“The industry is doing things now that I don’t think are right,” said former Merck & Co. chief executive P. Roy Vagelos earlier this year. High prices for drugs without profound medical value “are turning people against the industry,” he warned in an interview with [email protected], an online magazine published by the Wharton Business School.
During the late 80s and early 90s, with Vagelos at the helm, Merck was named America’s most admired corporation by Fortune magazine for seven consecutive years. The pharmaceutical company was producing groundbreaking drugs for cholesterol and hypertension, and earning kudos for both its financial performance and its social responsibility—demonstrated most notably its donation of river blindness drugs to African nations too poor to afford them.
But even before last week’s worldwide recall of its anti-inflammatory painkiller Vioxx, Merck’s reputation had been in a decade-long decline. The acquisition in 1994 of Medco Containment Services, a drug wholesaler, and the appointment the same year of Raymond Gilmartin as successor to Vagelos signaled a downturn in the company’s fortunes. The Medco acquisition raised concerns about potential conflicts of interest, while Gilmartin—trained as an electrical engineer, not a chemist—became known as the “invisible man” by insiders who compared him unfavorable to the charismatic and accessible Vagelos.
The company suffered a major blow last November when Gilmartin called a halt to clinical trials involving four of the company’s most high-profile new drugs, damaging the company’s credibility on Wall Street, followed by a 7 percent cut in the company’s workforce, which damaged morale.
But the cost of that crisis is likely to be dwarfed by the Vioxx catastrophe. More than 20 million people have taken Vioxx since it was launched in 1999, and Vioxx sales reached $2.5 billion last year. The drug accounted for 11 percent of Merck’s global sales in 2003, and its loss is expected to cost the company about 20 percent of its profit this year.
The FDA approved Vioxx in 1999 for arthritis pain and certain other kinds of pain in adults. Later it was approved as a treatment for rheumatoid arthritis in adults and, more recently, for rheumatoid arthritis in children
But concerns about the drug’s safety arose almost immediately after approval. In 2000, the the New England Journal of Medicine published the results of a Merck trial called Vigor, which suggested that patients taking the drug were four times as likely—0.4 percent to 0.1 percent—to have a heart attack or stroke as patients taking naproxen, an alternative painkiller.
Still, concerns persisted, and in April of 2002, a new Vioxx label pointed out the association with higher heart-attack and stroke risk.
New research suggesting a correlation between high doses of Vioxx and increased risk of heart attack was first presented at a medical conference in August, and an Food & Drug Administration study led one of the agency’s lead scientists to recommend still stronger warnings on the label. Merck, meanwhile, was conducting its own clinical trial intended to determine whether Vioxx could prevent a recurrence of precancerous growths in the colon. Instead, the trial showed that people taking a low dose of Vioxx (25 milligrams), for more than 18 months were twice as likely to have a heart attack or stroke as patients taking a placebo.
On the morning of September 24, Gilmartin was informed by Peter Kim, Merck’s research chief, that the panel overseeing the trial had urged Merck to halt the trial and immediately stop patients from taking the drug. The company consulted about two dozen outside experts in several medical specialties. While some rheumatologists advised Merck to keep Vioxx on the market and add a warning label, other doctors urged Merck take the pill off the market completely.
Merck directors met a few days later and spent 40 minutes discussing presentations by Gilmartin and Kim before agreeing that the drug should be withdrawn.
On September 30, the company announced its decision. Said Gilmartin: “We are taking this action because we believe it best serves the interests of patients. That is why we undertook this clinical trial to better understand the safety profile of Vioxx. And it’s why we instituted this voluntary withdrawal upon learning about these data… Merck will continue to do everything we can to maintain the safety of our medicines.”
The company scored high marks from public relations experts. It didn’t wait for the FDA to order Vioxx off the market (if it had, it would probably still be waiting). It undertook the global recall on its own initiative, and was unusually forthright in all its public announcements. The company also handed out the phone numbers of its board of directors to journalists.
“Overall, [the recall is] being handled in an exemplary manner,” says crisis management expert and University of Michigan business professor Gerald Meyers.
The company also benefits from a strong “trust bank,” built up over many years as a leader in the pharmaceutical industry.
“Fortunately, Merck has an excellent track record of integrity and performance, and this equity should continue to serve it well in the current environment,” says Marybeth Belsito, president of New York healthcare PR specialist Belsito & Company.
