Most insurers did not cover the prescription drug costs. Individuals paid for the rela tively few agents that were available out of their own pocket. Perhaps ironically, prescriPIjo drug coverage was introduced as a benefit with the advent of managed care in the 19805- In fact, many beneficiaries of managed care health benefits received pharmaceutical prod“ts for no cost. Others paid nominal co-payments of $5—$10 per prescription. Under this 53’st the out—of—pocket costs contributed by individuals to acquire prescriptions rernailit’ldlfl“r resulting in burgeoning demand for and utilization of prescription drug products. PflVat‘?‘ insurance pay-out for prescription drugs was $45 billion in 1991, or 26% of retail drug “3".- enues. By 2001 this figure had ballooned to $141 billion, now 47% of retail drug 1'6 The average individual spent $449 out of his or her own pocket for prescriptipll'dfllgs 2001, representing 0.9% of personal income. However, the out—of-pocket cost nificantly with increasing age as portrayed in the Exhibits 6 and 7.“ 31119.net! Association for Retired Persons estimated that 80% of Americans 65 years old or at least one prescription drug every day. The typical Medicare beneficiary filed 1! P eighteen times per year, a rate of one prescription every twenty days.“1 A study published by the Department of Health and Human Services in customers that paid out-of—pocket paid nearly 15% more for prescription drugs- i Exhibit 2 Percentage of Emma! Income Spent on Drugs, by Age . 5 Sn; GIaxoSmithKJine’s Retaliation Against Cross—Border Sales of Prescription Drugs aim—u \1\\:\:cse)m\~wm “mam-c $900 800 700 600 500 Dollars 400 .:-.;r.:\vraviwuMwm'fi’nzfiflmtfivunmfiwflfi:kma'ratm:“wavmava-waiswmwm-efixua 300 200 100 All Less than 25-34 35-44 45—54 55-64 65 yrs. consumers '25 yrs. & older Age “nuns/155;:\‘acimmfir—mmtnfiaiwan. ream with prescription drug insurance coverage.48 For the 25% of the most commonly prescribed drugs, this differential was even higher, over 20%. This differential was attributed to the bar- gaining potential of pharmacy benefit managers (PBMs) that represented prescription drug plans in negotiations with pharmaceutical manufacturers o'ver drug prices. Intense competi- tion between companies to control market share for common therapeutic drug classes resulted in even greater influence of the FEM when negotiating prices for these commonly used i‘. _ agents. The resulting differential outcome strongly reinforced the value of prescription drug .1 insurance coverage. I 3 Medicare was originally created to provide a safety net against rising hospitalization costs for senior citizens. It had never included a benefit for prescription drugs used in the out- . patient setting. Few prescription medications were available prior to 1965, the year Medicare ' was unVeiled, and fewenvisioned the explosion in products resulting from pharmaceutical research. While some Medicare beneficiaries enjoyed prescription drug benefits from other zwxoz‘sfinuw‘smh: 3.5 ' 3.0 2.5 2.0 Percent 1.5 1.0 imtyfiAn-Wkrmmnk 0.5 All Less than 25-34 35-44 45-54 55-64 65 consumers 25 yrs. & older Age i i 1 I L SECTION C International Issues in Strategic Management 1- Exhibit 8 “I { Sources of I Prescription Drug 1 Coverage for i I Medicare Beneficiaries .. we waster.”:mrcxmwjmhavnmvxsMvnvnszmwA\<>oa‘thnw-v\uou ; .. mm,th i i z ‘ , ! ‘- 3 ! public and private source‘s, 23.8% of Medicare beneficiaries lackediany type of prescription coverage in 1999-. These seniors were more likely to live in rural areas, were 85 years of age or older, and were near poor (income between $10,000—$20,000 per annum). Sources of pre- scription drug coverage for Medicare beneficiaries in 1999 are summarized in Exhibit 8. The beneficiaries with supplementary prescription coverage received an average of $1,131 worth of product, paying 31% or $352 out of their own resources. In contrast, the beneficiary with no supplementary coverage received 45% less, or an average of $617 worth of product, 100% of it covered out of pocket. In 2002, 13% .of Medicare beneficiaries enrolled in managed care programs had no drug coverage, 15% could elect drug coverage for an additional premium, and 72% had limited drug coverage included in the Medicare managed care plan. Almost 1/3 of these plans drug choice to generic formulations and enforced relatively low coverage limits, often less than $500." '_I'he Food and Drug Administrationjs Rgle _ The US. Food and Drug Administration (FDA) was rtesponsible for ensuring that drug prod- ucts made-available in the United States were safe and effective. The Division of Import Operations and Policy, a department of the FDA, administered the United States. Federal Food, Drug, and Cosmetic Act,” which prohibited the interstate shipment (including impor‘ cation) of unapproved new drugs whether for personal use or otherwise. Unapproveddrugs included foreign—made versions of U.S.