GLOBAL MARKETS & STRATEGIC PERSPECTIVE

MERCK: GLOBAL HEALTH AND ACCESS TO MEDICINE LAYOUT

Presented By: Group 6

NAME PGDM NOAFSAL SHA 14007GAYATHRI K HARI 14054GAYATHRI SATISH 14055IRISHI R PILLAI 14064MATHEW STEPHEN 14076TONY SEBASTIAN 14171

CASE FACTS

ABOUT MERCK • Global research driven pharmaceutical company founded in 1891• Company discovered ,developed ,manufactured and marketed

vaccines and medicines to address unmet medical needs • Self described as “ dedicated to putting patients first”• Headquartered in New Jersey employed 60,000 people worldwide

in 2007• 28 manufacturing plants and 9 research sites

• $24.2 billion world sales and $3.275 billion net income in 2007• 60% of company’s sales revenue came from the United States,20% from

Europe and 6% from Japan • Some of the drug innovations developed by Merck included :

Streptomycin for tuberculosis, cortisone for rheumatoid arthritis, ARVs for HIV/AIDS

• Company also developed dozens of vaccines to prevent measles , mumps, rubella, chickenpox, hepatitis A etc.

• Their products addresses 60% of the top 20 global burdens of disease as defined by the WHO

(cont.…)

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ISSUES IN THE CASE Issue of patents and licensing Challenges to pricing policies Expanding the business in developing nations Integrating Social Corporate Responsibility with business Lack of proper infrastructure in developing countries for

providing HIV medicines

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MERCK’S STAKEHOLDERS Pharmaceutical Firms• Generic• Proprietary

Governments of different countries Non-Profit organizations (Bill & Melinda Gates Foundation, Oxfam) People Health organizations like WHO, UN , FDA

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ACHAP Accelerating Access Initiative Establishing a Pricing Policy Donated $828 million in cash contributions, products, medical

programs in 2007 Ranked among top 2 donors for philanthropic work(1999 -2007) Access to Medicines and vaccines in Low Income Countries

CSR INITIATIVES BY MERCK

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PROGRAMS AND POLICIESACHAP- African Comprehensive HIV/AIDS Partnerships in 2000 Implemented in Botswana, partnered with Bill & Melinda

Gates Foundation Government- “Masa” National ARV treatment program Engineer entire supply chain, train health professionals,

build infrastructure for training and treatmentAccelerating Access Initiative(AAI) Provide HIV medicines at a discounted rate for developing

countries. UN agencies to develop national treatment plans and forge

supply agreements for specific ARVs

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Pricing Policy

Differential pricing policy when joined AAI in 2000 Extended in 2001, used UNDP’s HDI & HIV prevalence as guidelines in

price reductions Establishing Price Policy-Issue of Standardization vs. Adaptation Differential pricing policy when joined AAI in 2000 Extended in 2001, used UNDP’s HDI & HIV prevalence as guidelines in

price reductions Recognizing the importance of affordable access to medicines in

developing countries, Merck adapts pricing through product donations, flexible pricing and differentiated pricing.

If HDI of country is low, and HIV prevalence >=1%, not for profit prices If HDI of country is medium and HIV prevalence <1%, reduced prices are

offered If HDI of country is high, competitive and market based prices

(cont.…)

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UPDATED PRICING POLICY• In 2007 Merck updated its pricing policy from HDI based to

United Nations Conference on Trade and Development’s (UNCTAD’s) list of least developed countries:based on economic factors rather than social factors• Under new policy, countries that received CRIXIVAN, STOCTIN

and ATRIPLA were guaranteed prices would not increase• Prices at tier 1 countries, STOCRIN at $237, CRIXIVAN at $600

and ATRIPLA at $613 per patient per year• Prices at developing countries and emerging market was

STOCRIN at $657, CRIXIVAN at $1029 and ATRIPLA at $1033• All other countries paid the market prices

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LICENSING & IP ISSUESIssue with South African Government regarding protection of licenses and patents

• Strong intellectual property protection is necessary to perpetuate innovation and stimulate investment in any research oriented industry• Companies bearing the risks and investment costs of

discovering and developing new drugs should be given appropriate time to recoup those costs• Series of interactions lasted for over 3 years, between

pharmaceutical companies, country governments, WHO WTO etc., NGOs, Activists, and the Media• Outcome was the reduction of ARV Prices for poor countries

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Brazilian Storm

• In 2006, Brazilian Govt. announced the issuing of compulsory license for STOCRIN, a Merck Drug and a key ingredient in triple-drug therapy for AIDS and HIV.• This would enable the Govt. to break the patents and

produce the drug domestically through generic manufacturers• Today’s patients vs. Tomorrow’s patients• Differential Pricing Policy will not be sustainable• Less investment by companies in these countries

ANALYSIS

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GLOBAL MARKET SELECTION AND ENTRY STRATEGY

Partnership with governments, foundations, NGOs and international organizations.

Working with GAVI (Global Alliance for Vaccination and Immunization) and Bill & Melinda Gates Foundation

Engaging globally and developing innovative approaches Adoption of new developing country vaccine pricing policy

for ROTATEQ and GARDASIL

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• Threat of New Entrants• Barriers to Entry: High

• Risk associated with drug development• Economies of scale barriers in R&D

• Bargaining power of suppliers: Medium• Mostly commodities• Individual scientists may have some personal

leverage• Bargaining power of buyers: Medium

• Large power of buyers – plan sponsors with an incentive to contain costs

• Large discounts on volume buys – hospital suppliers, large distributors, government institutions

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(cont.…)

• Threat of substitutes: Low• Threat of generic drugs• Regionalized medical systems e.g.: Ayurveda• Health conscious customers looking for natural

medicines instead of chemical ones

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• Intensity of rivalry: High• Competition is of global level• Companies specializing in certain types of

diseases• Government intervention increases rivalry• Very profitable industry but declining margins

(cont.…)

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PEST ANALYSIS• Political • South Africa – law favouring generic versions of patented drugs• Brazil and Thailand also issued compulsory licensing of ARVs.• Economic • Developing countries have per capita GDP below $1000, making price

differentiation strategy a must for survival • Social • Social perception about profit making being above patients• Strong criticism from social activists• Technological• Lack of proper technological advancement due to improper infrastructure in the

developing countries (e.g.: Lack preventive care, facilities for transportation and delivery of medicines on time etc. )

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LESSONS LEARNT IN DEVELOPING COUNTRIES• Issues of Intellectual Property Rights in South Africa• Licensing and price equalization of medicines lead to

developing countries in dire need taking the hit• 95% of the infected resided in these countries• These countries lack medical infrastructure• Question of cost-effectiveness in providing drugs to these

countries

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IMPLICATIONS FOR THEIR BUSINESS MODEL • Issues and effects of patents, licenses and intellectual property rights

on pricing• Problems in providing medicines and vaccines to those residing in

developing countries at no profit prices• Need for proper infrastructure and facilities before venturing into the

country• Need to satisfy the stakeholders as well as aligning the company with

unwavering commitment to ethics and integrity.

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THANK YOU!