Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How GlaxoSmithKline Prices Life-Saving Drugs
Transcript
- Lucas: We talk a lot on this show about pricing in consumer goods, software, retail. But there's one industry where getting the price wrong doesn't just mean lost revenue — it can genuinely mean lost lives. So today I want to look at how GlaxoSmithKline prices one of its blockbuster vaccines, Shingrix. Luna: Shingrix — that's the shingles vaccine, right? I remember it was a huge launch for GSK a few years back. Lucas: Exactly. Shingrix launched in 2017 and by 2019 it was already generating over two billion dollars a year in sales. But the pricing story here is fascinating because it's a perfect case study in what the industry calls 'value-based pricing.' Luna: Value-based pricing — meaning the price is tied to the health outcomes the drug delivers, not just the cost to manufacture it. Lucas: Right. GSK didn't just look at the cost of growing the vaccine in a lab. They looked at the burden of shingles — the pain, the hospitalizations, the lost productivity. And they priced Shingrix at around $280 for the two-dose series in the US private market. That's roughly ten times what the previous shingles vaccine, Zostavax, cost. Luna: Ten times the price, but with much higher efficacy — over ninety percent effective in preventing shingles. So the value per dollar is arguably better. Lucas: That's the whole argument. GSK's internal models showed that preventing one case of shingles saves the healthcare system roughly one thousand dollars in direct costs. So at $280, the vaccine pays for itself if just a quarter of recipients would have otherwise gotten shingles. And that's before you factor in the excruciating pain shingles causes. Luna: But of course, the people paying that $280 aren't the same people who would have paid the thousand dollars for treatment. It's insurers, employers, governments — the classic third-party payer problem. Lucas: Exactly. And that's where tiered pricing comes in. GSK sells Shingrix for far less in low-income countries. In sub-Saharan Africa, for example, the price can be as low as ten dollars a dose. The company uses a so-called 'equitable access' pricing model, where wealthier countries subsidize the R&D and poorer countries pay a fraction of the cost. Luna: Pharma companies have always done that to some degree, but it's gotten more sophisticated. GSK actually publishes a tiered price list for its vaccines, which is pretty transparent for this industry. Lucas: Transparent, yes, but also strategic. By keeping prices low in emerging markets, GSK builds brand loyalty, vaccinates a population that might otherwise get sick, and — let's be honest — it's good PR when you're constantly being accused of price gouging. But the real pricing tension is in the US market, where list prices have skyrocketed across the industry. Luna: And list price can be misleading. For Shingrix, the list price is around $170 per dose, but after rebates and discounts to pharmacy benefit managers, the net price GSK actually receives is much lower. Some estimates put it at forty to fifty percent less than list. Lucas: Right — the famous 'gross to net bubble.' And that's a key point about pharmaceutical pricing. The list price is almost theater. The real price is negotiated in secret between the manufacturer and the middlemen. GSK plays that game too, but they've been smarter than most about managing the patent cliff. Luna: The patent cliff — meaning when a drug loses patent protection and generic competition destroys its price. Lucas: Exactly. GSK's $14 billion a year asthma drug Advair went generic in 2019, and sales collapsed by over seventy percent. But Shingrix is still under patent until around 2031, and GSK has been raising its list price on Shingrix by about six to eight percent annually — significantly above inflation. Luna: That's a pretty aggressive strategy for a vaccine that already has near-universal recommendation from the CDC. Lucas: It is. And it works because there's no competitor. Merck tried to revive Zostavax, but it was less effective. So GSK has pricing power. But they're also investing in next-generation vaccines. In fact, they're developing a newer version of Shingrix that could be even more effective or require only one dose. That would allow them to extend the franchise even after the patent expires. Luna: So it's not just about pricing the existing product — it's about pricing the pipeline. That's something we don't talk about enough: how pharmaceutical companies price the future. Lucas: Yeah, and it's a tough ethical line. Because if you price too high, you limit access. If you price too low, you can't recoup the billions you spent on R&D. GSK's own cost of developing Shingrix was over a billion dollars, and they had failed vaccines in the pipeline that cost hundreds of millions more. Luna: And that's the part that often gets lost in the public debate. People see a $170 per dose list price and think it's pure profit. But the average cost to bring a new drug to market is something like two point six billion dollars when you factor in the failures. Lucas: Right. And GSK has been relatively disciplined. They haven't pulled a Turing Pharmaceuticals — you know, the guy who raised the price of Daraprim from $13.50 to $750 a pill overnight. GSK's price increases are gradual and predictable. But they still provoke backlash. Luna: I remember when GSK raised Shingrix's list price by eight percent in 2022, and there were headlines about 'Big Pharma greed.' Though, in fairness, the net price probably didn't go up as much because rebates increased too. Lucas: Exactly. And that's the weird paradox of drug pricing in America: the people who pay the list price — usually the uninsured — are the ones who can least afford it, while