—approved drugs that had not been manufacnttfed ill . accordance with and pursuant to FDA approval. Under this act, the FDA could ' at? admit into the United States any drug that “appeared” to be unapproved, placing ' 5- of proof on the importer to prove that the drug sought to be imported was appro FDA. However, the FDA was cognizant of its limited resources in enforcing ‘. importation of prescription drugs. Under the “Coverage of Personal Importation of the FDA was to confiscate only products obviously intended for the comma ,1 market (determined by volume), fraudulent products, and those that posed (Shy : risks. In other words, small amounts of prescription products (enough for ninety tined for personal use and personally carried across the border from outSI. States or mailed into the United States would not dormally draw scrutiny as V1 Food, Drug, and Cosmetics Act. In fact, the FDA allowed their own and cu _ to consider a more permissive policy when assessing such drug products for United States. In order to understand the impetus 'for the growth of import}? Canada, one must read the careful wording of the FDA “general guidance}?- ' “Personal Importation” subchapter of the Regulatory Procedures Manual: The statements in this chapter are intended only to provide operating guidance for nel and are not intended to create or confer any rights, privileges, or benefits 011.: vate [JCE'SOIL 'FDA personnel may use their discretion to allow entry of shipments of violative FDA regu- lated products when the quantity and purpose are clearly for personal use, and the product does not present an unreasonable risk to the user. Even though all products that appear to be in violation of statutes administered by the FDA are subject to refusal (for entry), FDA personnel may use their discretion to examine the background, risk, and purpose of the product before making a final deci- Sion (to allow entry). Although FDA may use discretion to allow admission of certain violative items, this should not be interpreted as a license to individuals to bring in such shipments?2 Under this guidance, the product and its intended use were to be identified, the intended use could not be for the treatment of a serious condition, and the product could not be known to represent a significant health risk. . Alternatively, drugs imported for personal use could be used to treat more serious condi— tions as long as an effective treatment was not available domestically, there was no known commercialization or promotion of the product to those residing in the United States, the product was not considered to pose an unreasonable risk, the individual importing the drug verified that it was for personal'use and included no more than a ninety—day supply, and a U.S. physician was involved in the person’s medical care. In such cases, “persons were still break: ing the law by acquiring drugs from outside the country, howeVer, the FDA Was letting them get away with it,” according to. an anonymous FDA attorney. Emphasizing that the perSonal use importation guidance was meant to save FDA resources, and to generally permit medical treatments sought by individuals that were not otherwise available in the United States, the FDA stated that “foreign—made chemical versions of drugs available in the U.S. were not intended to be covered by the personal use policy.”53 . .. Adopting a relaxed stance under the “personal use guidance,’_’ the FDA did little to dis— suade the importation of prescription drug products throughout the period from 1995-2003. Despite the growmg popularity of Internet pharmacies among Americans, (especially Canadian pharmacies) the FDA did little to inhibit the practiceof. purchasing foreign drug products online, ostensibly because it did not want to