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Pharmaceutical Companies’ Response to African AIDS Epidemic

Pharmaceutical Companies’ Response to African AIDS Epidemic. Lorraine Gardinier Manka Johnson Kristen Ruggles March 27, 2001. Strategic Situation.

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Pharmaceutical Companies’ Response to African AIDS Epidemic

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  1. Pharmaceutical Companies’ Response to African AIDS Epidemic Lorraine Gardinier Manka Johnson Kristen Ruggles March 27, 2001

  2. Strategic Situation • GlaxoSmithKline (Glaxo) & Bristol-Meyers Squibb (BMS) are receiving pressure from the international community to sell their HIV treatment drugs to Africa at a reduced price • The companies are faced with three possible courses of action: 1. Donate drugs 2. Sell drugs at a discounted price 3. Refuse to cooperate (sell drugs at full price)

  3. Long Run Implications Impacting the Decision • This chart relates to the companies’ long term relationship with policymakers (who all support discount initiatives) • There are three optimal solutions where Glaxo & BMS optimize policymakers’ goodwill given each other’s decision (highlighted in red) • The company that donates receives more goodwill than the company that discounts • But, since each company does not know the other’s intentions, it is possible that both companies would attempt to gain more goodwill by discounting • Donating is the favored strategy because it yields a higher benefit than discounting if the other company does not donate also

  4. Short Run Implications Impacting the Decision • This chart relates to the companies’ short term financial performance • There are two optimal solutions – if both companies refuse to donate or if both discount • If the companies are more concerned with short term financial performance, they will both refuse to cooperate because it has a lesser negative effect on their revenues, regardless of how the other company acts

  5. Conclusion • The optimal strategy is one that optimizes financial performance and goodwill, assuming that these are both equally important to Glaxo & BMS • Therefore, Glaxo and BMS should offer their HIV treatment drugs to Africa at a discount • This optimizes the companies’ long term performance by influencing their relationship with policymakers and simultaneously preserves financial performance • Discounting provides the best possible solution for each company regardless of how the other company responds

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