Read the case and answer the following questions:

-Considering both economic and ethical aspects, is it appropriate for companies such as Novo Nordisk to conduct clinical trials in, for example, India? What exactly are the principles that should guide such a decision?

– If trials are conducted in an emerging economy, how should they be managed and which standards should apply?

– How should Anders Dejgaard react when a journalist calls to discuss Novo Nordisk’s practices?

9B09M001 ETHICS OF OFFSHORING: NOVO NORDISK AND CLINICAL TRIALS IN EMERGING ECONOMIES Professor Klaus Meyer wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2008, Richard Ivey School of Business Foundation Version: (A) 2017-05-03 On a warm day in early spring 2008, the telephone is ringing in the office of Anders Dejgaard, chief medical officer of Novo Nordisk, a leading developer and manufacturer of insulin and related products. A business journalist of the Danish national newspaper Berlingske Tidende is on the line and asking for an interview. Dejgaard knows her from several conversations relating to business practices in the pharmaceutical industry. The journalist is investigating the offshoring of clinical trials by Danish companies. A report recently published in the Netherlands alleges that multinational pharmaceutical companies routinely conduct trials in developing countries under allegedly unethical conditions. Also, the Danish National Committee on Biomedical Research Ethics has expressed concerns because Danish pharmaceutical companies are not obtaining ethical reviews in Denmark for such trials despite the offer from this committee. Thus, she wants to discuss Novo Nordisk’s position on these issues. Dejgaard reflects on how to react. Several articles on ethical aspects related to medical research in the Third World had appeared in the Danish press in recent months, creating an atmosphere of suspicion towards the industry.1 Should he meet with the journalist and if so, what should he tell her? Or should he rather focus on his forthcoming business trip to new production facilities and send Novo Nordisk’s press officer to meet the journalist? In his mind flashes the possibility of derogatory headlines in the tabloid press. As a company emphasizing corporate responsibility, the interaction with the media presents both opportunities and risks to Novo Nordisk. 1 See in particular B. Alfter, “De fattige er verdens nye forsøgskaniner. Krav om kontrol med medicinalindustrien,” Information, Feb. 26, 2008, pp. 4-5, and B. Lambeck and S.G. Jensen, “Halvdelen af al medicin afprøves i den tredje verden,” Politiken, Oct. 6, 2007. 19 For use only in the course Corporate Social Responsibility at University of Missouri-Kansas City taught by Jae Chul Jung from August 20, 2018 to December 18, 2018. Use outside these parameters is a copyright violation. 4. 9B09M001 NOVO NORDISK2 Novo Nordisk A/S had been created in 1989 through a merger between two Danish companies, Novo Industri A/S and Nordisk Gentofte A/S. Both had been established in the 1920s as manufacturers of insulin, a crucial medication for diabetes. Over decades of fierce competition, they had become leading providers of insulin and related pharmaceutical products. Novo Industri had been pursuing an internationally oriented strategy from the outset, and by 1936 was supplying insulin to 40 countries. A significant step in the internationalization of the company was a major push into the U.S. market in 1979. At the time, Food and Drug Administration (FDA) regulations required Novo Industri to replicate its clinical studies in the United States to obtain the approval of the marketing of their new products. In 1989, the two companies merged and, in 2000, the merged company spun off the enzyme business “Novozymes.” In 2008, Novo Nordisk presents itself as a focused company within the healthcare industry and a world leader in diabetes care. It claims the broadest and most innovative diabetes product portfolio in the industry, including the most advanced insulin delivery systems. In addition, Novo Nordisk holds leading positions in areas such as haemostasis management, growth hormone therapy and hormone replacement therapy. Sales reached DKr41.8 billion (about US$8 billion) in 2007, of which DKr30.5 billion were in diabetes care and DKr11.4 billion were in biopharmaceuticals. Innovation is considered pivotal to the success of Novo Nordisk, as it was to its predecessor companies. Continuous innovations allow the development of more refined, and thus more effective, insulin preparations, and new delivery systems, such as Novopen®, that facilitate the administration of the treatment, including self-administration by patients. In 2008, about 18 per cent of employees are working within research and development. In 2008, Novo Nordisk holds market shares for insulin of about 56 per cent in