appear unsympathetic to American con- sumers, especially the elderly?4 In fact, in the fall of 2002, when American employers and insurers began advocating the use of Canadian pharmacies by covering claims generated there, the FDA associate commissioner for policy and planning, William Hubbard, stated, “If they are not actually importing drugs, I don’t know what enforcement role we (FDA) would have?” However, the FDA stance appeared to change dramatically in response to GlaxoSmithKline’s retaliation to cross-border sales. Quickly, the FDA indicated it would change its regulatory stance and crack down on the importation of drugs, even those clearly destined for personal use.56 Seeking to distance the agency’s harder line from the consumer, Mr. Hubbard implied that insurers that helped Americans import drugs might come under fire. In a February 2003 letter sent to address the questions of an attorney representing health plans, Mr. Hubbard stated, Those who aid and abet a criminal violation of the (Food, Drug, and Cosmetic) Act, or conSpire to violate the act can also be found criminally liable. Any party participating in an import plan in which a health insurer or claims processor helps arrange a purchase (of drugs) from Canada, does so at its own legal risk.57 At the same time, the FDA echoed GSK by citing safety reasons for enforcing the Food, Drug, and Cosmetic Act.“ Imported drugs might be less likely to be manufactured under exacting specifications and might be mislabeled or otherwise without specific direritio‘ns for use. The FDA established that this was a public health risk, because Americans had little, if any, recourse if they were exposed to tainted drug product. Sources at the FDA also expressed concern that Canadian pharmacies were diverting drugs from deserving Canadian citizens in order to capture a tidy profit by selling prescription products to Americans. The spread between acquisition cost from pharmaceutical companies and selling price to Americans was SIX GlaxoSrrdthlfline'S Retaliation Against Cross-Border Sales of Prescription Drugs mm i i 1 s ,l SECTION C International Issues in Strategic Management European Influence on Pharmaceutical Pricing enhanced by the attractive exchange rate between American and Canadian dollars at the time This was true despite the fact that Americans were often purchasing products for as much as 80% less than they would pay for the products in the United States. Employers and Insurers Join the Debate The European pricing for prescription drug products influenced pricing of the products in the United States. Due to the administration of national healthcare systems, the European governments set price controls for prescription drug products. In June 2002, the German Health Ministry attempted to cut by 4% the prices it would pay for prescription products to provide public health services.” Drug companies balked, as the public health system pur. chased 80% of all drugs in the country. In a compromise, Chancellor Gerhardt Schroeder agreed to veto the price cut if major drug companies would establish a trust fund designed to finance Germany’s soaring healthcare costs. GlaxoSmithKline, along with 37 other multina- tional pharmaceutical companies, reluctantly agreed to the plan. Worried that other European countries that administer nationalized health systems would follow suit and make the same demands for price cuts, the drug companies had little leverage in Germany and were highly motivated to accept the establishment of the trust fund in lieu of price cuts. Across the ocean, the outcome of these negotiations directly affected Americans and the prices they paid for prescription drug products. The United States was the only major indus- trialized country that did not administer some sort of governmental price control for drug products. Pharmaceutical manufacturers openly admitted that as European governments man- dated price cuts and eroded the profitability of the European markets, they increased prescrip- tion prices in the United States. “Step—by—step, the profitability of European markets is decreasing, and we’re depending on the US. market more and more,” said Jean—Francois Dehecq, chief executive of the French drug maker, Sanofi—Synthelabo.