Stake for Vagelos as CEO and for Merck as a company in deciding whether to invest in Dr. Campbell’s idea Although Dr. Campbell’s idea of a drug (Ivermectin) that could cure River blindness was a path-breaking opportunity for Merck, the company was faced with a number of ethical, financial and moral issues that forced its CEO to undergo deep thought and contemplation before investing in this idea. * Feasibility: There were concerns about the use of this drug on humans and the potential adverse side effects, if any. High Costs: The high costs associated with research and development coupled with the fact that the drug was to be used by lower income groups meant that it showed little or no economic promise. * Cannibalization: From a pure business standpoint, Merck worried that this drug could cannibalize profits from the animal version of the drug through the creation of possible black markets in the affected countries. Percentage of research budget that Merck should invest in drugs that will produce a substandard return on investment
As a company that produces drugs to cure diseases in both humans and animals, Merck operates in a complex dynamic that requires it to take decisions that may not lead to profitability. Further, its corporate philosophy always revolved around the fact that the company’s first priority was the safety of people and only then did profits follow. I, therefore, believe that Merck should invest a large amount ( ~80%) of its research budget even on drugs that will produce a substandard ROI, provided the drugs promise to fully cure diseases without harmful side effects and they are the first in the market to do so.
This could help them build a strong brand equity, goodwill and reputation in the long run thereby creating a foundation for profitability in future. For instance, I believe that Merck has a social responsibility and a moral obligation to invest heavily in the cure for River blindness. Merck’s explanation to a shareholder who might complain about a decision to invest in research on River blindness
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Merck could use the following points to strengthen its decision to invest: * Improves image of the company: The decision will lead to a positive impression about the management and its commitment leading to high brand equity and good reputation, resulting in future profits. * Improves employee productivity: Working towards a philosophy that the company consistently stands for will motivate employees and lead to higher job satisfaction thereby increasing employee productivity and hence profits. Attracts support from investors and society: The decision could be a significant differentiating factor. This coupled with superior brand image could generate investor interest and support from the community. It could also be used as a marketing tool. Merck’s selection of drugs to invest in As stated earlier, Merck must strive to achieve a balance between profitability and corporate social responsibility.
The following criteria could be used to make decisions: * Definite and safe treatment: The drugs have a strong potential to result in safe treatment to life-threatening diseases, without harmful side effects. * First mover advantage: Merck must invest in drugs that give it a strong advantage to develop patents and move into market spaces that are unexplored by other drug companies. * Profitability: While it must remain true to its corporate philosophy, it must also target profitability to sustain itself and maintain its position in the industry in the long run.
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