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