Bayer AG: Anthrax and Cipro Case

Subject: Managerial Analysis and Communication

Participant Name:
Sahil Ratra - P39159
Neeraj Lodhi - P39146
Nimisha Mohan - P39147
Mukul Verma - P39144
Prakash Pachar - P39153
Varsha Katela - P39174

Class Section: C

Date of Submission: 06-07-2018

Executive Summary

In October 2001, there was an anthrax scare among the people of USA. This led to increase
in the demand of its cure Cipro, a drug patented by Bayer AG. The government also decided
to stockpile the same to handle any emergency. There were rising concerns about Bayer AG’s
ability to meet this demand and the government was scrutinizing the same which may lead to
the loss of its patent. The company had to come up with a strategic plan so that the concerns
of various stakeholders would be resolved. The solution proposed for the same is that price of
Cipro will be decreased only for the government stockpile while the government will be
urged to pass an order to sell drugs in pharmacies only on the prescription of a doctor so that
artificial scarcity due to hoarding is not created. Also, a public audit of production of Cipro
will be conducted to come up with numbers that will satisfy the government concerns
regarding Bayer’s ability to manage the emergency.

Main Report

1 - Situation Analysis

Introduction

As of October 2001, Bio terrorism has become a reality in USA with various cases of anthrax
bacteria appearing in envelopes. This has led to citizen anxiety and twenty percent of
Americans perceive themselves at a risk. This has led to hoarding of the drug Cipro which
has been patented by Bayer AG. The increased demand has led to shortage of the drug at a
few pharmacies. Government has also decided to stockpile the drug and to ease consumer
tension; it began to scrutinize Bayer’s ability to handle the emergency and if not satisfied it
might strip its patent. Some senators and other drug manufacturers are also accusing Bayer of
seeking extra ordinary profit as it is selling the drug at a price of $1.87 per pill against the
cost price of only $0.40. Bayer is aggressively increasing its production of the drug to meet

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the needs but it had maintained low profile in order to not being seen as exploiting the crises
for profit which has led to further confusion about its ability to handle the situation.

Statement of Objectives

1. To save its patent for the drug Cipro.

2. To maintain the customer trust and loyalty towards the firm.
3. Financial interests of the company are not compromised.

Decision Problem Statements

Currently, The Chairman and CEO of the company is facing a challenge in deciding its future
strategy and need to address the following concerns.

1. How to convince the government that Bayer is able enough to handle the emergency?
2. How to quench the customer fear about the drug availability?
3. How to signal government and other drug manufacturers that Bayer is not cashing in
profit because of the crisis.

Decision Criteria

1. Meeting the Government need of stockpiling drugs for emergency.

2. Enough drugs are available in pharmacies to meet consumer demand.
3. Drug pricing is morally justified.

2 - Decision Process

Generating Alternatives

1. Price of Cipro is decreased only for the government stockpile while the government is
urged to pass an order to sell drugs in pharmacies only on the prescription of a doctor so
that artificial scarcity due to hoarding is not created.
2. Price of Cipro is decreased for all sales for a limited period of time until the emergency
dies out. The drugs are first made available for the government stockpile and then at the
pharmacies.
3. Price of Cipro is decreased and in order to meet the demand the production is outsourced
to other manufacturers.
4. Pricing is not decreased and the high price is marketed as the expenditure done on the
research and development of new innovations in Anthrax care.
5. Voluntarily give up the patent which will build the consumer trust and improve the
market share in other drugs.
6. A public audit regarding Bayer’s production is conducted to showcase its ability to meet
the increased demand.

Evaluation of Alternatives

As there is an uncertainty regarding the duration for which the emergency will continue,
decreasing the price for limited time is not a good option. Thus, we may reject the second

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alternative. Outsourcing the production is a risky solution as the other company may not
honour the contract which will seriously damage the image of the company. Thus, we may
reject the third alternative. While marketing the high price as the expenditure for research and
development can be a long term strategy but it won’t address the short term concerns of the
government officials regarding the pricing. Voluntarily giving up of patent will highly affect
the financial interests of the company. Therefore, the remaining two alternatives, ie – first
and the sixth must be combined for the chosen alternative. The need for a prescription will
decrease the demand in pharmacies and the decreased price for the stockpile will justify the
direction the firm is taking. The public audit will quench any fears about the ability of the
firm regarding handling of the emergency.

Chosen Decision

Price of Cipro is decreased only for the government stockpile while the government is urged
to pass an order to sell drugs in pharmacies only on the prescription of a doctor so that
artificial scarcity due to hoarding is not created. Also, a public audit of production of Cipro is
conducted to come up with numbers that will satisfy the government concerns regarding
Bayer’s ability to manage the emergency.

3 - Action Plan

The chairman of the firm in the public address will first agree for a public audit of production
to show the firm’s abilities. He will also agree to decrease the price of the drug for
government stockpile by stating that the company is undertaking a huge financial hit for the
benefit of the society at large. Lastly, he will talk about the problem of artificial scarcity and
hoarding of the drug and urge the government to take necessary steps and mention mandatory
prescription as the simplest way to do so.

4 - Contingency Plan

In the improbable event that the government is still not willing to bow down, the firm should
voluntarily give up the patent before the government takes such a step. While this will lead to
financial losses but those could not be prevented anyway but the customer trust will be
fostered which might lead to more customer loyalty in longer run.