Merck & Co. Case Study

Case Brief: Case Study 5 – Merck’s Crixivan

Case Names and Roles

• Merck & Co: Pharmaceutical Company who created an antiviral drug that fights AIDS.
• Stadtlander’s Pharmacy: Mail order pharmacy partnered with Merck.
• FDA: Approves pharmaceutical drugs.

Background and Facts

        Merck & Co created an antiviral drug that fought the AIDS virus called Crixivan. They successfully passed the stages that the FDA requires to approve drugs. Crixivan had two other competitors, Norvir and Invirase, but had an advantage over both because it was more potent and had less side effects. Since the drug was so effective, the FDA approved the drug six months earlier than expected. Merck & Co still was months away from releasing the drug to make it potent enough for demand, but its competitors were already on the market and had the advantage of time. There would be a high demand for Crixivan since there was an increasing number of patients contracting HIV, the problem was that Crixivan is a difficult drug to mass-produce and the demand was increasing more than Merck could produce. It takes about three times as long to make this drug than any other Merck & Co drug produced, and requires more raw material to make small amounts of the drug.

        The FDA’s approval was contingent upon Merck’s ability to monitor how the drug was produced and made available to patients, so Merck decided to choose Stadtlander’s Pharmacy, a mail-order pharmaceutical company, as its sole distributer to closely monitor the patients receiving Crixivan. AIDS activists, the pharmaceutical industry, and public policy makers were disturbed by the sole distribution arrangement between Merck and Stadtlander’s because they would have temporary monopoly over the drug and were “price gouging” the HIV population. Protesters also felt that a patient-pharmacy relationship would be difficult to maintain through mail-ordering.

Organizational Issues

• Merck & Co has to delay distribution of Crixivan until production increases, despite FDA approval.
• Production is low and demand is high.
• Difficult to closely monitor patients receiving Crixivan with multiple distributors.
• How to distribute a drug with limited supply.
• Approval was contingent.

Decision or Resolution

        Merck decided to use their own plant for production and decided to temporarily go with a single pharmaceutical distributor. Merck also chose to price Crixivan far lower than the industry expected but later decided to price the drug at a higher price.

Reasoning

        Merck decided to use their own plant for production to control quality and decided to go with a single mail order pharmaceutical distributor to closely monitor the patients, as well as monitor their counseling. The single pharmaceutical distributor would be temporary until Merck could increase production of Crixivan. Merck’s decision to price the drug at a low price was to be “competitive, to facilitate access, and to ensure usage of the product”. Merck’s decision to increase the price was for profit and because they would have to hire approximately 400 more employees for production.