So generally, Merck earns high marks for its performance so far.
“From this vantage point, Merck did an exemplary job of handling the Vioxx recall, and took the high road in every respect,” says David Catlett, head of the healthcare practice at Ketchum. (Many healthcare public relations experts declined to comment—except in the most general terms—because their companies handle significant Merck business.)
But however exemplary the company’s management of the recall might have been, it did not insulate the stock against the strong reaction of the market. Merck lost $28 billion in value—about 27 percent of its market capitalization—in the immediate aftermath of the announcement, and it’s clear the company has a lot of work to do.
Crisis expert Jonathan Bernstein, president of Los Angeles-based Bernstein Communications, warns that the company needs to do more to “combine compassion with factual communication.
“In a crisis, particularly a crisis that threatens the health of millions, fear and anxiety is the first reaction of patients on Vioxx,” says Bernstein. “Merck needs to directly and indirectly (through messages provided to the medical community) express empathy for the concern felt by patients, and then provide any reassuring facts that are available. Thus far, I have seen no messages of compassion in news coverage or the company press release on this topic.”
Others are more focused on the biggest question facing any company that finds itself in this kind of crisis: what did Merck know and when did the company know it? The fact that critics have raised serious questions about the safety of Vioxx almost since its introduction puts the company in a difficult position.
“The fact that Vioxx probably increased the risk of heart attacks and strokes was known for three years,” according to Marcia Angell, senior lecturer at Harvard Medical School. “But Merck downplayed it and did not undertake studies to settle the matter, while the FDA sat on its hands. The risk was confirmed only serendipitously in a clinical trial for another purpose. Over the past three years, it is likely that many more people had heart attacks and strokes from Vioxx than were saved from bleeding ulcers.”
In 2001, for example, the FDA wrote to Merck saying the company’s claim in a press release that Vioxx had a “favorable cardiovascular safety profile” was “simply incomprehensible, given the rate of MI [myocardial infarction, or heart attack] and serious cardiovascular events compared to naproxen.” The FDA accused Merck of engaging “in a promotional campaign for Vioxx that minimizes the potentially serious cardiovascular findings.”
And last spring, Circulation—a journal published by the American Heart Association—published a study suggesting the drug was associated with increased risk of heart attacks. The company withdrew the name of a Merck scientist who had participated in the study from the list of authors because it disagreed with the study’s conclusion.
Said an editorial in The Lancet, “Merck responded well to this latest piece of the rofecoxib jigsaw puzzle. However, the real picture of cardiovascular risk has been apparent for some time and Merck’s vigorous defence of this drug in the past was clearly an error. If the dangers associated with rofecoxib were not proven, they were certainly possible, even probable, given the available data, and it should not have been left to a small trial in a novel application to reveal them.
“In the end it is patients, now understandably confused by the implications of rofecoxib’s withdrawal, who will lose the most. Which drugs, they will ask, should they trust?”
Public relations experts say that while Merck acted quickly once the facts became known, there are likely to be suggestions that it should have known them earlier.
“Given the fact that Merck acted on its own in the span of a week by halting its clinical trial investigating whether Vioxx would prevent colon polyps and then recalling the drug, it is difficult to suggest that the company did not act quickly enough,” says Belsito. “However, despite company claims that research in 2000 suggesting a link to heart attacks was incomplete and not valid, it is open to criticism that it should have acted sooner.”
Bernstein, meanwhile, says the company will have to answer several questions: “Is there a smoking gun? Is there evidence that demonstrates that they were more aware of the potential health risks than they revealed to the FDA or the general public? Or evidence that their other, related drugs could produce similar results?”
Andrew Metrick, a finance professor at Wharton School of Business, asks very similar questions. “Have they been aware and knowledgeable about this? Were they doing their best to prevent bad news from coming out? That’s the crux of it. And this will get fought out in a lot of trials.”
Metrick gives Merck credit for conducting a study that, while designed to investigate the drug’s efficacy in another area, nevertheless captured data on its cardiovascular effects. The fact that these studies were done “in daylight and not in secret” suggests Merck was acting in good faith, he says. “I don’t think there is anything scandalous about this. These issues were known. There were some prominent people who said Vioxx has some problems. The information wasn’t kept behind closed doors. The [Merck] study wasn’t designed to pick up the cardiac issues but it did track them.