the insured pay a fraction through their copays. GSK has patient assistance programs for the uninsured, but it's still a mess. Luna: So what's the takeaway for a business audience? What can a SaaS company or a consumer brand learn from GSK's pricing playbook? Lucas: I think the biggest lesson is the discipline of value-based pricing. GSK didn't just look at competitor prices or cost-plus. They quantified the economic value their product delivered to the payer. If you're a B2B software company, you can do the same thing — calculate how much your product saves a customer in time or money, and price accordingly. Luna: And the tiered pricing model is also relevant. Not every customer has the same willingness to pay. If you can segment your market intelligently, you can capture more value without alienating lower-income segments. Lucas: But you have to be careful. If your tiered pricing looks arbitrary or unfair, you'll get called out. GSK gets away with it partly because they have a credible story — they publish their tiered prices, they donate vaccines to humanitarian causes. They've built a narrative around equitable access. Luna: Narrative is a huge part of pricing, and I think that's something too many companies neglect. If you can't explain why your price is what it is, you leave room for your customers to write their own story — usually a negative one. Lucas: So to bring it back to Shingrix: the price tag is high, but the story is that it prevents a debilitating disease that costs the system even more. That's a defensible narrative. And GSK has been very consistent about it. Luna: Before we wrap up, I want to touch on something you mentioned earlier — the patent cliff strategy. Because that's a pricing challenge every company faces eventually: what happens when your exclusivity ends? Lucas: It's a great point. GSK's strategy is to have a pipeline of follow-on products ready. For Shingrix, they're developing a next-generation version. For their HIV drugs, they're combining existing drugs into new combinations that can be patented as new products. It's a form of 'evergreening,' but it's legal and common. Luna: And it works because the new combination offers real value — fewer pills, fewer side effects. So you can defend a higher price even if the individual components are generic. Lucas: Exactly. The patent cliff is a pricing cliff, and the only way to survive it is to create new value. That's true in pharma, and it's true in every industry. Luna: I'm thinking about this from a listener perspective — if you're running a business, what's the one concrete thing you can steal from GSK's playbook today? Lucas: I'd say: sit down and calculate the actual economic value your product creates for your best customer. Not the features — the dollars saved or earned. Then build your pricing model around that number. If you can prove you deliver ten thousand dollars in value, you can comfortably charge two thousand. That's the GSK move. Luna: And if you do it right, you might just build a billion-dollar franchise — and save some lives along the way. Lucas: On that note — and I mean this genuinely — these conversations are only possible because of the people who support the show. We deliberately keep this podcast ad-free because we think the content should speak for itself. If you've found any value in what we do, and you want to help us keep it that way, there's a simple link: buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small gesture that makes a big difference. We don't have sponsors, so every bit of support goes straight into making the show better. Lucas: And it really does help us justify the time we spend digging into these topics. So if you've ever learned something from Pricing Power, that's the place to say thanks. Luna: Now, back to GSK — one more thing I find interesting is how they handle pricing negotiations with governments in Europe. In countries like the UK, the National Health Service basically sets the price. GSK has to accept it or walk away. Lucas: That's a totally different dynamic. In the UK, the NHS uses a cost-effectiveness threshold — about twenty thousand to thirty thousand pounds per quality-adjusted life year, or QALY. If Shingrix doesn't meet that threshold, it doesn't get covered. GSK had to provide all their clinical data to prove it was worth it. Luna: And they did. In fact, Shingrix is now recommended for all adults over 50 in the UK. So GSK got the volume, just at a lower price per dose. Lucas: Right. And that's a trade-off every pricing strategist understands: high price, low volume vs. low price, high volume. GSK does both — high price in the US, low price in the UK — and it works because the markets are segmented by geography and regulation. Luna: So the lesson is: understand your buyer's constraints. If your buyer is a government with a fixed budget, you need to prove cost-effectiveness. If your buyer is an insurer, you need to prove you'll save them money. Lucas: Exactly. And if your buyer is a patient paying out of pocket, you need to tell a story that makes them feel the price is fair. GSK does all three, depending on the market. Luna: It's a complex strategy, but it's built on a simple foundation: knowing exactly what your product is worth to each customer segment. Lucas: That's the core of pricing power. And with that, I think we've covered a lot of ground. For GSK, the pricing story is far from over — with biosimilars coming and new vaccine technology emerging, the next decade will test how well they've built their moat. Luna: Looking forward to seeing how it plays out. And maybe we'll do a follow-up when the patent cliff actually hits Shingrix. Lucas: That would be a great episode. For now, thanks for listening — and if you want to support us, you know where to find us. Luna: Until next time.