Merck case study analysis

8/10/2019 Merck case study analysis

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Global Health and Acces

Medicines


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MERCK- COMPANY OVERVIEW

Merck is an international developer, manufacturer and distribpharmaceuticals

It is the ninth largest pharmaceutical company in the world.

It employs more than 60000 people and it has 28 manufacturnine research sites.

Major innovations included

Streptomycin for Tuberculosis

ZOCOR for Cholesterol Management

cortisone for rheumatoid arthritis etc.


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Industry background

Major factors for future growth

life expectancy in the developed countries has been steadily growin

The newly implemented programmes by various governments in diffeincrease access of senior citizens to drugs

Developing countries have a significant potential for the pharmaceuthe future.

Key challenges

Competition

Price controls

Patent violations

They must manage their product pipelines so that patent expirations them without protection for their investment.


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Prospects for international expansion

Currently, the United States, the European Union and Japan comprise the three mapharmaceutical markets which together represent 88% of world sales

developing countries show much faster growth rate than developed countries do


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Importance of CSR activities in pharmaceutical indus

Healthcare and pharma companies are often criticised by pconsequence of escalating healthcare prices and increase

fraudulent casesCSR is a strategy where corporates integrate social, environm

important concerns in their business strategies on volunteer ba part of companys overall business strategies

Some common benefits of CSR are

Strengthened brand positioning

Enhanced corporate image

Increased ability to attract, motivate, and retain employees

Decrease operating costs; Increased appeal to investors and fi

Increased sales and market share


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Case facts

Merck products currently address 60% of the top 20 global burdens of diseaseby the World Health Organization(WTO)

Corporate Responsibility Report described the approach, Merck would condbusiness ethically, by improving the access to all, positive and sustainable imsociety, treating employees in fair manner

Merck donated the amount totalling to $828 million as cash, products, medicetc

In 2007 Merck updated its pricing policy from HDI based to United Nations CoTrade and Developments (UNCTADs) list of least developed countries


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Contd

Funding from the Global Funds and the U.S Presidents Emergency Plan for A(PEPFAR)

Brazilian Storm: patent for STOCRIN was broken, same was followed by Thailaeffect will be that prices in poor countries will increase and the Differential prwill not sustain

Pharma companies will not take active part in HIV programmes as there is n

Vaccines: The vaccine producing capability of developing countries is low

Merck also shifted its focus from vaccine markets in developed countries to d

countries with help of Global Alliance for Vaccination and Immunization(GAVGATES foundation


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Core Issueswhat's the caseabout?

To understand the importance of patents and licensing

To understand the pricing policy of the Merck in different countries and ident

alternative ways of pricing policies

How should the firms like Merck develop a business model which is profitable

same time, effectively face the challenges of social responsibility


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CSR ??.. Merck ??..

2% of average net profit spendingRecent law

Core characteristics

Voluntary

Internalizing or managing externalities

Multiple stakeholder orientation

Alignment of social and economic responsibilities

Practices and values

Beyond philanthropy

Motive for Merck to enter into CSR

MerckCSRSince inceptionover 100 years ago

Famous CSR campaignRiver Blindness1987


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Intersecting Circle model of CSR

Integration of mentioned dimensionIntegral part of CSR

Managers attention to the overlappnature

Helps analyze the anticipated pointstensions

Mercks way of creating value - Video


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CSR FrameworkConformance with Merck Case and model for other companies

Why Every Company Needs a CSR strategy and How to Build it

- Kash Rangan, Lisa A Chase, Sohel Karim


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CSR- a concept of shared value

According to this model- The role of business is to create valushareholders but in such a way that it also creates value for smanifesting itself as a win-win situation

Eg: Ciscos establishment of Cisco Academics to train netwo

Shared value is very much a top- down concept and needs CEO or the executive committee

The value offering should match with the core competency ocompany


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Platform of 3 theatres of CSR

A descriptive framework from which strategic implication will

Helps to evaluate and classify CSR practices of companies

Provides a framework to devise a comprehensive strategy ththe efforts of a company

Distinguishing feature: Each theatre has an unique logic of hothe respective domains are intended to address a firms CSR

The primary theatres of CSR practice


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The primary theatres of CSR practiceTheatre 1:PHILANTHROPICGIVING

