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Merck Company and River Blindness Drug Case Study

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Updated: May 2nd, 2020

Introduction

New York Times (22 Oct, 1987) reported that Merck Company was distributing a new drug that cures river blindness without charges. According to the report, any country that requested for the drug would receive the drugs in coordination with the World Health Organization. At that time, river blindness was estimated to “affect 18 million people in Africa, Middle East, and South America” (para. 2).

A generic version of the drug (ivermectin) was made to make it affordable. According to Dr. Vagelos (New York Times, 1987), it was necessary because “those who needed it the most could not afford to pay for it” (para. 6). By the year 2006, “more than 68 million people were being treated annually” (The Merck MECTIZAN Donation Program – River Blindness, 2007, p. 2). It is estimated that 37 million people are infected annually. Those at risk may add up to 100 million people.

The cure for river blindness came as a result of a research work for animal treatment. The scientist realized that the drug used to treat animals could cure river blindness. The worm that causes river blindness may grow up to 2 feet in length. It distorts the texture of the skin and causes blindness when it reaches the eye (Murray, Poole & Jones, 2006).

The cost of developing the drug for the “purpose of treating river blindness was estimated at US$100 million” (Murray, Poole & Jones, 2006, p. 200). The company faced an additional challenge of putting at risk the animal treatment market. The market value for the animal treatment was estimated at about US$300 million. The risk would develop if the drug had side effects that bring negative publicity. Mectizan was the first version of the drug. The company stayed for seven years without finding a sustainable market for the drug. Merck offered to issue the drug free of charge but it lacked distributors.

Niles (2011) discusses that stakeholders are “interested entities that participate in an industry” (p. 24). Consumers, shareholders, employees, competitors, and the government are the main stakeholders. In the pharmaceutical industry, they may also include business partners such as health care providers, and insurance companies. By providing the drug free of charge, competitors cannot develop a substitute for the drug because it would lack a market.

Merck’s ethical dilemma

Merck’s dilemma can be described as one in which a firm is supposed to make a right decision without legal requirements. Robinson (n.d) discusses that an ethical dilemma requires managers to weigh the outcome of different decisions. Legal obligations may arise in case the drug has side effects. There are additional costs associated with approving the safety of using the drug. The drug is not marketable because the disease affects regions with low purchasing power.

Jennings (2012) discusses that business ethical decisions require managers to examine whether there are legal obligations. They also check whether a decision is balanced and how they would feel after implementing the decision. To balance options, one takes the perspective of those in need. When checking the legality of a decision, a manager examines if there are sections of the law that can be used to sue the firm.

The manager thinks of the kind of description he/she would get from a newspaper’s analysis. Jennings (2012) discusses that how a person would feel is expressed in many ways. The Wall Street Journal Model requires that managers evaluate the “contribution of their decisions to shareholders, employees, community, and customers” (p. 44). Favorable headlines may be beneficial to the company and shareholders. Banerjee (2009) argues that big pharmaceutical companies spend at least twice as much on marketing their products than on research and development (R&D). Some companies choose philanthropy for marketing their brands. Profits may decrease or increase as a result of charitable activities. There may be long-term social benefits such as elimination of river blindness.

Banerjee (2009) discusses that pharmaceutical companies receive generous tax deductions as a result of engaging in R&D that creates a new drug. Most companies in the American pharmaceutical industry prefer to keep the real cost of R&D confidential.

Merck’s competitor, Pfizer, operates a free drug program in some African states for the treatment of trachoma (Banerjee, 2009). The benefits to the company include building a good reputation, increased customer satisfaction, better relations with communities, and motivation to employees. The cost is considered negligible compared to the benefits. Merck reduces cost by developing generic drugs.

World Trade Organization (WTO) has been debating over the effectiveness of patent protection that prevents the development of life-saving drugs for poor countries. Pharmaceutical companies receive great criticism over the “protection of intellectual property and patent rights for life-saving drugs” (Banerjee, 2009, p. 56). South Africa was once sued by 39 pharmaceuticals over the production of affordable generic life-saving drugs against WTO patent conventions. By developing ‘ivermectin’, Merck achieved to set corporate social responsibility standards for pharmaceutical companies.