“ In each of the years prior to 2003, the cost of drugs in the United States had increased by 2%-3% annually, some- times more, as European governments mandated price cuts in Europe. One company increased prices in the United States by 5.9% annually for three popular medications used to treat heart disease, asthma, and osteoporosis. The result was large differences in the prices that Americans paid for prescriptions versus those paid in other markets. While Europe accounted for the largest single market in the world for prescription drugs, it accounted for just 22% of the dollar sales in the global market. Meanwhile the United States, with few people, contributed more than 46% of global dollar sales, and more than 60% of profits. Donna Shalala, US. Secretary of Health and Human Services unde _ ' . commented on the situation. While pointing out that U.S. taxpayers financed much of the 133.51 research that supported the pharmaceutical industry, she remarked, “We have been subsidiZlB this research and in return we get to pay higher prices (than Europeans)? It’s not fair.” 3—. "U 3 E 3‘ 5 n O =- E. o :5 M Americans were not always acting independently when they acquired necessary presffiPHP“ medications from Canadian pharmacies via the Internet. Various retirement plans and endorsed the practice to varying degrees. United Health Group, in conjunction the American Association of Retired Persons (AARP), announced in October 2002ith3t' waiving its policy requiring prescriptions eligible for Medicare supplemental iuSUi?“ - age to be purchased in the United States'or a US. territory.62 Therefore, it Would 00." of prescription drugs acquired from pharmacies not just in Canada, but also 310311 While not explicitly encouraging the practice of shopping for prescriptions outs the announcement educated more than 400,000 AARP beneficiaries to the p055 .amnmmmmmmm wwnnsvrg Meanwhile, some employers and insurers overtly encouraged their retired employees and ‘ beneficiaries to purchase prescription drugs from Canadian Internet pharmacies in order to 7 take advantage of cost savings. The National Association of Retired and Veteran Railway ' Employees Inc.63 provided a hyperlink to a Canadian Internet pharmacy on its own Web site. The pharmacy site included a catalog of available medications (narcotics were not available) and the cost, in American dollars, of each agent. A selection of “frequently asked questions” instructed users how to use the site and reassured users of the similarity between drug agents available in the United States and Canada. Users were informed that, “prescription drugs coming from Canada are made by the same manufacturers, often at the same plants, as those sold in the U.S.” In order to protect Canadian citizens, “Health Canada, the equivalent of the U.S. FDA, provides strict oversight of prescription drugs.” The site continued by informing users that a report issued by the Congressional Research Service in Washington DC found that, “pharmaceutical manufacturing practices required by Health Canada and the U.S. FDA are equivalent.” The site also informed users of the FDA “general guidance” on personal importation of medication. “While it is technically illegal to purchase medicines from a Canadian pharmacy, the FDA exercises enforcement discretion to allow individuals to import up to a ninety-day supply of prescription drugs for personal use.” .17 Where Elected Officials Stood Congress had made several attempts to legalize the personal importation of prescription drugs by early 2003, largely due to concern about rapidly rising drug costs for senior citi- zens.64 However, the drug industry, applying an aggressive lobbying campaign, had suc— ceeded in preventing the passage of such legislation. During 2002, the Senate voted to allow importation of prescription drugs from Canada, but the proposition never came to a vote in ~ the House of Representatives. A bill legalizing importation from Canadian pharmacies passed both the Senate and the House in 2000. However, the Clinton administration declined to implement the'legislation, ostensibly over worries about verifying product safety and little documentation that the practice would actually save money." Individual elected officials reacted quickly to GSK’s policy of limiting drug product to Canadian pharmacies that exported to the United States. Russ Feingold, U.S. Senator from Wisconsin, introduced a bill in Congress to deny tax breaks to pharmaceutical companies that restricted shipment of drugs to Canada.