Magazine Article | January 4, 2016

How Merck Balances The Business Of Corporate Social Responsibility

Source: Life Science Leader

By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL

When I first connected with Merck’s Julie Gerberding, M.D., MPH, the original idea was to dig into the story behind the work being done on the development of an Ebola vaccine. When panic over a possible U.S. outbreak began to bubble in the fall of 2014, people questioned why an Ebola vaccine did not yet exist. While some fingered NIH budget cuts as the culprit, others, yet once again, took aim at the biopharmaceutical industry and the economics of drug development. After all, why would biopharmaceutical companies pour millions of R&D dollars into curing a disease that sporadically surfaces in low-income areas of the world where there is little or no money to be made? A year and a half later, when Merck and NewLink Genetics began reporting very positive results on their Ebola vaccine initiative, the question then turned to, “Yeah, but will it make any money?” It seemed Merck was in the rather precarious position of “Damned if you do, and damned if you don’t.”

But Gerberding, Merck’s EVP of strategic communications, global public policy, and population health and a former director of the CDC, is savvy. During our initial conversation, she pointed out how Merck has been in such positions before. For example, when William Campbell, Ph.D. (a retired Merck research scientist) wanted to develop Mectizan (ivermectin), a treatment for river blindness in Africa, Latin America, and Yemen, despite the product having zero commercial viability, Merck supported his efforts. “We have an ‘in perpetuity’ commitment to make that drug available as long as it’s helpful and useful on a global basis for river blindness,” she adds. “In my view, we have a similar commitment to the development of an Ebola vaccine.” Gerberding believes that when a company has the knowledge and expertise to impact important health problems, there is a responsibility to act, even if there is no way to create a commercially viable enterprise. It’s part of the company’s commitment to corporate social responsibility (CSR). And while a humanitarian impulse is the real driver of most drug development, Gerberding realizes that there has to be some form of business justification, too. “Simply putting things into the philanthropic bucket is rarely sustainable,” she attests. The challenge, of course, is to figure out how to solve key health problems, such as river blindness and Ebola, in an affordable and sustainable way. Gerberding says the solution sometimes resides not just in the application of CSR initiatives, but also in finding common ground for what both business and society value.

Balancing The CSR Business Equation
The concept of CSR has been around for more than 50 years, but Gerberding says its definition has evolved into somewhat of an all-encompassing term. “Companies use CSR to describe the combination of their environmental sustainability, philanthropy, and reputation enhancement activities,” she shares. “It’s how they try to bring value back to the communities and people they serve.” Merck, however, looks at CSR as a commitment to developing creative and innovative solutions to global health challenges, while at the same time building its business in a sustainable way.

While philanthropy is an important demonstration of Merck being a solid corporate citizen, it is also reflected in the company’s approach to other CSR initiatives. For example, one of the biggest social health problems Gerberding saw countries and governments struggling with was how to achieve the millennium development goal (MDG) around maternal mortality. Referred to as MDG5, the maternal health initiative had two primary targets: between 1990 and 2015, reduce by three-quarters the maternal mortality ratio, and by 2015, achieve universal access to reproductive health. To assist in helping to achieve MDG5, Merck launched its Merck for Mothers program, a $500 million investment being made over 10 years. “With this initiative, we are trying to do something a little different than the usual CSR portfolio,” Gerberding states. For Merck, the process began by meeting with country health ministers and government leaders, among others, to determine what a pharmaceutical company could uniquely do that would help the problem. “There are certain things we know how to do well [e.g., develop drugs, influence providers, encourage patient compliance],” she explains. “But we also know how to manage supply chains and collect and analyze data.” One of the components Merck is working on through the Merck for Mothers initiative is the development of a heat-stable drug that stops severe bleeding (postpartum hemorrhage) during delivery, a major cause of death for women around the world. Merck is working in partnership with Ferring Pharmaceuticals and the WHO, and the WHO recently started a clinical trial for a heat-stable version of a drug already used successfully to stop hemorrhage. “While not a commercially viable program from a profit standpoint, this program allows us to leverage some of our core capabilities, strengthen business partnerships, and hopefully provide a practical solution in areas where people don’t have anything else to turn to for a solution.”

