Merck & Co. Animal Health (MSD)
MRK:US US58933Y1055
Key Information
HQ:
United States
Market Cap:
$193.95bn
Primary Market:
North America
Animal Pharmaceuticals Engagement
Analysis Breakdown
Sales and Marketing Practices
Strategy, risk and reporting on antibiotics
A.1.1. Merck & Co. (referred to here on out as MSD) does not currently recognise antimicrobial resistance (AMR) or exposure to antibiotics as a material risk to its business. The company does acknowledge the material risk of increased product regulation in certain markets, as well as any issue or events that could potentially impact the revenue of its top-selling products. This may include antibiotics and AMR, but these are not explicitly stated.
For its animal health business specifically, the company only recognises outbreaks of animal diseases such as African Swine Fever (ASF) as a material risk. This could inherently include the risk posed by the presence of an antibiotic-resistant disease or bacteria in animals.
A.1.2. In its 2021 ESG Report, MSD acknowledges the need to address AMR and views it as a population health challenge, sitting alongside the risk of zoonotic diseases and vector-borne diseases. The company states that it is working to address these issues and ensure a “safe and sustainable food supply.” MSD recognises the risk that AMR poses to humans and released its Global Antimicrobial Resistance Action Plan and commitments in 2020, adopting a One Health approach considering people, animals and the environment. This includes a qualitative commitment to developing vaccines that can reduce antibiotic use. However, the company is not publicly looking to reduce its own exposure to antibiotics.
The company is also a signatory of the Industry Roadmap for progress on combatting AMR and supporting efforts to reduce the environmental impact of antibiotics.
A.1.3. It is worth noting that MSD is the only company in the engagement with both a human and animal health business, and the animal health business accounted for only 9.4% of revenue in 2022. Therefore, exposure to antibiotics for use in livestock is proportionally smaller compared to peers. From current revenue disclosures for livestock, we estimate that up to 60% of FAP revenue comes from antibiotics. Although, given the company’s large portfolio of vaccines for livestock, it is almost certainly lower than this.
However, when looking at revenue and volume of product sold, MSD is the third-largest animal pharmaceutical company in the engagement, and its influence over the rest of the animal health market is significant.
A.1. Recommendation: To move up to ‘Low’ or ‘Partial’ MSD needs to consider doing one or more of the following:
(i) recognise AMR and increased regulation of antibiotics as material risks to the business;
(ii) set a quantitative timebound commitment to reduce exposure to antibiotics; and (iii) report a breakdown of revenue from antibiotics for its animal health business.
NRD
Applying a consistent sales and marketing approach in line with best practice operating market
A.2.1. MSD states that it adheres to “strict ethical sales and marketing practices” across all its businesses, including animal health. This is done by ensuring that scientific information is the main factor in prescribing decisions and operating in line with laws and regulations in addition to the company’s global Code of Conduct. These are enforced through the ethics and compliance program. However, the company does not share any instances of non-compliance or how these would be addressed for the animal health business specifically.
FAIRR did not find any evidence that the animal health business has a strategy for responsible sale and marketing of antibiotic products. The company has high-level references to the need for improved antibiotic stewardship stating that it engages with a variety of stewardship initiatives. However, this does not provide detail on how or if this is applied to the company’s promotional activities.
MSD’s ‘Star of Stewardship’ framework guides the company’s promotional materials for antibiotic products within the human health business to ensure responsible marketing. This is based on guidelines from the World Health Organisation (WHO) and the European Centre for Disease Prevention and Control and is as follows: “the right drug is given at an appropriate dose for an adequate duration in the ideal setting of care based on an accurate diagnosis, and therapy is narrowed when possible.” This is in line with best practice, but it is unclear whether this framework applies to the animal health business. MSD also has an ‘antimicrobial stewardship curriculum’ to educate employees on responsible antibiotic prescribing and use. However, it is unclear whether this also applies to promotional materials for the animal health business.
A.2.2. MSD has not voluntarily removed indications for growth promotion and prophylaxis from any of its antibiotic products, except where necessary to comply with regulation. The company’s main antibiotic products for livestock contain antibiotic florfenicol, which is only currently used in animals.
A.2.3. Sales and marketing practices are governed by MSD’s Code of Conduct, ‘Our Values & Standards’. This is enforced by the ethics and compliance program and overseen by the company's Office of Ethics.
A.2.4. The company has disclosed that for the human pharmaceutical business it is looking into new approaches for compensation that align with antibiotic stewardship. It is conducting pilots with field sales representatives where sales incentives are not tied to volumes. It is unclear whether sales incentives are tied to volumes of product sold in the animal health business and whether MSD is considering trialling new sales incentives.
A.2. Recommendation: Setting a time-bound commitment to remove indications for growth promotion from all antibiotics for use in animals globally would improve MSD’s score to ‘Partial’.
