Lundbeck “stops” selling medicine for death row

Lundbeck is a well know producer of medical products in the treatment of depression and other psychiatric related deceases but also a products that includes the controversial product Nembutal that is used on death row.

Until recently has the U.S. market been an important growth area for Lundbeck. The new agreement allows the company to focus on newer, strategic products with significant sales potential as Onfi and at the same time get out of an ethical problem that has haunted the company for the past two years.

The company has been accused of supporting the death penalty in the US by providing a product, Nembutal, which was used as part of the drugs that condemned people got when they were put down.

Lundbeck has agreed to a deal where the company gets an upfront payment and a subsequent milestone payment after three years that, as a maximum will amount to 60 million. U.S. dollars. The company points out that the Danish pharmaceuticals group, will not receive royalties on future sales of Nembutal.

Lundbeck will instead focus on new strategic products in its portfolio. The buyer Akorn is continuing the Lundbeck restricted distribution program of Nembutal, which was implemented to limit the use of the product in the U.S.

The maneuver that Lundbeck have implemented looks very much like the one that Dow Chemical used when they stopped producing Napalm in the 70ties as a consequence of increase public pressure.

Lundbecks turnaround

Barbed tape at a prison

Image via Wikipedia

The medical company lundbeck have been criticised for selling drugs (Nembutal) that have been used to kill people on death row. For a long period Lundbeck management has neglected to take any action either by refusing sales to in states were the drug was used in prisons or by suspending sales all together. This situation have however changed as Lundbeck have crated a clause in the contract with the distributers that they can’t sell the drug to prisons.

When the case started the company came out with a statement that it was not intend of Lundebck that their drugs should be used for anything else than helping people. Stating  ”Our mission is to improve the quality of life for those suffering from psychiatric and neurological disorders.” seemed at the time to be a little hollow. For the public it was not really the fact that their drugs were used but more that the company did nothing in order to prevent them for being used in this way that was the main issue.

I few weeks ago I blogged about on of the major institutional investors Unipension dropped Lundbeck from their portfolio and it sounds like the company is starting to listen to the voice of their stakeholders. In the blog post I wrote about some of the factors, which would influence the company into changing its policy.

1. Lundbeck have until now been one of the model companies in terms of CSR commitment and reporting. This has in its self created a platform from which critical stakeholders can hold the company accountable.

This seem to be exactly what has happened as the company is now perceived as a stepping stone for a much larger debate around capital punishment in the US and if European companies should be involved in practices which is illegal in their home country.

2. The company has in the past been involved in somewhat dubious affairs when it was engaged in the UN food-for-oil-program despite the company had a very explicit anti-corruption policy. For this it the company was heavily criticized together with a number of other companies.

The old skeletons have not been following out of the closet at this time but there is no doubt that this would be a logical next step if the company did not change their ways.

3. The company is involved in the production of drugs, which normally would be associated with improving people’s life not helping life come to a rapid end.

This seem to be the central issue for Lundbeck that in their mind the drug was misused by the US government to means which was not part of the original intend of the drug.

4. Lundbeck is a major player in the anti-depressant drug industry and have a major stake in the US and European market making them highly visible to a lot of consumers. It is estimated that about one in twenty will have a depression at any given time making the decease common place among the majority of the population.

At some point even if one think he or she is right have to make a decision whether or not the benefit of staying in a market will harm the long-term ability of the company to operate. And it could be that this have been one of the major causes why Lundbeck now have take a major turn in relation to marketing their product in the US.

Based on the 9 months of criticism that they company have been subjected to they have appeared to have had second thoughts on their initial strategy and will nor implement changes that will make it more difficult to sell the drug to prisons.

The Company has within the past two to three weeks initiated a thorough investigation of the distribution of Nembutal in the U.S.. The goal was to find a way that ensured that the prison authorities in the U.S. states have a harder time getting hold of the drug.