Another Merck for Mothers initiative geared toward increasing access to family planning focused on the business of logistics. “There are all kinds of inexpensive contraceptives available to women, but unfortunately, in most countries the supply chain simply doesn’t work,” Gerberding attests. For example, in Senegal it is a struggle for clinics to maintain the cash flow necessary to buy contraceptives for distribution. Prior to the Merck for Mothers program, these clinics were out-of-stock of contraceptives 85 percent of the time. This means that when a woman showed up to get the contraceptive she needed, nearly nine times out of 10, she left empty-handed. “Working in partnership with the Senegal government, the Gates Foundation, and a couple of private-sector partners, we were able to create a completely different supply chain distribution model, reducing stockouts to less than 2 percent,” Gerberding says. By deploying digital inventory management devices, hiring smart van drivers to stock on a needs-replenishment basis, and providing proper goals and incentives, it is estimated that in 2015 this single initiative saved approximately $325,000 in wasted resources, which doesn’t include the financial and societal cost that results from an unintended pregnancy. “This supply chain model is replicable in a lot of other countries with a number of other products, probably even commercially viable ones,” she states. “While the primary purpose of these activities is not for commercial profitability, we are not denying that there is business value in having a more effective supply chain.” (The company also recently announced an extension of access pricing for its contraceptive implants in Family Planning 2020 countries.)

How Merck Approaches Governance Of CSR
About every five years, Merck conducts a comprehensive assessment of issues that are material or important to both its business leaders and its external stakeholders from a CSR perspective to determine where to focus its efforts. The most recent evaluation affirmed the company’s four priority CSR areas — access to health, environmental sustainability, employee health and well-being, and ethics and transparency. “It’s not to say we don’t address social responsibility issues outside of those four areas, but having this high degree of focus helps us approach CSR in a way that embeds the concept throughout our organization and focuses on those issues that are most relevant,” Gerberding clarifies.

At Merck, the office of corporate responsibility (CR) group, consisting of eight people, acts as a central coordinating unit for CSR efforts. Led by its executive director, Brenda Colatrella, this group’s role is to learn what issues matter most to both internal and external stakeholders and bring those to the right functional areas within Merck. “The CR group helps guide the conversation with various commercial business units to determine if there are opportunities for leadership, gaps in what we are currently doing or issues that need to be more fully addressed,” Gerberding states. Because CSR involves more than philanthropy and corporate giving, the CR group has multiple points of input. For example, CR is part of the strategic communications, global public policy, and population health organization overseen by Gerberding and receives guidance from an advisory council of 15 cross-functional senior leaders, as well as a five-member board of directors subcommittee. In terms of philanthropy, the office of CR is also responsible for Merck’s major charitable efforts, both cash giving through Merck and the Merck Foundation and product donations made by the company. While under the CR umbrella of responsibility, the Merck Foundation is governed by a five-member board of trustees to help guide the strategic direction of the foundation and determine the cash grants made on its behalf. This is no small feat. For example, in 2014 alone, Merck and the Merck Foundation gave more than $1.5 billion in cash grants as well as “in-kind” donations through the company’s medical outreach program, U.S. disaster relief efforts, the African Comprehensive HIV/AIDS Partnerships (ACHAP), the Mectizan Donation Program, the Gardasil Access Program, and Merck division and subsidiary product donations.

Considering all of these moving parts, determining an overall CSR budget can be very difficult. Merck approaches the challenge as follows. The CR group’s philanthropic activities can be broken down into two primary budgets — cash and donations of medicines. While the Merck Foundation is endowed fully by Merck with cash-grant allocations established annually, budgeting for product donation programs requires developing estimates based on forecasted needs. When it comes to budgeting CSR initiatives having possible commercial-related activities, these are normally funded by the business unit responsible for driving the program. Because these funds come out of individual Merck budgets that could be spent on things other than CSR, not only does it create a sense of departmental ownership for the initiative, but also serves as a litmus test for determining the best CSR opportunities to pursue. The Merck CR group also has a separate departmental budget, determined annually, to fund expenses required to maintain the eight employees in their roles (e.g., salaries, benefits, travel, and supplies).

