Newton Acker, 71, was on a bicycling vacation with his wife in southern France. While he had some arthritis, he was otherwise exceptionally healthy, with low blood pressure and cholesterol. Indicative of his fitness, he bicycled 5,000 miles a year. Indicative of his longevity potential, his parents had lived to age 90. Yet on September 3, 2004, this paragon of good health suddenly died of a stroke.
On September 30, four weeks later, Merck pulled Vioxx from the market after a study showed it doubled the risk of heart attacks and strokes. "That's the answer," Acker's son, a F-16 pilot, immediately thought, as his dad had been taking Vioxx for 14 months before his death. He blamed Merck for failing to act sooner, and planned to sue.[310]
Vioxx was a $2.5-billion-a-year arthritis drug and provided well over 10 percent of the $22 billion revenues of the pharmaceutical giant. Some 20 million Americans had taken Vioxx by the time of the recall. Tort lawyers salivated at the tens of thousands who may have had "major adverse events" attributable to the drug, and they rushed to set up toll-free numbers to solicit potential clients. The cost of settling the lawsuits could well run into the tens of billions of dollars, which would be the biggest legal onslaught the drug industry had ever seen. Merck's stock dropped $33 billion in value between September 30 and November 1.
Let us examine how Merck got into this mess, whether it was fully culpable and ethically a pariah, or whether it was the victim of tragic circumstances. What could it have done to prevent this catastrophe, and what could it do at this point?
The 63-year-old Merck chairman, Raymond Gilmartin, was soft spoken, calm, and seemingly unruffled as he tried to defend the company. Merck had had a towering past. From its labs came major drugs to treat AIDS, osteoporosis, high cholesterol, and hypertension. The company had been in the vanguard in donating millions of dollars worth of medicines to fight infectious Third World diseases—an embracing of social responsibility dating from the 1940s. In Fortune's corporate reputation survey, Merck was the Most Admired Company in American business for seven straight years in the 1980s. Its stock was among the bluest of blue-chip stocks.[311]
Much of the research reputation of Merck came from Edward M. Scolnick, the president of Merck Research Labs, who was a physician and a world-class scientist. He motivated an uncommon burst of R&D productivity, that in a five-year period in the 1990s brought to market 15 unique drugs, many becoming blockbusters. For a decade until he retired in 2003, he was the de facto No. 2 man at Merck, and the only inside director on the board besides CEO Gilmartin.
Scolnick's leadership and example permeated the research organization. He had graduated from Harvard Medical School, and personally had authored some 200 scientific articles. His own drive for perfection motivated his staff, and Merck scientists considered themselves the best in the industry. For two decades, Merck research published more scientific papers and patented more compounds than any of its competitors. The company was known for providing meticulous supporting documents for its Food and Drug Administration (FDA) submissions for approval. These along with its superb reputation in science brought faster approvals than any of its competitors. For example, between 1995 and 2001, Merck submitted 13 major new drugs, and all were approved with an average review time of less than 11 months—Vioxx actually won approval in just six months of review. Pfizer's submissions during the same period faced an average review time of over two years. Quick approval could mean hundreds of millions in sales.[312] The renown of Merck's Research Labs and of its scientists, however, also fostered a negative culture, one of arrogance and insularity.
Gilmartin was picked by the board in 1994 to return the company more to its roots and be more research driven. His predecessor, Roy Vagelos, had made a number of acquisitions in efforts to diversify Merck from its core drug-research business. Gilmartin was the first nonscientist to head the company, having been trained in electrical engineering, and had been CEO of Becton Dickinson where he gained a reputation for efficiency and as a turnaround expert.
Gilmartin sold off many of Merck's non-core businesses, including Medco, a $30-billion-a-year drug-distribution company that had been purchased just before Vagelos retired. The recommitment of Merck to its core research brought Gilmartin and Scolnick into a close alliance, with Gilmartin usually deferring to Scolnick. The drugs in the pipeline were Scolnick's babies—he took personal interest in them, not only in their medical utility but even to their positioning in the marketplace—and many had phenomenal growth. Take the case of Fosamax.
