Moral Strategy Of Merck

Introduction:

Merck and Co. announced on September 30th 2004 a voluntary worldwide recall of Vioxx, its arthritis and acute pain medication, from public inventories. The Company's decision, effective immediately, was based on a new three-year clinical trial.

Faced with the prospect of public endangerment and numerous lawsuits if the company was responsible for undisclosed side effects from the medication, Merck and Co chose to take a preemptive moral action and remove Vioxx from store inventories without FDA direction.

Was this action prudent? Would the "Patients First" policy save Merck and Co. from a public relations nightmare? Finally would this action reduce financial impacts? The lose of a drug from a sales portfolio early in its lifespan is very bad in the pharmaceutical industry. Recalling an immature product voluntarily is almost unheard of.

It takes a number of years to recover the investment made in research and development of a drug; Vioxx had not paid its bills yet. By comparison even today competing pharmaceutical companies have left their own versions of Vioxx on the market. This is after it was discovered that similar and sometimes more extreme cases of stroke and heart attack were linked to the competing drugs such as Celebrex from Pfizer Inc. So was Merck & Co making a serious error or a brilliant public relations maneuver?

The Company Public Statement:

"We are taking this action because we believe it best serves the interests of patients," said Merck Chairman Ray Gilmartin. "Although we believe it would have been possible to continue to market Vioxx with labeling that would incorporate these new data, given the availability of alternative therapies, and the questions raised by the data, we concluded that a voluntary withdrawal is the responsible course to take." (Merck and Co, 10/1/2004)

Merck's Internal Position:

Merck made its recall decision based on new data from additional clinical trials, specifically a three-year external randomized placebo-controlled clinical trial. The trial, which was stopped prematurely, showed an increased relative risk for heart attack and stroke in patients taking Vioxx compared to those taking a placebo.

There was no evidence of increased risk of cardiovascular events for patients taking Vioxx in early stages of the study. The side effects were not documented until at least 18 months of continuous use. This mirrored the studies described in the current U.S. FDA labeling for Vioxx.

Merck internal statements reinforced its public policy "We are taking this action because we believe it best serves the interest of patients. It might have been possible for us to continue to market Vioxx with labeling that would incorporate the new data. However, given the questions raised by these data, and the availability of other therapeutic choices for patients, we concluded that a voluntary withdrawal is the responsible course to take. While this will have a negative impact on our business results in the near term, our decision is consistent with the values and traditions of this Company -- putting patients first".

In the interest of patient safety Merck made this announcement quickly after an analysis of the then unpublished clinical data. Soon after the withdrawal announcement, Merck turned its focus on how the drug's short market run would affect the business. As a result a change was made to the company's strategy beginning in December 2004.

Merck's new corporate strategy was to:

* Control quick decisions and short-term financial actions

* Decrease R&D spending only where necessary

* Halt job reductions or salary freezes that would destroy employee morale

As a first priority, a new restructuring plan focused on employees working on Vioxx. Management attempted to look for ways to redeploy those individuals to jobs in other areas. Some scientists working on Vioxx studies were redeployed to growing drug development opportunities. A number of sales and marketing staff were utilized in the short term to help grow other in-line products and control fallout from the Vioxx withdrawal. The company then redeployed some remaining staff to new products including vaccines.

Manufacturing employees were redeployed based on volume increases for other products, new divisional initiatives, or replacement of temporary or contract employees. This appeared to work for a time. Eventually cutbacks were made in all of the areas of Vioxx support and production.

Merck did state that there would not be appropriate openings to match every employee working on Vioxx with a new job in Merck. Employees who do not have opportunities in other