Low
Manufacturing and Production
Demonstrating effective management of antibiotic residues in manufacturing and production
B.1.1. MSD shares detailed information about its manufacturing standards and procedures. The company’s Environment, Health and Safety (EHS) strategy lays out expectations for manufacturing and production of its products. This is enacted by the Global Safety and Environment (GSE) department who is responsible for the Global EHS Management System, which is based on the “Plan, Do, Check, Act” model. Manufacturing must meet current Good Manufacturing Practice (cGMP) standards laid out by WHO, and all local and applicable regulation.
For manufacturing effluent specifically, MSD has compound-specific environmental quality criteria (EQC) for wastewaters discharged at its own manufacturing sites. This is to ensure residues in wastewater do not pose a threat to human health or the environment.
MSD is one of the leaders in the human pharmaceutical industry in its approach to management of antibiotic residues in manufacturing and production. The company helped to establish the predicted no-effect concentrations (PNECs) for antibiotic residues in manufacturing waste and wastewater. These are the basis for the Common Antibiotic Manufacturing Framework that companies commit to when they join the AMR Industry Alliance, of which MSD is also a member. This framework applies to both its own operations and suppliers for its human pharmaceutical business, and MSD submits surveys to the AMR Industry Alliance for its own sites and suppliers to assess progress in meeting the PNECs. Although, it is unclear if surveys are submitted for all operations and suppliers and how often these are submitted.
The Common Antibiotic Manufacturing Framework does not apply to the animal health business and MSD does not provide an explanation for this. If this set of standards applied to the animal health business, the company would be scored as ‘Good’ for this KPI.
B.1.2. The company’s own manufacturing sites are required to use EQCs and other risk assessment frameworks to establish procedures for effectively managing waste. Production facilities all have active pharmaceutical ingredient (API)-treatment technology.
Suppliers are provided with the EQC information and MSD has initiated “detailed assessments” of its third-party suppliers to better understand and address current practices.
Suppliers are managed by the Global Supplier Management Group (GSMG) who are responsible for sustainable sourcing programmes and maintaining standards. This is a cross-functional team that includes leaders from the GSE team. The company also references that it co-leads the Pharmaceutical Supply Chain Initiative (PSCI), an industry organisation that has set standards for auditing third-party suppliers, although PSCI audits do not yet specifically address antibiotic residues in wastewater. In the 2022 ESG Report, MSD state that it has internally mapped which suppliers operate in countries that are known to present significant risks. It would be useful if MSD could disclose the geographies that it considers at risk, how it determines whether a country is at risk and whether this includes countries demonstrating high levels of AMR.
B.1.3. In terms of auditing, MSD audits all of its own operations at least every three years with the most complex sites audited every year. Correction and Preventive Action (CAPA) plans are developed where required and these are tracked to completion and involve oversight from senior management. MSD also measures and monitors environmental data for global manufacturing and research sites which are reviewed quarterly at the corporate level.
Third-party suppliers of APIs and finished products are screened for EHS compliance and based on these results may be subject to more in-depth and on-site assessments. MSD applies CAPA plans to suppliers and follows these to completion.
In addition, MSD has reviewed its human health antibiotic chemical synthesis facilities and third-party human health antibiotic suppliers to assess wastewater treatment controls and recommended improvements where needed; no data has been reported.
B.1.4. The company does not disclose requirements for external waste treatment plants, nor provide detail on where its largest third-party manufacturers and API suppliers are located for its animal health business.
B.1. Recommendation: To improve its score MSD would need to disclose details on:
(i) the standards it has in place to ensure wastewater discharged into the environment contains safe levels of antibiotic residues with best practice being to set PNECs
(ii) how this applies to its CMOs and to third party suppliers
(iii) how standards are enforced, and
(iv) disclose where the company’s largest third-party manufacturers and suppliers of antibiotics are located.
If MSD disclosed detail relating to antibiotics specifically, the company would be scored as ‘Partial’ or even ‘Good’.
Low
Research and Development
Defining alternatives to antibiotics
C.1.1. The company aligns to the World Organisation for Animal Health (WOAH) definition for vaccines that can reduce antibiotic use, which outlines a list of vaccines considered to be effective at reducing antibiotic use. MSD does not provide a broader definition for alternatives to antibiotics.
C.1.2. MSD has a number of products in its portfolio that reduce the need for antibiotics, mostly vaccines that target bacterial disease, such as its Porcilis vaccine for pigs. MSD produces 102 million vaccine doses per year making it one of the world’s largest producers of livestock vaccines globally.
Besides vaccines, MSD has a product called the Whisper Veterinary Stethoscope System, a non-invasive technology that measures the severity of Bovine Viral Diarrhoea (BVD), and IDAL intra-dermal injections, a technology allowing for quicker vaccinations of pigs which the company identifies as a technology to help farmers reduce antibiotic use.
C.1.2. & C.1.3. It is difficult to estimate the size of MSD’s alternatives portfolio as the company does not provide a revenue breakdown or disclose the number of products in its portfolio that can be considered as alternatives.