Fosamax was an innovative drug for osteoporosis, the bone loss women often experience as they age. It was introduced in 1995 but attracted little public attention at the time. However, Scolnick envisioned a market much larger than ailing old ladies. He urged Merck to launch a public-awareness campaign, and the drug produced $280 million in sales in its first year.
Not long after its release for the market, the FDA threatened to revoke its approval when it was discovered that Fosamax caused some patients to experience erosion in the esophagus. Scolnick went on a vigorous letter-writing campaign, contacting doctors and sending more supporting data to the FDA. In the end the FDA consented to keep Fosa-max on the market with a warning label telling patients to sit upright for an hour after taking the drug. Scolnick had saved the drug, and by 2003 its sales were $2.7 billion.
Other blockbusters followed. In 1995 also came Cozaar, a $2.5-billion-a-year drug for hypertension. Crixivan, for HIV, was introduced the next year. In 1998, five medicines came out of Merck's labs, including the $2-billion-a-year asthma remedy, Singulair, and Propecia for baldness. But by 1999, it was becoming more difficult for all drug companies to find blockbusters—the easier ones had already been found, and more difficult science was needed for any more blockbusters, and these carried higher risks of failure or potential problems. Merck came into the new millennium facing patent expirations and few miracle drugs in the pipeline.
Vioxx was the last of Scolnick's blockbusters. It was discovered in a Merck lab in 1994, and was one of a new class of painkillers called Cox-2 inhibitors. These reduced pain and inflammation without the side effects of ulcers and gastrointestinal bleeding that could result from common painkillers like ibuprofen. Some estimated that drugs like ibuprofen, called nonsteroidal anti-inflammatory drugs (NSAIDs), killed more than 10,000 Americans a year due to intestinal bleeding.[313]
Vioxx worked wonders in clinical trials with arthritis patients, and the FDA approved it quickly in May 1999. Scolnick trumpeted to the press that he was taking Vioxx himself for back pain. On the cover of its 1999 annual report, Merck proclaimed that the drug was "its biggest, fastest, and best launch ever."
Over the next five years, Vioxx became one of the great triumphs of direct-to-consumer marketing. Merck spent more than $500 million on commercials proclaiming its virtues, and some 20 million Americans had taken it, and it was generating $2.5 billion in annual sales, second only to Celebrex, a $3 billion-a-year drug that Pfizer acquired when it bought Pharmacia in 2003. See the following Issue Box for a discussion of pharmaceutical advertising campaigns, one of the fastest-growing ad categories in recent years.
There were early warning signs about Vioxx. Even before the FDA had approved it, scientists at the University of Pennsylvania discovered that Cox-2 inhibitors interfered with enzymes believed to play key roles in warding off cardiovascular disease. The researchers reported this to the companies involved and then to the academic media that this was something that could lead to heart attacks and strokes.
Merck thought the evidence of cardiovascular effects was inconclusive and even conflicting. Then in early 2000, Merck's own 8,000-person study found that arthritis patients taking Vioxx had three times as many serious cardiovascular problems as those on naproxen, sold under the Aleve brand. However, Merck dismissed the result, contending that the discrepancy was due to an extra heart benefit from the naproxen, thus making Vioxx look bad by comparison. Still, in April 2002, Merck updated the Vioxx label to include information about possible cardiovascular risk.
The company embarked on another long-term study of 2,600 patients, called APPROVe, aimed at seeing whether Vioxx would lead to a reduction of colon polyps. The researchers also compared Vioxx with a placebo instead of another drug to test definitively whether the arthritis drug increased cardiovascular risk. On September 23, 2004, Gilmartin was told that the APPROVe study indeed showed that patients using Vioxx had twice the risk of getting a heart attack or stroke as those on a placebo, but only after 18 months of regular use. At that point Gilmartin and other executives made the decision to recall Vioxx. And the hornet's nest was unleashed.
Compelling arguments could be raised that Vioxx should not have been recalled, that it was doing far more good than harm. The company could go to the FDA, and have the product information updated with the new findings. The majority of the outside clinicians Merck consulted suggested it do that, because there were clearly millions of people who were benefiting without getting heart attacks.