Activities are primarily motivated by charitable instinctsDirect funding to non profit and CSO, in kind donations of productsundeserved populationso Priority is generating social or environmental value, not necessar

economic return for the corporation

o Purest form of CSRExamples: Coca cola company contributes $88.1 million annually to a varie

educational and humanitarian organizations through Coca cola IBMs computer donations through its global Kid Smart Early Livin Microsofts donation of almost $300 million in software products t

globe

Theatre 2:REENGINEERINGTHE VALUE CHAIN

CSR activities that are symbiotic and intended to benefit the compwell as the environmental or social impacts of one or more of their including supply chain, distribution channels or production operatioCrucial role played by the operation manager and marketing manExamples:Nike has established a code of conduct governing its entire producBimbo Bakerys employee microfinance and health care programsWalmart partnering with WWF

Theatre 3: Classifying programs that are aimed at fundamen


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Theatre 3:TRANSFORMING THE ECOSYSTEM

Classifying programs that are aimed at fundamenbusinesss ecosystem which helps to enhance theterm business position

CSR activities that may not return immediate busiMay or may not emerge from the companys correquire the corporate to fundamentally change i

and develop new skills and strategies

This domain of CSR is most effectively undertakenhave scale, diversified product lines, and significaresources to absorb the uncertainties of a delaye

This domain is typically led by a companys CEO omanagement who can spearhead long range bu

require broad change through out the organisatiEg: Ray Anderson CEO of Interface , GE electric t

Looks for collaboration between corporate, goveinterests. Partnering with an NGO that has significissues area


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Where Mercks CSR strategy lies

Teams opinion is that Mercks CSR strategy lies in the Theatrebecause :

Companys mission and value statement shows its commitment tRespect for the right to health, dedicating to putting patients first

Investment in new medicines and business opportunities like HIV/focusing on new market- new product strategy

Learning from new markets and reinventing their value chain- dispricing, new product development, new technology

Wide scale and resources the company has

Associating itself with wide range of NGO, Govt agencies

Futurelooking at medicines and new strategy for improving acdisease preventing medicines


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1stChallengeIssue of patents & licensing


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Maggie Kohn, director of CR says:

We believe that healthfor all is not just an aspiration, but a righprotected and promoted. We believe we have a responsibirole to play in helping others, particularly the disadvantaged.

Key Question was where this R&R begins and where it ends


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Issues

A Global Suit: In 1997, SA parliament passed a law, that gave SA thright to import generic versions of patented drugs or license theirdomestic production

The Brazilian storm: In 2006, Govt., of Brazil announced that it wouldissue a compulsory license for STROCIN. This would enable theGovt., to break the patent for the drug to produce it, domesticallythrough a generic manufacturer.

Brazil: 2007 Compulsory license passed.

Thailand: One more country


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There is a dilemma here: At first sight, compulsory licensing meansmore people will get these drugs now, but it also means that drugfirms will be less keen to invest in these nations in future.

Have a closer look: Fight between

So R&R: Mercks senior leader had recognized responsibility not just to its shareholders, but alsothe wider society audience around the world


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R&R


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Responsibilities

Philanthropic: Mission and vision of Merck Medicine is for peprofits.

In 2007, its contribution totalled $828 million

U.S. Patient Assistance Program, Merck Medical Outreach ProgrDonation Program

Disaster relief: includes donations of medicines through establishtrusted partners

Programs & policies:

Developing ACHAP in Botswana 2000

Founding UN AAI, 2 new SRVs, funding mechanisms through Global f2003.


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Ethical responsibilities:

Adherence to the law (Registration etc)

Look into aspects like

who is the ultimate beneficiary of the donation

Will the donation benefit society by increasing awareness of ways to improvhealth and well-being and by enhancing research into diseases?

Legal:

Many companies are being subject to legal proceedings at home andabroad.

Mercks medical and legal teams are active partners to help foster ethpromotional practices, helping to achieve business goals by reducing rand increasing compliance with the laws and guidelines in a highlyregulated environment


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Economic Responsibilities (State of access 2008): Aof 2008, Merck products were involved in treating

777,000 patients in 125 countries 80% of individuals obtained ARVs drugs in countries

Merck didnt profit.

7% in countrieswith deep price discounts.