“ Vermont Representative Bernard Sanders also intro— duced a bill specifically penalizing GSK for its attempt to cut off U.S. consumer access to Canadian drugs, citing restriction of free trade.67 Congressman Gil Gutknecht, a Republican from the first district in Minnesota, responded to the shipment restriction, Glaxo’s brazen attempt to prevent Americans from obtaining lower cost medications from Canada is a textbook example of brazen abuse of monopolistic power. Glaxo is attempting to fix prices. If this isn’t a classic example of anti-trust abuse, it should be. It is time for our attorney general to dust off anti—trust laws and enforce them.“ ' By April 2003, legislators were actively accusing the FDA and GlaxoSmithKline of “scar— ing seniors that are trying to get more affordable medicines?” In a raucous hearing, members of the recently formed House Subcommittee on Human Rights and Wellness said the FDA had no evidence of safety problems with drug reirnportation and that the agency was shifting its personal importation policy because of drug industry pressure. The conunittee insisted the FDA should use its efforts to find a way to allow safe importation of drugs from Canada instead. Vermont Representative Sanders criticized the FDA by saying, “You should be putting out pamphlets saying people have been going across the border . . . and there hasn’t been one problem.”m .ESIX GlaxoSmithIfline’s Retaliation Against Cross—Border Sales of Prescription Drugs mu i 5 g i i i i! i. l i; .. t; i 3? t t é a :i 3 use: a: 1? ti 5. :i g m SECTION C International Issues in Strategic Management Meanwhile, busloads of constituents, with their elected officials on-board, continued to make the trip to Canada with the explicit purpose of acquiring prescription drugs at lower cost than was available in the United States. Most prominent, perhaps, was Minnesota Senator Mark Dayton, who donated his annual Senate salary of $145,000 to subsidize monthly trips for senior citizens to purchase drugs in Canada.11 GlaxoSmithKline Attempted Discount Card Public Perception i r g s u .1 f. E GSK, in cooperation with other large pharmaceutical manufacturers, began to offer a dis- count card in 2001 to provide assistance to low-income American families that earned less than $28,000 annually. The card, named Together RX, provided a variable discount for pre- scription products up to 40% off retail prices. However, in the autumn of 2002, GSK cut the discount, maintaining that the U.S. government would use the low retail prices to demand even lower prices for Medicaid beneficiaries.” GSK referred to legislation enacted in 1990 which stipulated that drug manufacturers must treat the Medicaid program as a most-favored customer, meaning that no other buyer could have access to lower prices for prescription product than the Medicaid program. Anxious that the government would accuse GSK of sell- ing prescription drugs to low-income families at a cost lower than that available to Medicaid, . ‘ they decreased the program discounts to reflect Medicaid pricing. The result was a signifi- cant increase in prices for participants in the GSK discount program, while Medicaid benefi- ciaries continued to pay nominal co-payments to acquire drug products. (Federal and state administrators of the Medicaid program then reimbursed intermediaries for the cost of the prescription at most-favored pricing.) After that time, GSK encouraged concerned Americans to urge Congress to enact a Medicare prescription drug benefit in order to help resolve issues relating to the affordability of medicines.73 GSK also provided drugs to qualifying persons through a Patient Assistance Program. In 2002, the program provided free medications valued at $168 million to 400,000 Americans with incomes below $24,000 for a household of two.74 The Wall Street Journal conducted a non—scientific, Web-based poll of its readers on March ll, 2003, in order to elicit opinion about Americans that acquired prescription drugs from Internet pharmacies in Canada.” The responses to the poll provided some insight into the Pub‘ lic image of GSK and other pharmaceutical corporations. The Journal received 1,665 8115me in response to the question, “Should regulators try to stop Americans from buying pm!" tion drugs from Canada?” Eighty-four percent of respondents said “No,” while 16% Sal “Yes.” The poll also provided respondents an opportunity to provide editorial comment on the question. Fifty-two written responses were generated in answer to the preceding questiOIIJ-ll'til but two of the respondents referred negatively to the pharmaceutical industry in their 6M0”?! answer. Most respondents complained of “price fixing” by pharmaceutical companies! 