Situational analysis

Merck’s dilemma was that it was the only company with the drug to cure river blindness disease before it reaches an advanced stage. When the disease reaches the blindness stage, it is impossible to restore sight. Those at risk are unlikely to afford the full cost of the drug. It was a global problem. Donaldson & Dunfee (1999) discuss that “philanthropy is not mandatory, and firms may decide to give nothing at all to charity” (p. 254). There was need to develop a generic version to increase affordability.

Some of the factors that hinder managers from making good decisions as discussed by Jennings (2012) include the consideration of what other firms practice. Firms consider the possibility of someone else taking full responsibility for the cost. The tradition of the industry also has an influence. Donaldson & Dunfee (1999) discuss that it was unlikely that “Merck would generate investment returns comparable to its typical marketplace drugs” (p. 254). Merck could have considered that all firms produce drugs for profitability. It is the industry’s tradition.

Stakeholder analysis

According to the Stakeholder Dialogue (2011), Merck’s stakeholders include “business associates, employees, the Merck family, investors, government authorities, associations, neighbors on their sites, NGOs among others” (para. 1). The method of balancing stakeholders’ interests is mentioned as the drive towards solving ethical dilemmas for the company.

Gilmartin (2011) discusses that Pfizer Company is Merck’s stakeholders for being the main competitor. Patients are stakeholders for being either beneficiaries or at risk of side effects as a result of using Merck’s products. The number of employees globally in 2010 was 95,000 (Looking Ahead, 2010). Employees are at risk of losing their jobs if the company engages in risky activities.

Donaldson & Dunfee (1999) discuss that other companies did not respond to the dreaded river blindness illness with a search for a cure. Merck could have chosen to ignore the product. Donaldson & Dunfee (1999) argue that Merck’s customers “may claim as stakeholders that Merck should invest all of its research efforts toward resolving health problems in their market base” (p. 257).

Customers may have considered that heart disease and cancer were the main threat in countries that Merck served. Donaldson & Dunfee (1999) discuss that sometimes stakeholders may raise claims that “violate fundamental and universal principles of human behavior” (p. 256). River blindness was a global problem that ought to have been of concern to all pharmaceutical firms that operate globally.

Merck’s situation based on ethical theories

Donaldson & Dunfee (1999) discuss that a firm may engage in charitable activities at free will. There were no legal obligations that bound Merck to fund research on river blindness treatment. Cultural relativism is the logic of considering that all norms that are developed by society are equally valid (Cultural Relativism: All Truth is Local, 2013). They may vary across cultures. Merck’s decision under cultural relativism may prove acceptable in many societies. Business societies may disapprove the decision to develop a drug targeting a market that is unlikely to afford it. Other firms with a global market do not consider developing a drug without potential for profits.

Merck’s teleological approach is made stronger by the fact that developing a cure could lead to elimination of the disease. If the disease was eliminated, the cost of producing the drug would decline. Fernando (2009) discusses that teleological approach is results-oriented. Robinson (n.d) discusses that “utilitarianism concerns the greatest good for the greatest number” (p. 2). A cure that may result in elimination of the disease would reduce future costs.

Merck’s action may be disapproved from a deontological perspective. Merck is supposed to add value to stakeholders. The stakeholders may benefit from positive media coverage, and reputation of the brand. Merck is supposed to invest in research activities that improve the well being of its customers. The River blindness drug was developed for a market segment outside its positioning. Research incurs costs that reduce shareholder earnings. According to Robinson (n.d), deontology requires the “absolute necessity of duty irrespective of rewards or punishment” (p. 3). Following this view, Merck ought to have sought profitability and drugs that add value to customers within its market positioning.

Merck has the responsibility to develop drugs that add value to its market base customers. Research costs are generated from deductions that would have been shared as dividends. Shareholders expect investment and growth that involves increased future earnings. According to utilitarianism, the good of developing a cure for river blindness exceeds all other benefits. Neglecting to develop such a cure has negative impact such as irreversible blindness, skin deformation, and reduction of land under cultivation. Merck’s overall responsibility to society is to develop drugs that help improve human health.