Europe, 41 per cent in North America and 73 per cent in Japan and employs about 26,000 people, of whom 12,689 are located in Denmark, 3,411 in the rest of Europe, 3,940 in North America and the remainder in Asia Pacific and the rest of the world. Production facilities are located in six countries and products are marketed in 179 countries. The shares of Novo Industri were first listed on the Copenhagen Stock Exchange in 1974 and on the London Stock Exchange in 1981 as the first Scandinavian company to be listed in London. In 2008, Novo Nordisk’s B shares are listed on the stock exchanges in both Copenhagen and London, while its American depositary receipts (ADRs) are listed on the New York Stock Exchange. Novo Nordisk emphasizes corporate social responsibility as part of its image, pursuing a triple bottom line approach: environmental and social responsibility along with economic viability. This commitment is demonstrated through its values and its environmental and social responsibility policies that are reported on its website (see Appendix 1). Critical milestones in Novo Nordisk’s ambition to be recognized as a leader of corporate sustainability include the publication in 1994 of its Environmental Report. It was the first company in Denmark and one of the first in the world to do so. This was followed in 1999 by the first annual Social Report. In 2001, Novo Nordisk established the World Diabetes Foundation, a charity aiming to improve diabetes care in developing countries, where diabetes is becoming an epidemic, just as it had in Europe and North America a few decades earlier. 2 This section draws on the company website, www.novonordisk.com, and an undated (circa 2002) document, “Novo Nordisk History,” available via this website. 20 For use only in the course Corporate Social Responsibility at University of Missouri-Kansas City taught by Jae Chul Jung from August 20, 2018 to December 18, 2018. Use outside these parameters is a copyright violation. Page 2 9B09M001 In recognition of its sustainability engagement, Novo Nordisk had been included in the Dow Jones Global Sustainability Indices, where it was ranked as “best in class” in the healthcare category in 2007. At home, Novo Nordisk is frequently ranked as having the most highly regarded corporate image by Danish magazines Berlingske Nyhedmagasin, Børsen and Ingeniøren. New Medications: Development and Approval Novo Nordisk, like other pharmaceutical and medical companies, heavily invests in the development of new medications offering more effective, safe and user-friendly treatments. New product development involves the creation of new drugs or modifications in their use, for instance, their dosage and the form of administration. To bring new drugs or medical devices to market, they must be approved by the relevant authorities — the FDA in the United States and European Medicines Agency (EMEA) in the European Union. The approval of drugs and medical devices requires proof of their efficacy and their safety. Efficacy refers to scientific evidence that the drug improves patients’ conditions as claimed by the manufacturer. Safety refers to the absence of substantive negative side-effects. Thus, to obtain approval, pharmaceutical companies have to provide scientific evidence that the drug improves the conditions of patients and is free of disproportional side effects. This evidence has to be based on, among other data, clinical trials in which the drug has been tested on actual patients. The clinical trials are normally conducted in four stages. Phase 1 involves a small number of healthy volunteers and serves to assess the kinetic properties and tolerability of the drug. Phase 2 is performed on larger groups of patients to assess how well the drug works and to establish the doses that give the desired effect and to continue its safety assessment. Phase 3 trials often involve thousands of patients and aims to provide a definitive assessment of how effective and safe the drug is. All data generated in the three phases form an essential part of submissions to the regulatory authorities (FDA, EMEA and their counterparts in other countries) for drug approval. With this approval, the drug can then be marketed for the approved indications. Further trials, in phase 4, may be required to obtain permission to extend the labelling of a drug to new indications (e.g. a different disease) or specific groups, such as children or pregnant women. Phase 3 and 4 trials require a large number of patients with the specific disease that the drug is to improve. A typical approval process conducted by Novo Nordisk might require six to eight different phase 3 trials with different patient groups or combinations of the drug component, each involving about 400 to 800 patients. Such trials are often conducted as multinational studies involving up to 15 countries. With increasing