Anders Schroll, Communications Director at Lundbeck was quoted to say. “We have put a survey of the distribution system in motion, that can identify opportunities to control distribution. The aim is that it’s not from our suppliers or subcontractors, the prison authorities get hold of the substance. That does not mean that we can guarantee that prisons do not get the drug, but we can make it more difficult for them to grab it,”

He stresses however that one should not expect a change in the distribution system here and now.”It requires thorough investigations, for we must not make a system that is so restrictive that hospitals can not get hold of it in emergency situations,”

We often discuss what the real effect of stakeholder engagement is or if companies that have gone down the CSR path can turn back ones their first steps have en taken. I think Lundbeck is a good example that CSR is a ‘double edge sword’ and that it goes beyond mere rhetoric ones first articulated. The company have been know as one of the leader within the CSR field at least in Scandinavia and this engagement have for a long time protected it from criticism. However this seem to have ended with this case and other companies should learn that even though they are communicating passionately about their CSR activities there is a limit to what they can do.

Institutional investor drops Lundbeck

The first institutional investor Unipension have dropped their Lundbeck shares due to its controversial drug Nembutal that have been used in executions.

Lundbeck have been under attack for several months due to its unwillingness to take a definite stand on capital punishment in the United States. While the issue has been growing in Denmark and several key stakeholders have raised their voice there have not been much movement in terms of real economic pressure until now.

While Unipension is a relative small shareholder (40 million Dkr) in Lundbeck they do represent a group of stakeholders who have significant influence on the general discourse on ethical investments.

“We are an active owner and always try to establish a constructive dialogue with the companies we invest in. We have done this many times and in most cases, we have detailed and complete answers to our queries. This also applies to Danish companies, which usually take their social responsibility and reputation seriously. Contrary to what we normally experience, it has actually been our impression that Lundbeck did not want to engage in a genuine dialogue with us as an investor ” said Niels Erik Petersen, Chief investment officer at Unipension. And he continues.

“It has not been possible for Unpension to get a detailed report on Lundbeck’s efforts to ensure that its products are not being used in undesirable ways.”

While there hasn’t been much movement in terms of negative share price on the contrary the company have experienced a steady increase in the last year but this could be a turning point for the company. There are several ingredients, which can make this case troublesome for the company.

  1. Lundebeck have until now been one of the model companies in terms of CSR commitment and reporting. This have in it self created a platform from which critical stakeholders can hold the company accountable.
  2. The company has in the past been involved in somewhat dubious affairs when it was engaged in the UN food-for-oil-program despite the company had a very explicit anti-corruption policy. For this it the company was heavily criticized together with a number of other companies.
  3. The company is involved in the production of drugs, which normally would be associated with improving people’s life not helping life come to a rapid end.
  4. Lundbeck is a major player in the anti-depressant drug industry and have a major stake in the US and European market making them highly visible to a lot of consumers. It is estimated that about one in twenty will have a depression at any given time making the decease common place among the majority of the population.

All of these factors, and properly one or two more, can create a situation were Lundbeck’s image and the brand value of the company could suffer resulting in a fall in its total value and share price. From an investors point of view I would rather miss the 1% of total sales that Nembutal is then risking the value of the remaining 99%.

The Lundbeck case in short:

  • In January this year U.S. Hospira stopped production of the anesthetic, as 35 U.S. states use when they execute death convicts. Hospira would produce it in Italy, but the U.S. authorities intervened.
  • Since the first German and later British authorities, under pressure from grassroots organizations slowed other European companies’ exports of anesthetic to the U.S..
  • Therefore, the preliminary four U.S. states have switched over to using the Lundbeck product Nembutal, which Lundbeck is the only supplier of the U.S..
  • The means is the longest course of the patent. Last year sold Lundbeck 50 million. doses, which according to IMS earned 25.5 million. dollars.
  • Lundbeck has protested against the use, but will not pull the product back, particularly as it approved for treating severe epileptic seizures.