Merck thought the decision to recall Vioxx was an example of the company's high ethical standards. Gilmartin told Fortune that he never had any doubt about his course of action: "Withdrawing the drug was going to be the responsible thing to do. It's built into the principles of the company to think in this fashion. That's why the management team came to such an easy conclusion." Most employees felt the same way. Peter Kim, who succeeded Scolnick when he retired in 2002, said, "There has been an incredible outpouring of emotion that says, 'I'm proud that we did the right thing. And I'm proud to be part of an organization that would actually do the right thing.'"[314]
Despite the withdrawal, Merck faced a torrent of criticisms from scientists who believed that Merck largely ignored warning signs because it was so hungry for sales. Harvard researcher Daniel Solomon who had studied Cox-2 inhibitors observed, "If Merck was truly acting in the interest of the public, of course they should have done more studies on Vioxx's safety when doubts about it first surfaced." He also criticized the FDA for not pressuring Merck to resolve the doubts faster. William Castelli, former director of the Framingham Heart Study, an influential investigator of cardiac risk factors, raised another issue. Since Cox-2 inhibitors reduce inflammation, which is a probable risk factor for heart disease, many researchers expected Vioxx to reduce the risk of heart attacks rather than raise it. When some studies "suggested the exact opposite, it should have rung everyone's bell that something was not right."[315]
Perhaps the most vocal critic was Eric Topol, chairman of cardiology at the Cleveland Clinic. He and a number of other researchers had raised questions about Vioxx in medical journals as far back as 2001. Shortly after Vioxx was withdrawn, he wrote a stinging rebuke in the New England Journal of Medicine. He wrote, "Had the company not valued sales over safety, a suitable trial could have been initiated rapidly [to pin down Vioxx's cardiovascular risk] at a fraction of the cost of Merck's direct-to-consumer advertising campaign."[316] Merck refused to accept the evidence of three early research studies that found Vioxx increasing heart attack risk. The company maintained that the studies were unreliable and were contradicted by several other studies that showed no risk.
Even if Merck would not accept these research findings of increased heart attack risk with Vioxx, it should have been alerted by more than 400 lawsuits that had been filed on behalf of Vioxx patients before the recall. This was the tip of the iceberg that was to rise to 3,000 calls in the week following the recall.
While trial lawyers could see no reasonable justification for Merck's delay in recalling Vioxx, some other experts questioned the validity of the criticisms. They saw these criticisms aimed more at enriching lawyers and destroying the pharmaceutical industry through an excess of litigation and reactionary over-regulation. Did Merck and the FDA err so badly with a widely used drug that draconian measures should have been taken by both?
We should recognize that all drugs have side effects, especially when taken in large doses and over long term. More than 10,000 people die per year from gastrointestinal bleeding caused by drugs like naproxen and ibuprofen, and this was the side effect that newer drugs like Vioxx and Celebrex were designed to avoid. Do the possible side effects nullify the good that can come from these drugs? And who should be the right people to weigh the benefits against the risks—courts and regulators or doctors and patients?
The concept of relative risk has been posed as key to decisions on drug benefits and dangers. Take disabling arthritis for example. The study that led to the withdrawal of Vioxx in September found 7.5 events of cardiovascular problems per 1,000 in the placebo groups versus 15 per 1,000 among those taking Vioxx, and only after 18 months at a high dose. This, of course, is a doubling of the risk factor with heavy and long-time use. But for our arthritis patient disabled and in severe pain, would 15 chances out of 1,000 of getting a heart attack convince you to drop Vioxx? Indeed, Merck's decision to withdraw Vioxx would seem irresponsible to those patients who could not find relief elsewhere. Incidentally, the point could be raised that this irresponsibility in withdrawing the drug could also extend toward Merck's shareholders who were savaged by Merck's concession that the drug was a disaster and had no place in pharmacology, thus leaving the battleground to trial lawyers thirsting for such an admission. Of particular interest should be Pfizer's reaction with its own Celebrex, a Cox-2 inhibitor like Vioxx, which follows in the next section.[317]
At $3 billion-a-year in sales, Celebrex was the best-selling Cox-2 inhibitor, with Vioxx number 2 at $2.5 billion. Yet, when the news broke of Vioxx's recall September 30, Pfizer stubbornly refused to take Celebrex off the market, as well as its Bextra, another Cox-2 inhibitor. Earlier research studies had involved only Vioxx and while Celebrex and Bextra were of the same family of drugs, they had mostly eluded the same implications of potential cardiovascular risks. At this point, Pfizer stood to gain big from Vioxx's troubles, with many people expected to switch to Celebrex.