requirements for patient exposure for approval and increasing numbers of drugs being tested, the recruitment of patients is often a major challenge. Typically, trials are conducted at multiple hospitals that all must follow the same trial protocol to ensure the consistency of data and compliance with existing “good clinical practice” (GCP) guidelines. Multi-site trials also facilitate the recruitment of patients with diverse backgrounds, for instance, different ethnicities and diets, while helping to demonstrate their universal properties. Doctors and nurses, but not patients, are normally paid for this work and hospitals often find it attractive to participate in trials that allow access to new medications and front line research. Clinical trials, especially phase 3, are a major cost factor in the development of new medications and they often take many years to conduct (on average eight years). 21 For use only in the course Corporate Social Responsibility at University of Missouri-Kansas City taught by Jae Chul Jung from August 20, 2018 to December 18, 2018. Use outside these parameters is a copyright violation. Page 3 9B09M001 In the early 2000s, major pharmaceutical industries increasingly moved parts of their trials, especially phases 3 and 4, to countries outside their traditional areas of operations, especially to Eastern Europe, South America, India and China. Hospitals in these areas provide access to qualified medical staff and larger numbers of patients with the specific conditions, while potentially being able to administer a trial at lower costs. Moreover, the efficacy of drugs may also vary across contexts, for instance due to genetic, dietary, climatic or other environmental conditions. In such cases, multi-site trials help to establish the efficacy of medications across contexts. Some countries, such as Japan, India and China, in fact require that trials are at least in part conducted locally to approve a new medication in the respective countries. However, the conduct of clinical trials in these areas also raises a range of ethical issues. Ethical Issues in Medical Research3 Ethical issues in the pharmaceutical industry have received considerable media attention over several decades, as the industry has failed to live up to the expectations of some interest groups. In particular, clinical trials raise a number of widely recognized issues. Medical professionals, and with them many NGOs and media, focus on the medical ethics grounded in the Hippocratic oath that commits doctors to treat each patient to the best of their abilities, never to cause intentional harm and to maintain patient confidentiality. Scientists and approval authorities have been concerned about the scientific rigor of the tests to provide solid evidence of the effects of a new drug, and thus to protect potential future users of the drug. At the same time, pharmaceutical companies have to operate with limited financial resources and to satisfy shareholders and thus cannot spend more resources than expected future revenues would justify. Accordingly, the industry has been accused of performing trials in developing countries with lower attention to ethical principles — “ethical bribing,” with patients acting as guinea pigs that do not understand and/or care about the risk involved but just want to get free medication, and with investigators not meeting the competence requirements, etc. Allegedly, all this just serves to generate documentation for compounds that are to be sold only in developed countries. Medical (Hippocratic) ethics concern primarily the individual patients who are participating in any experiment. The relationship between the doctor and the subject participating in a trial is thus governed by the doctor’s responsibility to care for his or her patient. Past incidences where this principle had been violated continue to affect popular perceptions of medical research. Most infamously, the Tuskegee syphilis study left 400 impoverished and unwitting African-American men in Macon County, Alabama, untreated to study how they developed the disease — an experiment initiated in 1932 and terminated only in the 1970s. To prevent such scandals, professional medical organizations have developed guidelines and principles of ethics to guide their research, notably the Helsinki Declaration of the World Medical Association (see Appendix 2). These widely accepted ethical principles aim to protect subjects, e.g., patients, participating in such research. These include: Voluntary informed consent: Each patient has to agree voluntarily to participate in the research based on being fully informed about the purposes of the study and potential risks for the individual. Sponsors and local site investigators thus normally write an “informed consent” document that informs potential subjects of the true risks and potential benefits, which is signed by each patient or their legal guardian before any trial procedure. 