“If you really don’t want this to be an issue, you do as little as you can. The company did not do that. It designed a study to see if Vioxx protected against polyps but looked at cardiac at the same time. The company was paying attention.”
While those questions will be critical for Merck, the industry as a whole is likely to face renewed scrutiny, with the initial focus on two areas: the role of direct-to-consumer advertising in creating increased demand for blockbuster drugs like Vioxx, and the FDA approval process and whether the agency is now more concerned with industry profits than patient safety.
“Vioxx was hardly a bad product,” wrote Holman Jenkins in The Wall Street Journal, describing the product as “a pill with unambiguous value to a clear subset of patients,” 4.5 million arthritis sufferers who are at high risk of stomach bleeding. But Cox-2 drugs generated $5.6 billion in sales last year, two-thirds of that from sales to patients not at risk for bleeding ulcers—a fact physicians and insurers blame on direct-to-consumer advertising.
“Merck’s Vioxx ads, like all mass-market ads, bombarded everyone in hopes of capturing just a few for whom the message was directly appropriate,” says Jenkins. “In a normal marketplace, potential customers would have quickly sorted themselves into two groups: those arthritis sufferers who’ve tried everything and can’t get pain relief without tummy risk, thus are willing to pay top dollar for Vioxx; and those who take one look at the steep price and decide Tylenol, Motrin or store-brand aspirin are just fine.”
But the ad campaign—some experts say Merck spent $500 million in 2003 promoting the drug—clearly caused many patients to request it by name, even if they didn’t need it.
The whole class of Cox-2 drugs “has been the subject of absolutely intensive, unrelenting marketing,” says Dr. David Wofsy, president of the American College of Rheumatology
“One of the things that drove overuse was the widespread perception, even among many doctors, that they were somehow better pain relievers, and they never really were,” says Jerry Avorn, a physician at Brigham & Women’s Hospital in Boston. The popularity of drugs like Vioxx “is a terrifying testament to the power of marketing,” Avon adds.
Meanwhile, there are calls for the FDA to take a look at its drug approval process, encouraged by charges that the agency ignored—and even sought to downplay—warnings about the safety of Vioxx.
The Food & Drug Administration employee whose research pointed to the cardiovascular risks of Vioxx reportedly clashed with superiors at the agency who felt his conclusions about the drug’s safety were too strongly worded. E-mail messages between the researcher, David Graham, and other FDA officials emerged in the wake of Merck’s decision to recall the arthritis drug.
“Instead of acting as a public watchdog, the Food & Drug Administration was busy challenging its own expert,” said Senate finance committee chairman Charles Grassley (R., IA) in a statement. “It seems that while Merck was taking a fresh look at its clinical data in search of trouble, the [FDA] was challenging its own researcher.”
The Lancet, meanwhile, has called drug regulators to task. They “must now reassess the safety and efficacy thresholds required for the licensing of a new pharmaceutical product,” the journal says. “The Vioxx story is one of blindly aggressive marketing by Merck mixed with repeated episodes of complacency by drug regulators. We need clear statements from all parties in this sorry tale about the lessons to be learned. Without more vigilant drug regulation in the future, doctors will continue to be misled and patients’ lives will continue to be endangered.”
The FDA is already responding to criticism. “We will want more data on (the safety) long-term for both drugs in the pipeline and those already approved,” Steven Galson, acting director of the FDA’s Center for Drug Evaluation and Research, told reporters.
As for Merck, it is likely to suffer an avalanche of litigation. While some lawyers say the swift withdrawal could insulate the company from greater liability, many expect the volume of suits to exceed the 10,000 that were filed against Bayer after the withdrawal of its cholesterol-lowering drug Baycol. About 12 percent of those suits were successful, with a payout of approximately $150,000 per patient.
The company will need to integrate its legal and public relations strategies, says Bernstein. “Attorneys may be inclined to advise ‘say nothing, because anything you say can be used against you.’ But anything you don’t say can be used against you too, in the court of public opinion.”
At the same time, “Merck must move forward by focusing on other high value and high revenue brands,” says Belsito. “It can serve its interests well by working with the FDA and the pharma industry as a whole to attempt to gain learnings from the series of events leading up to the recall, perhaps even leading a call for continued post-approval surveillance of drugs to determine long-term effects.
“In this manner, it can leverage its heritage of integrity, by utilizing this recall to work for the public good by enhancing drug safety research.”