Global Health and Access to

Medicines

MERCK- COMPANY OVERVIEW

Merck is an international developer, manufacturer and distributor of
pharmaceuticals
It is the ninth largest pharmaceutical company in the world.
It employs more than 60000 people and it has 28 manufacturing plants and
nine research sites.
Major innovations included
Streptomycin for Tuberculosis
ZOCOR for Cholesterol Management

cortisone for rheumatoid arthritis etc.

Industry background
Major factors for future growth
life expectancy in the developed countries has been steadily growing
The newly implemented programmes by various governments in different countries will
increase access of senior citizens to drugs
Developing countries have a significant potential for the pharmaceutical industry in
the future.

Key challenges
Competition
Price controls
Patent violations
They must manage their product pipelines so that patent expirations do not leave
them without protection for their investment.

 Prospects for international expansion

Currently, the United States, the European Union and Japan comprise the three major
pharmaceutical markets which together represent 88% of world sales
developing countries show much faster growth rate than developed countries do

 Importance of CSR activities in pharmaceutical industry

Healthcare and pharma companies are often criticised by people as a
consequence of escalating healthcare prices and increase in healthcare
fraudulent cases
CSR is a strategy where corporates integrate social, environmental or other
important concerns in their business strategies on volunteer basis. It should be
a 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 financial analysts
Increased sales and market share

Case facts
Merck products currently address 60% of the top 20 global burdens of disease as defined
by the World Health Organization(WTO)
Corporate Responsibility Report described the approach, Merck would conduct its
business ethically, by improving the access to all, positive and sustainable impact on
society, treating employees in fair manner
Merck donated the amount totalling to $828 million as cash, products, medical programs
etc

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

Contd
Funding from the Global Funds and the U.S Presidents Emergency Plan for AIDS Relief
(PEPFAR)
Brazilian Storm: patent for STOCRIN was broken, same was followed by Thailand, The
effect will be that prices in poor countries will increase and the Differential pricing policy
will not sustain
Pharma companies will not take active part in HIV programmes as there is no profitability
Vaccines: The vaccine producing capability of developing countries is low
Merck also shifted its focus from vaccine markets in developed countries to developing
countries with help of Global Alliance for Vaccination and Immunization(GAVI) and
GATES foundation

Core Issues what's the case all

about?
To understand the importance of patents and licensing
To understand the pricing policy of the Merck in different countries and identify the
alternative ways of pricing policies
How should the firms like Merck develop a business model which is profitable, and at the
same time, effectively face the challenges of social responsibility

CSR ??.. Merck ??..

CSR ??.. Merck ??..

2% of average net profit spending Recent 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

Merck CSR Since inception over 100 years ago
Famous CSR campaign River Blindness 1987

Intersecting Circle model of CSR

Integration of mentioned dimensions
Integral part of CSR
Managers attention to the overlapping
nature
Helps analyze the anticipated points of
tensions

Mercks way of creating value - Video

CSR Framework
Conformance 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

CSR- a concept of shared value

According to this model- The role of business is to create value of its
shareholders but in such a way that it also creates value for society,
manifesting itself as a win-win situation
Eg: Ciscos establishment of Cisco Academics to train networking personnel
Shared value is very much a top- down concept and needs the full effort of
CEO or the executive committee
The value offering should match with the core competency of the
company

Drivers of CSR practice

Philanthropic motivations of employees
Initiatives from corporate leaders
Company/Industry specific

Platform of 3 theatres of CSR

A descriptive framework from which strategic implication will be drawn
Helps to evaluate and classify CSR practices of companies
Provides a framework to devise a comprehensive strategy that integrate all
the efforts of a company