The situation changed on a Thursday night the middle of December. Pfizer CEO Henry McKinnell got an unexpected phone call at his home in Greenwich, Connecticut. He learned that a review of a cancer study had for the first time linked high doses of Celebrex to greater heart-attack risks, even greater than those associated with Vioxx.
McKinnell and his colleagues decided to keep the drug on the market. They bet that the medical community and consumers would decide there was a need for a Cox-2 inhibitor like Celebrex. They took a calculated risk with this decision. If more adverse information came to light, Pfizer would face an intense legal attack. Then there was a concern whether doctors would continue to prescribe the drug.
Also lurking in the wings was the FDA's eventual decision on Cox-2 inhibitors. Indicative of how serious the FDA was taking this matter, it asked Pfizer to suspend its use of direct-to-consumer advertising and alter its marketing to doctors while the company and regulators examined the data from the National Institutes of Health trial. "It was a desire not to have mixed messages going out to physicians and patients," said John Jenkins, director of the FDA's office of new drugs. "We thought it would be very strange for consumers to be watching the evening news and see a story about Celebrex's potential risk, and then see an ad with a contrasting message."[318]
See the following Information Box for the latest information on the FDA's changing stance regarding drugs already approved and in the marketplace.
With word of the study, new prescriptions dropped 56 percent in one week. A subsequent review of patient data by WellPoint, the nation's largest provider of health benefits, found that both Vioxx and Celebrex increased patients' risk of heart attack and stroke about 20 percent, while Bextra increased the risk 50 percent.[319]
Given the millions who were taking Vioxx—potentially 80 million worldwide—it is a certainty that many thousands have suffered heart attacks. Of course, many of these would statistically have suffered heart attacks without having taken Vioxx. Surely Vioxx cannot be blamed for the great majority of these. But plaintiffs' lawyers will have little difficulty finding medical experts who will testify as to a causal relationship, and jurors will be more inclined to make decisions favoring a grieving spouse rather than a large corporation. And the drug industry hardly has a sterling reputation these days of skyrocketing drug prices and its widely publicized pressures to prohibit cheaper Canadian drug imports. The cost of settling lawsuits could well be in the tens of billions.
Gilmartin conceded that withdrawing the blockbuster Vioxx would hurt short-term profits. But he insisted the company's financial position would carry it through: "We're fortunate to have been managed conservatively, because this is the kind of event that you want to be able to protect yourself against."[320] The company had more than $10 billion in liquid assets. Even after the Vioxx recall, Standard & Poor's and Moody's kept Merck's triple-A bond rating, for the time being.
But adversity was not finished with Merck. In November 2003, the company was forced to cancel work on potential blockbuster drugs for depression and diabetes. The former didn't work in a pivotal clinical trial, and the diabetes drug was found to pose a cancer risk. Furthermore, anticholesterol Zocor and its $5 billion-a-year revenue went off patent in 2006 and Merck urgently needed to replace those sales. The stock price of $95 in 2000, was under $30 by February 2005.
With Merck seemingly on the ropes, Wall Street and consultants were talking merger as a possible solution to Merck's difficulties. Much of the talk involved Schering-Plough—Merck had sales of $22.9 billion in 2004, while Schering-Plough's sales were $8.3 billion. The two companies had worked well together on a joint venture for two cholesterol-lowering medicines, Zetia and Vytorin. Schering's CEO, a turnaround specialist, would be a logical contender to succeed Gilmartin.
But Gilmartin was against a large-scale merger. He believed Merck should not shift from his strategy of reducing costs while entering partnerships with smaller, innovative companies and licensing promising compounds. Gilmartin admitted Merck's scientists had been arrogant and unwilling to work with others in the past, but insisted this had changed, as evidenced by 47 licensing deals in 2003 versus 10 in 1999.[321] The problem with licensing deals was that with so many big companies chasing the same deals, licensing was becoming ever more expensive. This left the option open for buying small biotech companies outright.[322] But with its share price down 35 percent since the Vioxx withdrawal, and with little likelihood that this price would go up anytime soon, and while the threat of lawsuits hung over its head, Merck was hardly in a power position for attractive merger terms.