How Not To Let CSR Blur Your Primary Focus
Every company has a finite amount of resources for pursuing its mission. Thus, while pursuit of CSR initiatives can have a positive impact on things like employee engagement or company reputation, unless properly managed, they also can have unintended consequences, such as the loss of primary focus. Don’t forget, leaders, by virtue of their roles, have the primary responsibility of first advancing the interests of the organization. “CSR initiatives can create opportunities for learning and partnerships that will ultimately help us,” says Gerberding. “While I like being in this space because I get to do the things to bring health to those least enfranchised, the challenge is how to do this in a way that is both really good for our shareholders and patients.” To meet this challenge, the CR group uses the following questions to assess and prioritize philanthropic and CSR opportunities:

  • Does it address a significant global health need?
  • Is it aligned with our business?
  • Is it aligned with one of our areas of focus?
  • Do we have something unique to bring to the table?
  • What type of expertise can we provide beyond just products and financial resources?
  • Are there good partners available and willing to participate?
  • Can we demonstrate/measure impact?

The last question is perhaps the most important. “While we use the above as a framework for determining what CSR opportunities to embark on, we want to be in a position to demonstrate that resources put into an initiative have yielded significant outcomes,” Gerberding affirms. “Don’t underestimate the importance of measurement and evaluation. You need to be able to demonstrate progress, impact, and outcomes, because success breeds success.”

When it comes to assessing CSR opportunities more closely tied to a commercial space, Merck employs these additional questions.

  • Can Merck address the social issue in an innovative way?
  • Does it help to build a sustainable business?
  • Will this potentially open up a new market?
  • Will this provide greater cost efficiencies?

When considering a CSR commercial opportunity, it pays to do some extra evaluation to make the best match between the social need, our business expertise, and potential business value,” she shares.

Merck also has deployed Polaris, a grant– processing system. While Polaris assists the CR group with prioritizing, managing, and responding to various philanthropic opportunities, it also enables generation of required compliance documentation when grants are made, as well as reports to measure progress. “Everything flows through this system so that we can look up a grant or a program we’ve agreed to fund and see all of the relevant documentation and information,” Gerberding says.

When you consider the volume of both CSR and philanthropic requests received by Merck being managed by a team of eight, it pays to prioritize personnel responsibilities as well. For example, within the CR group, a couple of folks focus primarily on philanthropy opportunities, a few focus more from a CSR stakeholder engagement and business perspective (e.g., engaging with socially responsible investors, activist organizations, or other stakeholders), some straddle the two, and one person is responsible for all of the reporting. Obviously, not every philanthropic or CSR request is a fit. In such cases, whenever possible, the CR group either tries to point the requester in the direction of any organizations they are aware of that focus on that particular social issue or look for other ways to participate. “For example, we have shared our compound libraries to help folks screen their candidates against it to see if there is anything promising,” says Gerberding.

How CSR Benefitted A Commercial Opportunity
While the primary purpose of CSR is not for profit, Merck has found opportunities to capitalize on the common ground for what both business and society value. For example, in India there are 15 million people infected with the hepatitis C virus (HCV). “Many patients couldn’t afford the cost of HCV treatment,” Gerberding relates. To address this growing health problem, Merck Sharpe & Dohme (MSD) India developed Project Sambhav, an innovative microfinancing program for patients with limited or no insurance coverage. Working in conjunction with India financial institutions, the program provides patients with zero-interest, no-collateral loans to be able to pay for Merck’s HCV medication, PegIntron, over an extended period of time. In addition, the project included an education component so patients could learn how to better manage their disease.

Since inception, Project Sambhav has expanded to 11 cities across four states in India. According to Gerberding, in addition to addressing an important social need, the program also gave Merck access to a previously inaccessible population. Project Sambhav had a positive financial impact for MSD India while also addressing a significant medical need. But by developing a business rather than purely philanthropic solution, perhaps much more was gained from enabling people to take better care of themselves with a help up instead of a handout. According to Gerberding, Merck’s approach to CSR isn’t geared toward addressing short-term problems. “We don’t do CSR to offset current criticism about things like drug pricing,” she concludes. “We do CSR because we are a long-term player. If you want to be in the biopharma business, doing innovative R&D, you have to have a long-term point of view.”

The Future Of CSR — Beyond Organizational Borders

Whether a Merck corporate social responsibility (CSR) initiative is philanthropic or commercial, one thing is certain — success resides in partnerships. Julie Gerberding, EVP of strategic communications, global public policy, and population health, believes the future of CSR success lies beyond one’s own organizational borders. “What I really want to emphasize about CSR is that it’s not a set of projects,” she contends. “CSR is really a business philosophy of shared values, rather than a philanthropic investment portfolio.” According to Gerberding, there are very few important problems worth solving that can be addressed by an individual project or company. “Generally, these opportunities require complex partnerships, sustained large-scale investments, a great deal of patience, and a long-term view,” she asserts. “To move CSR to the 3.0 version requires figuring out how individual companies can link together seemingly unrelated projects to make a bigger and more sustainable impact that lives beyond the tenure of the individual leader who championed them in the first place.”

