Appendix A: Background Information for the Panalba Case
Assume that it is August, 1969, and that Upjohn Corporation has called a Special Board Meeting to
discuss what should be done with the product known as “Panalba.”
Panalba is a “fixed-ratio” antibiotic sold by prescription. That is, it contains a combination of drugs.
It has been on the market for over 13 years and has been highly successful. It now accounts for about
18 million dollars per year, which is 12% of Upjohn Company’s gross income in the U.S. (and a greater
percentage of net profits). Profits from foreign markets, where Panalba is marketed under a different
name, are roughly comparable to those in the U.S.
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-ration drugs have improved benefits over single drugs, and (2) that the
possibility of detrimental side effects, including death, is at least doubled. For example, these scientists
have estimated that Panalba is causing about 14 to 22 unnecessary deaths per yearBi.e., deaths which
could be prevented if the patients had used a substitute made by a competitor of Upjohn. 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 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 Panalba. One of the members of the panel, Dr. Eichewald of the
University of Texas, was quoted by the press as saying, AThere are few instances in medicine when so
many experts have agreed unanimously and without reservation” (about banning Panalba). This view
was typical of comments made by other members of the panel. In fact, it was typical of comments which
had been made about fixed-ratio drugs over the past 20 years. These impartial experts then believe that
while all drugs have the possibility of side effects, the costs associated with Panalba far exceed the
possible benefits.
The Special Board Meeting has arisen out of an emergency situation. The FDA had told Upjohn
that it plans to ban Panalba in the U.S. and wants to give Upjohn time for a final appeal to them. Should
the ban become effective, Upjohn would have to stop all sales of Panalba and attempt to remove
inventories from the market. Upjohn has no close substitute to Panalba, so consumers will be switched
to close substitutes which are easily available from other firms. Some of these substitutes offer benefits
which are equivalent to those from Panalba, and yet they have no serious side effects. The selling price
of the substitutes is approximately the same as the price for Panalba.
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 Upjohn.
The following possible solutions were considered by the Board:
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