We find conflicting attitudes regarding Merck's removal of Vioxx from the market. Some well-known doctors thought Merck waited far too long in trying to protect its profitability. Others praised it for full disclosure of information and taking action only after contradictory research findings were sorted out and evaluated. Merck's biggest competitor, Pfizer, with a comparable drug, Celebrix, even refused to take it off the market. All the while, trial lawyers were readying their ammunition for a full assault on Merck, the likes of which the drug industry had never seen before. How are we to judge the culpability of Merck? And yes, perhaps the double culpability of Pfizer for standing pat with its hand? The full judgments of the relative culpabilities will probably be years away as the lawsuits wend their ways through the judicial system.
It can be argued that Merck made two monumental mistakes. First, it should have been more receptive to the early indications that something might be amiss with Vioxx. It should not have been so blinded by skepticism that the early research studies were inconclusive and that the early lawsuits were rare exceptions and provided no cause-and-effect relationships. It should have undertaken intensive research studies to ascertain the truth. In those early days it could well have involved Cleveland Clinic's Dr. Topol, a renowned heart specialist and researcher and the most vocal critic of Vioxx, and it should have kept in close touch with the FDA.
However, it is not difficult to understand Merck's procrastination. Holding back the introduction of this blockbuster drug would mean millions in profits lost. Additional research would perhaps have raised doubts that might have destroyed the future promise. Then the benefits in relieving severe arthritic pain seemed so great, and the number of heart attack and stroke risks so minor in comparison. Sure, the bottom line would be affected if the introduction were delayed or muted—and the critics pounced on this for the recall delay—but I suspect that with Merck's culture and the quick recall once the full measure of the side effects was established, that the bottom line took second place in the decision. (I'm not that sure about Pfizer.)
The second mistake that Merck made was to recall so quickly. The FDA, as a regulatory agency, should have been fully involved in this decision. The very real factor was whether the good outweighed the bad with this drug, and agreement was lacking here. Perhaps the FDA should have encouraged Merck to go ahead with Vioxx but with warnings prominently placed. If physicians and their patients felt the cardiovascular risk was too great, then they would not use it. Otherwise, accept the risk, and perhaps closely monitor the possible risk factors in the individual patient. The advertising should probably be toned down, and full and prominent disclosure made.
As we noted in the Issue Box, pharmaceutical advertising is close to getting out of control, both in the amount spent and in the claims and emotional images repeated time and time again. I do not believe the industry can regulate itself in toning down these efforts, which suggests that government may need to do some regulating in the future.
Invitation to Make Your Own Analysis and Conclusions
What would you do? You have a sure winner! The drug has been thoroughly tested before being recently introduced to the market, and it seems to be a wonder drug, perhaps in the $3 billion-revenue range. Side effects appear to be acceptable. The board wants a massive consumer advertising campaign. What would you do? Be specific.
Merck's troubles hardly diminished. A pending $4.85 billion Vioxx settlement was expected to bring more than three years of litigation to an end. But several other top-selling products were facing challenges. A growing number of patients were alleging that osteoporosis blockbuster Fosamax was causing serious side effects of bone breakdowns of the jaw as well as elsewhere in the body, and severe pain. To make the Fosamax situation worse, its patent protection was lost in February 2008; and even without the lawsuits, sales would be far less than the $3 billion in 2006.
Prescriptions for the cholesterol drug Vytorin, heavily pushed by a joint venture of Merck and Schering-Plough in a single tablet combination of simvastatin and Zetia, were falling amid questions of its effectiveness in reducing risk of heart attacks and other cardiovascular problems. Making this situation worse and critics more incensed were revelations that the study was completed in April 2006, but the results were not disclosed until January 14, 2008. During that time, combined annual sales of Vytorin and Zetia grew to more than $5 billion. Now there was doubt that the pill was any better than far less expensive generics. Truly, big Pharma was letting its public image be tarnished. See the following Issue Box: Spending Billions to Woo Doctors, for a discussion of other questionable marketing activities of the pharma industry.[323]
On balance, do you think Merck is an ethical and socially responsible company? Why or why not? How about Pfizer?