C.1. Recommendation: To improve its score, MSD needs to disclose the percentage of its portfolio or revenue for food-producing animals coming from alternatives to antibiotics and disclose detail of how it assesses the efficacy of its alternatives at reducing antibiotic use. If it disclosed this information, MSD would score ‘Partial’ or ‘Good’.
Low
Increasing availability and use of alternatives to antibiotics
C.2.1. MSD is clearly investing in R&D for alternatives to antibiotics, but the company does not disclose the proportion of overall R&D spend this represents.
The company discloses it is investing in the development of vaccines that can help prevent foodborne bacterial infections such as Salmonella.
Total R&D spend for the animal health business in 2021 was $3 billion, up from $2.6 billion in both 2020 and 2019. This is equivalent to a ratio of 53% of MSD’s animal health revenues for the year compared to 25% for the entire business, demonstrating MSD is heavily investing in animal health.
It is not clear if MSD is strategically approaching the development of its alternatives’ product range, or if it intends to increase spending in this area in the coming years.
C.2.2. FAIRR found no evidence of acquisitions in companies looking at alternatives to antibiotics in the past 12 months.
C.2.3. The company also provides no visibility over the marketing spend for its animal health business. Thus, investors have no oversight of marketing spend for antibiotics or alternatives to antibiotics.
C.2. Recommendation: To improve its score, MSD should:
(i) disclose the percentage of R&D spend dedicated to alternatives to antibiotics and
(ii) provide greater insight on marketing spend on alternatives to antibiotics and antibiotics.
Low
Stakeholder Engagement and Lobbying
Stewardship initiatives
D.1.1. MSD is engaged in a wide range of stewardship activities globally focused on reducing antibiotic use in farming. Some of the initiatives to support antibiotic stewardship in animals include:
• In 2019, started funding scholarships through the Association of American Veterinary Medical Colleges (AAVMC) designed to help mitigate AMR.
• 2021 ‘Addressing a Global Public Threat’ public document advocating for increasing vaccination, diagnostic use, evidence-led policies on AMR and supporting global AMR surveillance systems.
• Support for HealthforAnimals’ ‘Roadmap to Reducing the Need for Antibiotics in Animals’ which outlines a number of different actions being taken collectively by the animal health industry.
• ‘Time to Vaccinate’ campaign, promoting vaccination for food animals in Europe.
D.1.2. It also leads AMR surveillance efforts in the human and animal health industries. MSD runs the Study for Monitoring Antimicrobial Resistance Trends (SMART), started in 2002, with an online database launched in 2020. SMART is a surveillance programme that determines pathogen prevalence and antibiotic susceptibility in 200 sites across 60 countries.
For animal health specifically, MSD sponsors the European Animal Health Study Centre (CEESA) and its 4 pan-European AMR monitoring programs, alongside the US government’s National AMR Monitoring System (NARMS) that tracks changes in antimicrobial susceptibility of bacteria in people, retail meats, and food animals.
D.1. Recommendation: The company has scored ‘Good’ on this KPI due to the broad scope of its initiatives globally and because it has played a key role in establishing cross-industry standards and initiatives. To achieve ‘Lead’ on this KPI, MSD would need to report on the success of its different interventions on any of the following (i) reducing antibiotic use; (ii) increasing uptake of alternatives; and (iii) preventing antimicrobial residues entering the environment above maximum residue limits.
Good
Lobbying and political expenditure
D.2.1. MSD discloses political and lobbying spend in countries where this is required by law. Lobbying is overseen by the Governance Committee of the Board of Directors.
Political contributions are disclosed for the US, Canada and Australia. MSD is the only company to disclose this spend in its annual reporting.
In the company’s 2022 ESG report, MSD disclosed that it lobbied in Europe for strengthened access to animal health products on a number of issues related to antibiotics and AMR. MSD lobbied on the New Veterinary Regulation introduced in January 2022 that brought in the restriction on the use of shared-class antibiotics for prophylaxis; Pharmaceuticals in the environment; AMR; and One Health strategy.
MSD does not disclose what position it has taken when lobbying on these issues.
MSD also discloses all trade association dues greater than $25,000 where trade association is used for lobbying in the US. Notably, the Animal Health Institute, an association member of HealthforAnimals, is listed as receiving $49,481 in 2021. HealthforAnimals is a global animal health trade association that lobby on behalf of the animal health industry across a range of issues, including antibiotics and AMR.
D.2. Recommendation: To improve, MSD must demonstrate alignment between lobbying activities and the company’s stated position on AMR stewardship. One way to do this would be to clearly indicate what industry organisations the company is a member of.
Low
Company Engagement
Level of company engagement with the coalition
E.1. MSD did not respond to the investor coalition’s formal letter sent in July 2022 and declined to attend an engagement call with investors. The company also provided no response to the preliminary company assessment sent in December 2022, or on its final assessment sent in May 2023.
Inactive
Workstream Information
Last Updated:
22 May 2023
2022/23 Resources
Investor Briefing Pack Progress Report Key Findings Report Animal Pharmaceuticals Engagement