Distinguishing feature: Each theatre has an unique logic of how programs in

the respective domains are intended to address a firms CSR priorities

The primary theatres of CSR practice

Theatre 1:
PHILANTHROPIC
GIVING

Activities are primarily motivated by charitable instincts

Direct funding to non profit and CSO, in kind donations of products and services to
undeserved populations
o Priority is generating social or environmental value, not necessarily creating an
economic return for the corporation
o Purest form of CSR
Examples:
Coca cola company contributes $88.1 million annually to a variety of environmental,
educational and humanitarian organizations through Coca cola foundation
IBMs computer donations through its global Kid Smart Early Living program
Microsofts donation of almost $300 million in software products to NGO across the
globe

Theatre 2:
REENGINEERING
THE VALUE CHAIN

CSR activities that are symbiotic and intended to benefit the companys bottom line as
well as the environmental or social impacts of one or more of their value chain partners
including supply chain, distribution channels or production operations
Crucial role played by the operation manager and marketing manager
Examples:
Nike has established a code of conduct governing its entire production supply chain
Bimbo Bakerys employee microfinance and health care programs
Walmart partnering with WWF

Theatre 3:
TRANSFORMING THE ECOSYSTEM

Classifying programs that are aimed at fundamentally changing the

businesss ecosystem which helps to enhance the companys long
term business position
CSR activities that may not return immediate business profits
May or may not emerge from the companys core competencies so
require the corporate to fundamentally change its business model
and develop new skills and strategies
This domain of CSR is most effectively undertaken by companies who
have scale, diversified product lines, and significant financial
resources to absorb the uncertainties of a delayed financial payoff
This domain is typically led by a companys CEO or senior
management who can spearhead long range business strategies that
require broad change through out the organisation
Eg: Ray Anderson CEO of Interface , GE electric transportation
Looks for collaboration between corporate, governmental and NGO
interests. Partnering with an NGO that has significant expertise in an
issues area

Where Mercks CSR strategy lies ?

Teams opinion is that Mercks CSR strategy lies in the Theatre 3 platform
because :
Companys mission and value statement shows its commitment to CSR activitiesRespect for the right to health, dedicating to putting patients first
Investment in new medicines and business opportunities like HIV/AIDs medicines ,
focusing on new market- new product strategy
Learning from new markets and reinventing their value chain- distribution,
pricing, new product development, new technology
Wide scale and resources the company has
Associating itself with wide range of NGO, Govt agencies
Future looking at medicines and new strategy for improving access to lifestyle
disease preventing medicines

st
1

Challenge

Issue of patents & licensing

 Maggie Kohn, director of CR says:

We believe that health for all is not just an aspiration, but a right to be
protected and promoted. We believe we have a responsibility and
role to play in helping others, particularly the disadvantaged.

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

Issues
A Global Suit: In 1997, SA parliament passed a law, that gave SA the
right to import generic versions of patented drugs or license their
domestic production
The Brazilian storm: In 2006, Govt., of Brazil announced that it would
issue a compulsory license for STROCIN. This would enable the
Govt., to break the patent for the drug to produce it, domestically,
through a generic manufacturer.
Brazil: 2007 Compulsory license passed.
Thailand: One more country

 There is a dilemma here: At first sight, compulsory licensing means

more people will get these drugs now, but it also means that drug
firms 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 a

responsibility not just to its shareholders, but also to
the wider society audience around the world

R&R

Responsibilities
Philanthropic: Mission and vision of Merck Medicine is for people, not for
profits.
In 2007, its contribution totalled $828 million
U.S. Patient Assistance Program, Merck Medical Outreach Program , Mectizan
Donation Program
Disaster relief: includes donations of medicines through established channels and
trusted partners
Programs & policies:
Developing ACHAP in Botswana 2000

Founding UN AAI, 2 new SRVs, funding mechanisms through Global fund and PEPFAR in
2003.

 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 improve
health and well-being and by enhancing research into diseases?

Legal:
Many companies are being subject to legal proceedings at home and
abroad.
Mercks medical and legal teams are active partners to help foster ethical
promotional practices, helping to achieve business goals by reducing risk
and increasing compliance with the laws and guidelines in a highly
regulated environment

 Economic Responsibilities (State of access 2008): As

of 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 countries with deep price discounts.