5 ically GSK, in the United States. Others referred to “restraint of free trade,” when Si , zens were prevented from purchasing prescriptions from Canad ' ‘ that the FDA had altered its stance regarding the personal importation of medica political pressure from pharmaceutical companies. Campaign contributions to officials by pharmaceutical companies were suggested several times as 0116 price differential for drugs remained between America and the rest of the W013 the safety rationale provided by GSK for more stringently regulating im . was dismissed as rhetorical and not believed to be the authentic reason for GSK N 8 Q (T? g. 8 E. M In t: 3% '13 Two respondents referred to the high cost of pharmaceutical research and Americans’ -__ability to pay higher prices as the primary reason for the cost differential. One respondent worried that the ultimate response by the pharmaceutical industry to the importation issue ‘ would be to increase the costs of drugs in Canada, ultimately limiting access for that country as well. Meanwhile, The Wall Street Journal mocked the abrupt crackdown by the FDA with a characterization of the typical “drug trafficker” bringing in medications from abroad.76 Dubbing elderly Americans as “not your generic smugglers,” they described a typical “pro- file” as “white, elderly, often wearing Bermuda shorts, and American Legion baseball caps.” Ostensibly, the detailed “profile” would make it easier for these “traffickers” to be spotted by the FDA. Adopting a serious tone, the author described the motivation of the traffickers. “For many elderly shoppers, cutting the cost of medications is a crucial part of budgeting for retire- ment.” A 76—year—old woman was blunt about her need to leave the country to acquire medi- cine, “I live on less than $1,200 per month and I saw a $50,000 stock portfolio evaporate since 2000. If I couldn’t get cheap meds, I couldn’t live?” Americans, especially the elderly, paid the highest prices in the world for prescription drugs.78 Even though they represented the biggest market for drugs, they had no ability to negotiate prices. Like the 76—year—old woman forced to leave the United States to acquire medicine, a large contingent of the elderly simply could not afford the medications they required to stay alive. But unlike most other developed countries, they received no help from their government to acquire necessary prescriptions. The Tradeoffs: Health vs. Profits vs. Safety 'What was the responsibility of GlaxoSrnithKline to see that American patients, especially ,those with limited means, could have regular access to prescription drug products? Glaxo maintained that patient safety was their primary motivation for the retaliation against cross— border sales from Canada into the United States. Company officials stated, “GSK decided to block the reimportation from Canada out of concern for patient safety. Although consumers may be getting the very same drugs they would buy in the U.S., the drugs may be damaged in transport, mislabeled, or otherwise adulterated.“J But was safety the most relevant issue when the product was not a consumer good but rather necessary for health, perhaps even life, but was too expensive for a significant portion of the American population? As University of Minnesota professor Barbara Kaufmann reiter- ated, “A drug that is not afiordable is neither safe nor effective.Wu What sort of power differential separated GSK from their customers? Did GSK damage their public image through their action? If so, what strategic resources must be committed to repair the resulting damage and restore good public relations to the commerce of GSK? Notes 4. S. Lueck and .T. Baglole, "Glaxo Says It Will Retaliate Against Cross-Border Sales," The Wall Street Journal (January 13, 2003); I. Baglole, “Glaxo Presses Canadian Firms Not to Resell Its Drugs to U.S.," The Wall Street Journal (January 22, 2003); J. Fisher, 1. B. Strunk, P. Ginsburg, and J. Gabel, “Tracking Health Care Costs: Growth Accelerates Again in 200],” Health Afiairs (September 25, 2002), pp. W299wW310. 