This past September, the United Nations launched its new sustainable development goals. One of the philosophic underpinnings of this approach is the recognition that the private sector needs to be actively engaged in driving necessary solutions. “These solutions have to be connected in meaningful ways, rather than a thousand flowers blooming,” Gerberding analogizes. “At Merck we have developed a CSR proof of concept that is scalable and transferable, and we are looking to engage with partners with similar CSR interests,” she continues. One example of what Gerberding envisions as CSR’s future is already taking place — the Pink Ribbon Red Ribbon organization.

Founded in 2011, the Pink Ribbon Red Ribbon program is designed around the already-existing U.S. President’s Emergency Plan for AIDS Relief (PEPFAR) system and provides the capacity for clinics to screen for and treat early-stage cervical cancer with very inexpensive tools (e.g., vinegar, liquid nitrogen), as well as introduce human papillomavirus (HPV) vaccine programs for younger girls. “Building these capabilities on top of the already-existing PEPFAR platform, rather than reinventing the initiative as a whole set of other CSR projects, is a much more sustainable mechanism to protect and improve human health,” she attests.

Developing A Vaccine For Ebola — A Lesson In Partnering

When the Ebola problem was unfolding, one of the first things Merck did in addition to its usual relief efforts was to send two of its infectious disease experts who specialize in infection control to join a Project HOPE (Health Opportunities for People Everywhere) team in Sierra Leone that was tasked with determining a strategy to stop the spread of the virus. “Two of our top medical scientists in the vaccine division volunteered to go as part of a needs-assessment effort to understand what was going on, what were the unmet needs, and what needed to be done,” relates Merck’s EVP of strategic communications, global public policy, and population health, Julie Gerberding. While those physicians returned with what seemed like an endless list of needs, what was needed most was a vaccine.

Merck was already engaged behind the scenes with NewLink Genetics. “When we learned NewLink had a pretty promising Ebola vaccine and that it was made from the same cell line we use to make one of our already licensed products, RotaTeq, it suddenly seemed feasible that we might be able to do something really fast to address the Ebola problem,” she shares. But there were many challenges that needed to be overcome.

First, the two companies needed to develop a licensing agreement. But that was really just the start. “To create a vaccine fast is a pretty ‘heavy lift’, even with the capability and know-how that Merck had,” Gerberding admits. “While we were fortunate that NewLink was a great partner, there were a number of other parties involved, including multiple governments that had to buy into the overarching goal of getting a proof of concept for an effective vaccine on the fastest possible track. We couldn’t let the usual bureaucratic or regulatory barriers stand in our way.” For example, Merck had to deal with the FDA, while NewLink was dealing with Health Canada. “Bureaucratic challenges extended into Europe, particularly in Germany, as the Germans were doing some of the early safety assessments of the vaccine,” she elaborates. “There were all kinds of barriers to importation and other sorts of permissions that typically require permits that can slow things down. But all had the attitude of suspending bureaucracy to move this forward in the safest and fastest way possible.”

According to Gerberding, when it comes to moving things along quickly, partnerships matter. “You don’t want to be building these partnerships during times of crisis,” she advises. “You want to sustain the network of professional contacts.” For example, Gerberding trained with NewLink’s CEO at UCSF (University of California, San Francisco) and had worked with two other NewLink board members on separate biopreparedness efforts while she was at the CDC. “That’s just my little network of NewLink touchpoints,” she states. Dr. Gerberding believes that these types of networks are built on scientific credibility, sustained with integrity, and require routine maintenance.

While there were a number of other factors involved in getting the Ebola vaccine to where it is today (e.g., operation, agendas,and planning), Gerberding has one last piece of wisdom. “You need to respect the country experiencing the crisis,” she reminds. “We need to be overly conscious of not undermining them, either inadvertently or intentionally.” When companies or countries swoop in to solve somebody else’s problem, the message sent to their people is that their own government is not competent or is weak. “While this might be the most effective way to move something forward in a crisis, in the long run, it is not the most effective way to solve a problem,” she concludes.