In 2006 the pharmaceutical giant Merck faced major challenges. Vioxx the company’s once…

Merck, the FDA, and the Vioxx Recall

In 2006, the pharmaceutical giant Merck faced major challenges. Vioxx, the company’s once bestselling prescription painkiller, had been pulled off the market in September 2004 after Merck learned it increased the risk of heart attacks and strokes.When news of the recall broke, the company’s stock price had plunged thirty percent to $33 a share, its lowest point in eight years, where it had hovered since. Standard & Poor’s had downgraded the company’s outlook from “stable” to “negative.” In late 2004, the Justice Department had opened a criminal investigation into whether the company had “caused federal health programs to pay for the prescription drug when its use was not warranted.”1 The Securities and Exchange Commission was inquiring into whether Merck had misled investors. By late 2005, more than 6,000 lawsuits had been filed, alleging that Vioxx had caused death or disability. From many quarters, the company faced troubling questions about the development and marketing of Vioxx, new calls for regulatory reform, and concerns about its political influence on Capitol Hill. In the words of Senator Charles Grassley, chairman of a Congressional committee investigating the Vioxx case, “a blockbuster drug [had become] a blockbuster disaster.”2 Merck, Inc.3 Merck, the company in the eye of this storm, was one of the world’s leading pharmaceutical firms. As shown in Exhibit 1, in 2005 the company ranked fourth in sales, after Pfizer, Johnson & Johnson, and GlaxoSmithKline. In assets and market value, it ranked fifth. However, Merck ranked first in profits, earning $7.33 billion on $30.78 billion in sales (24 percent). Merck had long enjoyed a reputation as one of the most ethical and socially responsible of the major drug companies. For an unprecedented seven consecutive years (1987 to 1993), Fortune magazine had named Merck its “most admired” company. In 1987, Merck appeared on the cover of Time under the headline, “The Miracle Company.” It had consistently appeared on lists of best companies to work for and in the portfolios of social investment funds. The company’s philanthropy was legendary. In the 1940s, Merck had given its patent for streptomycin, a powerful antibiotic, to a university foundation. Merck was especially admired for its donation of Mectizan. Merck’s scientists had originally developed this drug for veterinary use, but later discovered that it was an effective cure for river blindness, a debilitating parasitic disease afflicting some of the world’s poorest people. When the company realized that the victims of river blindness could not afford the drug, it decided to give it away for free, in perpetuity.4 In 1950, George W. Merck, the company’s longtime CEO, stated in a speech: “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they never fail to appear. The better we have remembered that, the larger they have been.”5 This statement was often repeated in subsequent years as a touchstone of the company’s core values. Merck was renowned for its research labs, which had a decades-long record of achievement, turning out one innovation after another, including drugs for tuberculosis, cholesterol, hypertension, and AIDS. In the early 2000s, Merck spent around $3 billion annually on research. Some felt that the company’s culture had been shaped by its research agenda. Commented the author of a history of Merck, the company was “intense, driven, loyal, scientifically brilliant, collegial, and arrogant.”6 In 2006, although Merck had several medicines in the pipeline— including vaccines for rotavirus and cervical cancer, and drugs for insomnia, lymphoma, and the effects of stroke—some analysts worried that the pace of research had slowed significantly.

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