So, Merck were getting their main profits from only

developed countries.

Pricing Policies
The price reductions were based on:
All low and medium HDI countries with an adult HIV prevalence rate of 1% or
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 pricing
principle

Pricing policy updation

Since the countrys classification on UNDPs HDI
was based more on social factors, the company
classified based on UNCTADs list of least
developed countries
More towards economic situation, widely used
than HDI

UNCTAD least developed countries lowest, not

for profit price
Countries in medium categories significantly
discounted prices
All other countries market price

International community funding

The Global Fund
Goal increasing resources to fight 3 of worlds most
deadly diseases AIDS, tuberculosis, malaria, to direct
resources to areas of greatest need
60% of funding countries in sub-Saharan Africa
More than 50% - committed to AIDS
2/3rd of funds Governments, 1/3rd to NGOs
50% of funds each group received purchase of
medicines
1/3rd strengthen infrastructure & expand training
Remaining funds monitoring and evaluation

PEPFAR
PEPFAR US President's Emergency Plan for AIDS Relief

Committed $15 billion over 5 years from 2003-08

Identified 15 focus countries home to approx. half of
worlds HIV positive people, home to approx. 8 million
children made vulnerable by HIV/AIDs
2008 expanded to $48 billion till 2013
Expanded funding to 114 countries

Pricing issues
Differential pricing works well when the high prices charged in
developed countries offset the lower prices and below-profit
prices charged in developing and under-developed countries
Social welfare - enhanced when differential pricing permits drug
companies to open new markets in countries where the drug
affordability is significantly lower than the prevailing price in
existing markets.
To see if the benefits of differential pricing works well for the
pharmaceutical company or to the patient depends on the
demand and the existing market.
Differential pricing is not a solution to ensuring access. For people
with affordability levels lower than the marginal cost of
manufacturing, donor support and government subsidies will
continue to be required.

Challenges of crafting a CSR strategy

1.

Different Measures of Success- Different motivation and benefits

2.

Range and role of Protagonists

Which CSR program should my

company focus on?
Depends on core competency (Cisco- network, PNC bank- finance,
Interface- supply chain, Shobha developers- Housing, Mahindra- rural
presence)
Institutional capacity( Wipro- Azim Premji Foundation, HCL- Shiv Nadar
foundation, Mahindra- spark the rise/rural initiatives)
In which area you can excel in the 3 theatre platforms- philanthropic
giving, value chain or transformative ecosystem

Creating a Strategic CSR- Steps

Step 1 : Auditing
Classify and categorize its plethora of CSR programs into one of 3 theatres
Collect every program from each discipline within the company that attempts to
make a deliberate social/environmental contribution

 Step 2: Editing
TO move the programs in each theatre from the top to the bottom as shown in figure and
later across the theatres
Eg: Theatre 1 PNC Bank- Unconnected philantrophic efforts molded to yield a strategic
thrust (Grow Up Great)
Theatre 2- UPS allocated an external agency to reduce their carbon footprints

Using Net Positive model as an editing

A detailed evaluation
tool, the Net Positive model leads CSR practitioners through a
tool
process of determining what their primary business impacts are,

What steps they can take to mitigate the companys negative effects and maximize the
social and
environmental benefits
How to focus their core business competencies for maximum CSR impact throughout the
supply chain

Step 3: Connecting the dots

Crafting a comprehensive and cohesive CSR strategy requires a company
to connect the dots between its various initiatives in all three theatres.

Role of a CSR manager

Difficult task
He/ She has to reconcile the various programs, quantify their benefits,
sketch a logical connection to the business and secure the support of his or
her business line counterparts
Main task to bring coherence to various CSR programs
The above activities will then lead to the development of a CSR strategy for
the company
The journey of CSR strategy starts from philanthropic CSR to Strategic CSR to
CSR competitive advantage
Suitable work allocation and Job description- employee engagement CSR
activities

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 companies Increasing shareholder value as well as societal value

THANK YOU