3 This section draws in particular on E.J. Emanuel, D. Wendler and C. Grady, “What makes clinical research ethical?” Journal of the American Medical Association, 283:20, 2000, pp. 2701-2711, and Michael A. Santoro and Thomas M. Gorrie, Ethics and the Pharmaceutical Industry, Cambridge University Press, 2005. 22 For use only in the course Corporate Social Responsibility at University of Missouri-Kansas City taught by Jae Chul Jung from August 20, 2018 to December 18, 2018. Use outside these parameters is a copyright violation. Page 4 9B09M001 Respect of patients: The privacy of the subject should be protected and they should be free to withdraw from the experiment at any time without reasoning. The doctor’s professional responsibility to the patient should take precedence over any other considerations. Independent review: Any medical and pharmacological research has to be assessed on its scientific merits and ethicality by an independent review board (IRB) that is independent from those involved in or sponsoring the research. Scientific ethics are concerned about the validity of the results of the scientific inquiry and thus the methodological rigour of the study. Thus, a study has to use valid measurements and statistical techniques and samples that are unbiased and sufficiently large that they can generate trustworthy and valid results. Such scientific rigour is important to anyone who may, in the future, use an approved drug or medical device. Awareness of the need for rigorous tests prior to launching new medications had been triggered by various scandals of the 1960s, notably the Thalidomide scandal involving a pain killer used by women to ease sleep problems and pregnancy sickness. Due to side effects of this medication, thousands of children worldwide were born with incomplete arms or legs, before the drug was withdrawn. In consequence to this and other scandals, the licensing and approval procedures for drugs have been tightened to ensure that only drugs with scientifically proven efficacy and safety are marketed. Ethical businesses have to balance activities done in the interest of the wider society with their pursuit of profits. The late Nobel prize-winning economist Milton Friedman famously declared that the primary social responsibility of business is to make profits.4 Under efficient markets, which he firmly believed in, this would generate the most mutually beneficial outcome. Thus, he argued, firms ought to give precedence to shareholders over any other interest groups. Others argue that firms should engage in corporate social responsibility because it can be expected to benefit their bottom line in the long run, for instance through reputation effects. Yet others argue that firms have an intrinsic, normative responsibility to use their influence to do good for society and to aspire to the highest moral standards, independent of the profit motive. However, even so, their financial resources will be limited. Like organizations in the governmental or non-profit sector, businesses have to make critical decisions about how best to use their scarce resources. Ethics of Placebo Experiments5 Particular concerns have arisen for placebo trials, that is, trials where a control group of patients receives a treatment without any active ingredient for the disease. The purpose of placebo trials is, normally, to provide evidence of product efficacy by showing statistically significant improvements of the conditions of patients receiving the active treatment, compared to those receiving a placebo treatment. Placebo trials are especially important for diseases that are affected by the so-called placebo effect, that is, patients’ conditions improving because of the positive effect of receiving a form of treatment rather than the specific medication. This has been shown to be quite substantive, for instance, for schizophrenia and 4 M. Friedman, “The social responsibility of business is to increase profits,” The New York Times Magazine, September 13, 1970; reprinted in K.E. Meyer, Multinational Enterprises and Host Economies, Elgar, Cheltenham, 2009. 5 This section draws on contemporary discussions in the medical literature, in particular E.J. Emanuel and F.G. Miller, “The ethics of placebo-controlled trials e- A middle ground,” New England Journal of Medicine, 345:12, 2001, pp. 915-919, and R. Temple and S.S. Ellenberg, “Placebo-controlled trials and active-controlled trials in the evaluation of new treatments,” Annals of Internal Medicine, 133:6, 2000, pp. 455-463. 23 For use only in the course Corporate Social Responsibility at University of Missouri-Kansas City taught by Jae Chul Jung from August 20, 2018 to December 18, 2018. Use outside these parameters is a copyright violation. Page 5 9B09M001 other psychiatric conditions.