2. K. Levit, C. Smith, C. Cowan, et al., "Trends in U.S. Health Care Spending, 2001,” Health Afiairs Vol. 22, No. l (2003), pp. “GSK Fighting Border Battle,” The News and Observer (February 154—164. 13, 2003). 3. J. Baglole, “What’s New at the Mall of America? Cheaper Drugs 5. W. Wolf, “Seniors Groups Boycott Glaxo over Canada Move," from Canada," The Wall Street Journal (November 8, 2002). Star Tribune (February 23, 2003). SE GlaxoSmithlfline's Retaliation Against CrosspBorder Sales of Prescription Drugs “WWW! ma w\11¢wa~\x\\\wmuakefifirzjwntmuvcmgu tmmvlvamx'zrfi' seamswlitw muses-numeral hasn‘er ~an1. amuse; w «w:-warwmwwmm rat'xxeeflwah: -18 SECTION C International Issues in Strategic Management is 6. 7. 3. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. A. Dembner, “Rallies Aim to Save Canadian Drug Sales,” The Boston Globe (February 20, 2003). E. Reguly, “Drugstores That Are Hard to Swallow,” Time Canada Vol. 16, No. 5 (2003), p. 29. Ibid. ' GlaxoSrnithKline, Important Facts Patients Should Know About Cross-Border Internet Sales, wwmgsk. com/media/ca_key.html. Ibid. 7 S. Lueck and J. Baglole, “Glaxo Says It Will Retaliate Against Cross-Border Sales,” The Wall Street Journal (January 13, 2003); J. Baglole, “Glaxo Presses Canadian Firms Not to Resell Its Drugs to U.S.," The Wall Street Journal (January 22, 2003); W. Wolf, “Seniors Groups Boycott Glaxo over Canada Move,” Star Tribune (February 23, 2003). C. Serres, “Drug Titan Draws Ire,” The News and Observer (February 14, 2003); A. Krishnan, “GlaxoSmithKline Fights War of Perceptions over Flow of Drugs from Cana ," The (Durham, North Carolina } Heraldeun (February 4, 2003). A. Taylor, “Seniors Find Drug Relief in Canada: Congress Will Push Again for Law to Allow Pharmacists to Import Cheaper Medications," The Detroit News (August 21, 2001). C. Serres, “Drug Titan Draws Ire," The News and Observer (February 14, 2003). A. Ktishnan, "GlaxoSmithKline Fights War of Perceptions over Flow of Drugs from Canada," The (Durham, North Carolina) Herald-Sun (February 4, 2003). PR Newswire, Philadelphia Seniors’ Organizations Protest Glaxo ’s Ban on Afiordable Drugs (February 19, 2003), “US. & Canadian Organizations Slam Glaxo's Ban Against Affordable Prescription Drugs forAmerican Seniors in Need,“ Today ’s Seniors Network (February 12, 2003), http://todayseniornetwork.com/ glaxofladJampaignhnnl; T. Agovino, “Pharmacy Seeks Boycott of Glaxo Products," Associated Press Online (February 4, 2003). A. Dembner, “Rallies Aim to Save Canadian Drug Sales,” The Boston Globe (February 20, 2003). ' PR Newswire, GlaxoSmithKline Actions Threaten Thousands (February 20, 2003). A. Dembner, “Rallies Aim to Save Canadian Drug Sales," The Boston Globe (February 20, 2003). ' PR Newswire, GlaxoSmithKline Actions Threaten Thousands (February 20, 2003). lbid. A. Krishnan, "GlaxoSmithKline Fights War of Perceptions over Flow of Drugs from Canada," The (Durham, North Carolina ) Herald—Sun (February 4, 2003). Canada NewsWire, Manitoba On-line Pharmacies Slam Glaxo Drug Ban (January 12, 2003). PR Newswire, GlaxoSmithKline Actions Threaten Thousands (February 20, 2003). T. Cohen, “Wholesaler Cuts GlaxoSmithKline Supplies,” Associated Press Online (January 29, 2003). A. Dembner, “Rallies Aim to Save Canadian Drug Sales," The Boston Globe (February 20, 2003). C. Serres, “Drug Titan Draws Ire," The News and Observer (February 14, 2003). J. Fisher, “GSK Fighting Border Battle," The News and Observer (February 13, 2003). K. Green, “Retiree Returns to Early Shift, but This Time at Half Pay," The Wall Street Journal (March 5, 2003). GlaxoSmithKline, Annual Report (2001); G. Naik and H. Hovey, “Glaxo Prot Rose 28% in 2002: Protest Against Company 31. 32. 33. 34. 35. 36. 37. 38. 39. 41. 42. 43. 45. 46. 47. 48. 