How could the disaster with Vioxx have been avoided in the first place?
What is your opinion of pharmaceutical advertising?
Discuss the idea of relative risk. What is the significance of it for the drug firm itself, for the FDA, for tort lawyers, and for the consumer?
Do you think Merck CEO Gilmartin acted wisely in recalling Vioxx? Why or why not?
"The more than $10 billion Merck has hoarded attests to the obscene profits these drug companies are making at our expense," a consumer advocate speaks up. Evaluate this statement.
"The FDA is in the pocket of the drug industry. What a travesty this is." Comment.
You have been a public relations consultant to Merck and know the company well. You have just been summoned to the office of CEO Gilmartin. His hands tremble as he tells you of the latest research finding that Vioxx doubles the incident of heart attacks and strokes. He wants you to lay out a public relations plan that would ease the repercussions of this catastrophe. Be as specific as you can. If you have to make some assumptions, state them clearly and keep them reasonable.
You are a staff assistant to Gilmartin. He wants you to analyze two courses of action for expanding the firm in 2005. Should this be through licensing, or should it be through merging with other companies? Or something else? Present all the factors bearing on this decision that you can, and discuss their relative merits and priorities.
Be a devil's advocate. Array all the arguments you can to Chief Executive Henry McKinnell of Pfizer that the company is making a big mistake in not pulling Celebrex off the market as Merck has done with Vioxx.
It is early 1999 and Vioxx has just been introduced to the market and a massive advertising campaign is planned for it. At the same time, several small research studies have indicated possible heart attack risks. Debate these two positions: (1) Abort the market introduction until the questionable research findings can be verified or disproved, and (2) Continue with the marketing plans because these research studies are small and of questionable validity. (Don't be swayed by what actually happened. In 1999 there was little expectation that anything could go wrong with this great new breakthrough drug.)
It is 2004 and the latest research report confirms that Vioxx doubles the risk of heart attacks and strokes. Debate the decision to pull Vioxx off the market. Array as many arguments as you can for either decision, and be prepared to attack the arguments of the other side.
What is the situation with Merck and Vioxx today?
Has Merck made any large acquisitions?
Is Pfizer's Celebrex still on the market, or has it been recalled?
Has the FDA's new oversight committee been effective in improving drug safety?
Has the drug industry made any inroads in improving its public image?
Has consumer advertising by the drug industry been curtailed? How about massive marketing expenditures to doctors?
[310] Example cited in Matt Herper and Robert Langreth, "Merck's Mess," Forbes, November 1, 2004, p. 50.
[311] John Simons and David Stipp, "Will Merck Survive Vioxx?" Fortune, November 1, 2004, pp. 91–104.
[312] Ibid., pp. 96, 97.
[313] Ibid., p. 100.
[314] Simons and Stipp, p. 102.
[315] Simons and Stipp, p. 104.
[316] Ibid.
[317] The reasoning in this section is influenced by "The Painkiller Panic," in the editorial of Wall Street Journal, December 23, 2004, p. A10.
[318] Scott Hensley, Ron Winslow, and Anna Wilde Mathews, "As Safety Issue Hit Celebrex, Pfizer Decides to Hang Tough," Wall Street Journal, December 20, 2004, p. A6.
[319] "Painkiller Study Reinforces Cardiovascular Risk," Wall Street Journal, February 15, 2005, p. D4.
[320] Simons and Stipp, p. 92.
[321] Simons and Stipp, p. 104.
[322] Jeanne Whalen and Leila Abboud, "Big Pharma, Flush With Cash, Is Looking Acquisitive," Wall Street Journal, February 16, 2005, pp. C1 and C4.
[323] Compiled from such sources as Sarah Rubenstein, "Merck Posts $1.63 billion Loss on Vioxx Charges," Wall Street Journal, January 21, 2008, p. B6; Heather Won Tesoriero, "Fight Brews over Merck Product," Wall Street Journal, January 30, 2008, p. A12; Anna Wilde Mathews and Avery Johnson, "Pharmaceutical Industry Faces Increased Scrutiny," Wall Street Journal, January 23, 2008, p. A14.