So, Merck were getting their main profits from only

developed countries.


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Pricing Policies

The price reductions were based on:

All low and medium HDI countries with an adult HIV prevalence rate of 1%greater qualified for lowest and not for profit prices

Countries in medium HDI category with an HIV prevalence of less than 1%qualified for a reduced price

For high HDI countries, Merc applied competitive, market based pricingprinciple

Pricing policy updation


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Pricing policy updation

Since the countrys classification on UNDPs Hwas based more on social factors, the compa

classified based on UNCTADs list of ledeveloped countries

More towards economic situation, widely usthan HDI

UNCTAD least developed countries lowest, nfor profit price

Countries in medium categories significandiscounted prices

All other countriesmarket price

International community funding


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International community funding

The Global Fund

Goalincreasing resources to fight 3 of worlds mosdeadly diseasesAIDS, tuberculosis, malaria, to direresources to areas of greatest need

60% of fundingcountries in sub-Saharan Africa

More than 50% - committed to AIDS

2/3rdof fundsGovernments, 1/3rdto NGOs

50% of funds each group receivedpurchase ofmedicines

1/3rdstrengthen infrastructure & expand training

Remaining fundsmonitoring and evaluation

PEPFAR


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PEPFAR

PEPFARUS President's Emergency Plan for AIDS Relief

Committed $15 billion over 5 years from 2003-08

Identified 15 focus countrieshome to approx. half worlds HIV positive people, home to approx. 8 milliochildren made vulnerable by HIV/AIDs

2008expanded to $48 billion till 2013

Expanded funding to 114 countries

Pricing issues


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Pricing issues

Differential pricing works well when the high prices chargedeveloped countries offset the lower prices and below-pprices charged in developing and under-developed countries

Social welfare - enhanced when differential pricing permits companies to open new markets in countries where the affordability is significantly lower than the prevailing pricexisting markets.

To see if the benefits of differential pricing works well forpharmaceutical company or to the patient depends ondemand and the existing market.

Differential pricing is not a solution to ensuring access. For pewith affordability levels lower than the marginal cosmanufacturing, donor support and government subsidies

continue to be required.


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Challenges of crafting a CSR stra1. Different Measures of Success- Different motivation and benefits

2. Range and role of Protagonists


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Which CSR program should mycompany focus on?

Depends on core competency (Cisco- network, PNC bank- fInterface- supply chain, Shobha developers- Housing, Mahindpresence)

Institutional capacity( Wipro- Azim Premji Foundation, HCL- Shfoundation, Mahindra- spark the rise/rural initiatives)

In which area you can excel in the 3 theatre platforms- philagiving, value chain or transformative ecosystem


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Creating a Strategic CSR- Steps

Step 1 : Auditing

Classify and categorize its plethora of CSR programs into one of

Collect every program from each discipline within the companymake a deliberate social/environmental contribution

Step 2: Editing


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Step 2: Editing

TO move the programs in each theatre from the top to the bottom as shownlater across the theatres

Eg: Theatre 1 PNC Bank- Unconnected philantrophic efforts molded to yield athrust (Grow Up Great)

Theatre 2- UPS allocated an external agency to reduce their carbon footprin


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Using Net Positive model as an etool A detailed evaluation tool, the Net Positive model leads CSR practitioners thr

process of determining what their primary business impacts are,

What steps they can take to mitigate the companys negative effects and msocial and

environmental benefits

How to focus their core business competencies for maximum CSR impact throsupply chain


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Step 3: Connecting the dots

Crafting a comprehensive and cohesive CSR strategy requireto connect the dots between its various initiatives in all thre


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Role of a CSR manager

Difficult task

He/ She has to reconcile the various programs, quantify their sketch a logical connection to the business and secure the suher business line counterparts

Main task to bring coherence to various CSR programs

The above activities will then lead to the development of a Cthe company

The journey of CSR strategy starts from philanthropic CSR to SCSR competitive advantage

Suitable work allocation and Job description- employee engactivities


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Conclusion

Comprehensive view of CSR

Conflicting points in CSR

Dynamism and changing health care industry

Models on CSR

Epidemic to Lifestyle diseases

Dual role of companiesIncreasing shareholder value as well as societal val


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THANK YOU

Documents

Merck case study analysis