49. Urged,” The Wall Street Journal (February 13, 2003); D. Rat-iii, “GSK Profit Increases, on This Side of Atlantic," The News and Observer (February 13, 2003). T. Scully, L. vander Waldo, K. Choi, and J. Higgins, Health Care Industry Market Update (Baltimore, MD: Centers for Medicare & Medicaid Services, January 10, 2003), www.cms.hhs_gov/ marketupdate. GlaxoSmithKline, Annual Report (2002). T. Scully, L. vander Walde, K. Choi, and J. Higgins, Health Care Industry Market Update (Baltimore, MD: Centers for Medical-c & Medicaid Services, January 10, 2003), www.cms.hhs.ggv/ marketupdate. G, Harris, “Drug Sales Growth Slowed, but Still Rose 12% in 2002," The Wall Street Journal (February 23, 2003). T. Scully, L. vander Waldo, K. Choi, and J. Higgins, Health Care Industry Market Update (Baltimore, MD: Centers for Medicare & Medicaid Services, January 10, 2003), WWW.Cms.hl‘lS.g0v/ marketupdate. C. Adams and G. Harris, “Drug Firms Face Growing Pressure over Extensions of Their Patents,” The Wall Street Journal (March 19, 2002). G. Harris, "Why Drug Makers Are Failing in the Quest for New Blockbusters," The Wall Street Journal (April 18, 2002). G. Harris, “Prilosec’s Maker Switches Users to Nexium, Thwarting Generics," The Wall Street Journal (June 6, 2002). T. Scuily, L. vander_Walde, K. Choi, and J. Higgins, Health Care Industry Market Update (Baltimore, MD: Centers for Medicare & Medicaid Services, January 10, 2003), www.cmshhsgow’ marketupdate. " C. Hoffman and M. Wang, Health Insurance Coverage in America: 2001 Data Update (The Kaiser Commission on Medicaid and the Uninsured, January 2003), www.klgfiorg. L. McCormack, J. Gabel, H. Whitmore, et a1., “Trends in Retiree Health Benefits: Health Benefits for Retirees Are Brodng Even in the Best of Times," Health Afiairs, Vol. 21, No. 6 (2003), pp. 169476. .9 H. Glcckman, “Old, Ill, and Uninsured," Business Week (April 7. 2003), pp. 78—79. L. McCormack, J. Gabel, H. Whitmore, et 31., “Trends in Retiree " Health Benefits: Health Benefits for Retirees Are Eroding Even in the Best of Times,” Health Afairs, Vol. 21, No. 6 (2903)- PP- 169—176. _ H. Gleckman, “Old, Ill, and Uninsured," Business Week (4130‘ 7‘ 2003). pp. 78—79. :;-' D. Kreling, D. Mott, J. Wiederholt, et 31., Prescription Drug Trend“ A Chartbook Update (The Kaiser Family Foundation, 2001} T. Scully, L. vander Walde, K. Choi, and J. Higgins, Health Fa” Industry Market Update (Baltimore, MD: Centers for M64153“ & Medicaid Services, January 10, 2003), www.cmlehS-g marketupclate. . . Medicare Prescription Drugs: Just the Facts.191111611687fl 555W, . of Retired Persons. www.actrp.org/prescfiptiondrugsg‘msj D. Gross, Trends in Costs, Coverage, and Use afl’mscnpflg Drugs by Medicare Beneficiaries (AARP, 2001)- will - aarp.org/heulth/dd63_trendr.html. ' ' " T. Scully, L. vander Walde, K. Choi, Industry Market Update (Baltimore, MD: CB.“ ‘ & Medicaid Services, January 10, 2003), WWW marketupdate. ,. ‘ Medicare Prescription Drugs: Just the Facts- , of Retired Persons. www.aarp.org/pr€SCVlPW”d B E. E. on on Importation of Drugs Prepared by Operations and Policy (Washington, DC: Affairs, U.S. Food and Drug Administration, /ara/import/pipinfo.htm. onal Importations,” Regulatory Procedures :1, DC: Oflice of Regulatory Affairs, U.S. Food I wwmfda.gov/ora/compliance_refl dows. “Imported Drugs Raise Safety Concerns," FDA Cons _ er Magazine (September/October 2002), www.fda.gov/ fdmjjegmresaooz/sozampon. html. ' V. Fuhrmans and G. Naik, “In Europe, Drug Makers Fight Against Mandatory PriCe Cuts,” The Wall Street Journal (June 7, 2002). 60. lbid. 61. End. 62. T. Burton and S. Lueck, “AARP Insurer to Cover Drugs Purchased Outside the U.S.,” The Wall Street Journal (October 11, 2002). 63. low-cost Safe Medicines from Canada: Frequently Asked Questions. 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Graham, “Canada’s Mail—Order Drug Houses Plague Glaxo," The Wall Street Journal (February 28, 2003). GlaxoSmithKline Calls for Passage of Medicare Prescription Drug Benefit (GlaxoSmithKline, February 20, 2003), www. gsk. com/press2003/press_02202003.htm. J. Graham, “Canada's Mail-Order Drug Houses Plague Glaxo," The Wall Street Journal (February 28, 2003). “Reader Poll: Should Regulators Try to Stop Americans from Buying Prescription Drugs from Canada?" The Wall Street Journal Online (March 11, 2003), www.wsj.com. J. Milli-nan, “Not Your Generic Smugglers,” The Wall Street Journal (March 20, 2003). Ibid. PR Newswire, GlaxoSmithKline Actions Threaten Thousands (February 20, 2003). A. Dembner, “Rallies Aim to Save Canadian Drug Sales,” The Boston Globe (February 20, 2003). PR Newswire, GlaxoSmithKline Actions Threaten Thousands (February 20, 2003). ...
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