Instructions:  Print off this background information sheet and bring to class.  Students are asked to read this material before class and refer to this information throughout the exercise, but it does not need to be incorporated into student notes. 

BACKGROUND INFORMATION FOR THE VANATIN CASE

Assume that it is August 1969 and that you are a member of the Booth Pharmaceutical Corporation Board of Directors. You have been called to a Special Board Meeting to discuss what should be done with the product known as "Vanatin."

Vanatin is a "fixed-ratio" antibiotic sold by prescription. That is, it contains a combination of drugs. It has been on the market for more than 13 years and has been highly successful. It now accounts for about 18 million dollars per year, which is 12 percent of Booth Company’s gross income in the United States (and a greater percentage of net profits). Profits from foreign markets, where Booth is marketed under a different name, is roughly comparable to that in the United States.

Over the past 20 years there have been numerous medical scientists (e.g., the AMA’s Council on Drugs) objecting to the sale of most fixed-ratio drugs. The argument has been that (1) there is no evidence that these fixed-ratio drugs have improved benefits over single-drugs, and (2) the possibility of detrimental side effects, including death, at least doubled. For example, these scientists have estimated that Vanatin is causing about 30 to 40 unnecessary deaths per year (i.e., deaths that could be prevented if the patients had used a substitute made by a competitor of Booth). Despite these recommendations to remove fixed-ratio drugs from the market, doctors have continued to use them. They offer a shotgun approach for the doctor who is unsure of his or her diagnosis.

Recently a National Academy of Science – National Research Council panel, a group of impartial scientists, carried out extensive research studies and recommended unanimously that the Food and Drug Administration (FDA) ban the sale of Vanatin. One of the members of the panel, Dr. Peterson of the University of Texas, was quoted by the press as saying: "There are few instances in medicine when so many experts have agreed unanimously and without reservation (about banning Vanatin)." This view was typical of comments made by other members of the panel. In fact, it was typical of comments that had been made about fixed-ratio drugs over the past 20 years. These impartial experts, then, believe that, while all drugs have some possibility of side effects, the costs associated with Vanatin far exceed the possible effects.

The special Board Meeting has arisen out of an emergency situation. The FDA has told you that it plans to ban Vanatin in the United States and wants to give Booth time for a final appeal to them. Should the ban become effective, Booth would have to stop all sales of Vanatin and attempt to remove inventories from the market. Booth has no close substitutes to Vanatin, so consumers will be switched to close substitutes currently marketed by rival firms. (Some of these substitutes apparently have no serious side effects.) It is extremely unlikely that bad publicity from this case would have any significant effect upon the long-term profits of other products made by Booth.

The Board is meeting to review and make decisions on two issues:

  1. What should be done with Vanatin in the U.S. market (the immediate problem)?
  2. Assuming that Vanatin is banned from the U.S. market, what should Booth do in the foreign markets? (No government action is anticipated in any of the foreign markets.)

Decisions on each of these issues must be reached at today’s meeting. The Chairman of the Board has sent out this background information, and he also wanted you to give some thought as to which of the following alternatives you would prefer for the domestic market:

  1. Recall Vanatin immediately and destroy.
  2. Stop production of Vanatin immediately, but allow what has been made to be sold.
  3. Stop all advertising and promotion of Vanatin, but provide it for those doctors that request it.
  4. Continue efforts to most effectively market Vanatin until sale is actually banned.
  5. Continue efforts to most effectively market Vanatin and take legal, political, and other necessary actions to prevent the authorities from banning Vanatin.

A similar decision must also be made for the foreign market under the assumption that the sale was banned in the United States.