Conclusion

Merck Company followed the right ethical procedures to develop the right drug. Fernando (2009) argues that Merck developed the drug for sale before developing generic drugs to be distributed free of charge. Pharmaceutical companies are under a legal obligation to ensure that drugs they develop do not harm patients. The generic drug was developed after the original version which must have been adequately tested before being marketed. Some drugs have mild side effects such headache or exhaustion. Mild side effects are labeled on drugs and are acceptable to society.

Merck developed a generic version of the drug to reduce the cost of philanthropy. Philanthropy is conducted out of free will. The management followed the right procedure to reduce the cost of developing the drug meant for philanthropy. By developing generic drugs, the drug is made available to a larger group of people. Reducing the cost of developing the drug protects the interest of shareholders. The company’s objective is to increase share earnings of shareholders and ensure delivery of high quality products.

Research and development of the drug involve a high cost which lowers share earnings. The drug had no potential market and could only be developed for charity. The drug was not the main target of the research. According to utilitarianism, it would be great evil to ignore a discovery of great importance to humanity because it lacks profitability. Merck was obliged under the corporate social responsibility to develop the drug. The impact of the disease to patients was overwhelming that it led to suicide and blindness. It would be inhumane to neglect the discovery because it lacked a potential market.

Merck considered that developing the drug for human beings could put at risk its animal drug market. Animals’ bodies such as cattle are strong. They can withstand powerful medicine. On the other hand, human beings are sensitive. Treated patients may report negative side effects that are not observable in animals. Such reports may lower the marketability of the drug. Merck followed the right procedure by first developing the drug for sale. It was acceptable in the interest of stakeholders.

The drug failed to be marketable. Merck offered it for distribution to avoid an additional cost of distribution. The company lacked distributors so it decided to distribute the drug itself. Its corporate social responsibility would not have been effective had the company stopped because of lack of distributors. It would have incurred a cost without benefit.

Recommendations

Governments should make it mandatory for pharmaceuticals to disclose all beneficial discoveries even if they lack potential for profitability.

Pharmaceutical companies should partner with philanthropic organizations in case of such development to share the cost of the program.

Merck almost failed to take the drug where it was mostly needed because of lack of distributors. Pharmaceutical companies’ responsibility should be to hand over the drugs to the government of countries that are at risk. From that point, the authorities can conduct the distribution process themselves.

Pharmaceutical companies can partner with each other in case of such discovery to develop the drug at shared costs.

Pharmaceutical companies are under strict legal restrictions to distribute only drugs that have been approved as safe for human use. They should comply with this regulation even if a new drug has great potential for profits.

In such a discovery, pharmaceutical companies can first develop the drug for sale. In case of charity, it can look for philanthropic companies to incur a partial cost.

When corporate social responsibility involves a conflict of interest with stakeholders, managers should balance the benefits. The cost of philanthropy should not result in losses for shareholders or failing to meet consumer standards. In most cases, philanthropy is associated with increased profitability.

Reference List

Banerjee, S. (2009). Corporate Social Responsibility: The Good, the Bad and the Ugly. Northampton, USA: Edward Elgar Publishing.

Donaldson, T., & Dunfee, T. (1999). Ties That Bind: A Social Contracts Approach to Business Ethics. Cambridge, USA: President and Fellows of Harvard College.

Fernando, A. (2009). Business Ethics and Corporate Governance. New Delhi, India: Dorling Kindersley.

Gilmartin, R. (2011). .

Jennings, M. (2012). Business: Its Legal, Ethical, and Global Environment. Mason, USA: South-Western, Cengage Learning.

. (2010).

. (1987, October 22). [Press release].

Murray, P., Poole, D., & Jones, G. (2006). Contemporary Issues in Management and Organizational Behaviour. Victoria, Australia: Cengage Learning Australia.

Niles, N. (2011). Basics of the U.S. Health Care System. London, UK: Jones & Bartlett Publishers.

Robinson, D. (n.d). Ethics & Ethical Dilemmas, Introducing, the Business Ethics Synergy Star, a Technique for Defining a Dilemma and Resolving it.

Stakeholder Dialogue. (2011).

The Merck MECTIZAN Donation Program – River Blindness. (2007).

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