Read and answer the discussion questions.

Merck \& Company, Inc.: The Recall of Vioxx (A) On the afternoon of Friday, September 24, 2004, Joan Wainwright, Vice President of Public Affairs at Merck \& Company, sat in the jury waiting room in a Baltimore, Maryland courthouse. "One last time," she thought, as she checked her Blackberry for e-mail, just to see if there were any last-minute issues to address before the weekend. It was 3:00 p.m., eastern daylight time. An urgent message asked her to call Merck's General Counsel about news from the Data and Safety Monitoring Board. Wainwright asked the court bailiff for permission to use the phone and quickly returned the call. What she learned wasn't good: the latest clinical study on Merck's blockbuster arthritis drug, Vioxx, had produced strongly unfavorable results. The Data and Safety Monitoring Board recommended stopping the Vioxx study with eight weeks remaining, citing an increased risk of heart attack and stroke in patients taking the drug. 1 Following the court's adjournment for the day, Wainwright rushed home to participate in a 5:00 p.m. conference call with other Merck executives, including the General Counsel and Chief of the U.S. Marketing Group. The conference call discussed scenario planning, leaving Merck with two viable options: leave Vioxx on the market with a "black box" warning or pull the drug. While Wainwright spent the weekend contemplating the logistics of communicating the company's decision to many different audiences, Merck's Chief Executive Officer, Raymond Gilmartin, assigned Dr. Peter Kim, the company's Research and Development Chief, full authority to make a decision on Vioxx based on patient safety. 2 Regardless of the decision Dr. Kim would soon make, Joan Wainwright knew that life in the near term would change dramatically for the Communications and Pubic Affairs team at Merck. History of Merck \& Company With a lineage that can be traced as far back as 1668, Merck \& Company, Inc. began as a modest chemical firm opened by Frederic Jacob Merck in Darmstadt, Germany. In 1891, George Merck brought the company to the United States and set up snop in New York. Unginany estabished as a fine chemicals supplier, Merck \& Co., Inc. began to conduct pharmaceutical research by the early 1930 s. In 1953 , the company entered into a merger with pharmaceutical specialty firm Sharp \& Dohme, creating a company known as Merck Sharp \& Dohme. Forty years later, Merck acquired Medco Containment Services, Inc., a leading pharmacy benefits management company in the United States. 3 Today, the firm known as Merck \& Co., Inc. is headquartered in Whitehouse Station, New Jersey. The company still operates in many countries under the name Merck Sharp \& Dohme. Today, Merck is a global research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human health products. By 2004 , the company would have about 70,000 employees in 120 countries and 31 factories worldwide. Today, Merck \& Co., Inc. sells its products in more than 200 countries. 4 Merck \& Company Public Affairs Joan Wainwright, who has been a Merck \& Co. vice president since June of 2000, directs a public affairs team at the company's headquarters that consists of approximately 100 people who are organized into a Corporate Communications Group, a Media Relations Group, and support for each of the company's divisions. Those include a Worldwide Human Health Public Affairs Group, U.S. Human Health Public Affairs Group, Merck Manufacturing Public Affairs Group, Merck Research Public Affairs Group, and a Merck Vaccine Division Public Affairs Group. She also supervises a Merck Washington, D.C. office responsible for monitoring federal relations and policy. What is Vioxx? Discovered in a Merck research facility in 1994, Vioxx (known generically as rofecoxib) is one among a class of drugs called Cox-2 inhibitors. This class of painkilling drugs was developed to reduce pain and inflammation in the human body. Cox-2 inhibitors compete with another class of drugs known as nonsteroidal anti-inflammatory drugs (NSAIDs) that are used as analgesics to reduce pain. Although Cox-2 inhibitors are also a part of the NSAID class, they were developed to reduce pain while eliminating the most common side effects of other NSAIDs, such as ulcers and gastrointestinal bleeding. 6 Vioxx was approved in 1999 by the United States Food and Drug Administration (FDA) for the treatment of pain, inflammation, and stiffness caused by arthritis. The drug was later approved for use in the treatment of rheumatoid arthritis in both children and adults. 7 Vioxx is the only Cox-2 inhibitor which is proven to have a benefit for ulcers and gastrointestinal bleeding. The Recall After the initial notification of Vioxx risks by the Data and Safety Monitoring Board on September 24, 2004, Peter Kim had to decide what to do about the drug's future. With overwhelming results showing Vioxx's cardiovascular risks, Dr. Kim made the final decision to pull the drug from the market on Monday, September 27, citing patient safety as the motivation for the decision. For the next three days, Joan Wainwright and a team of 25 Merck officials assembled in a "war room" to discuss the communication of the recall. announcement that would change the face of Merck and the entire pharmaceutical industry. Gilmartin announced that Merck was pulling its popular arthritis painkiller Vioxx from the worldwide market. At the time of the recall, about two million people were taking Vioxx. Since the drug's approval in 1999 , more than 100 million prescriptions had been written for the drug. 8 The decision to pull Vioxx from the worldwide market was based on data from a clinical trial that Merck had instituted to test whether Vioxx had alternative uses, principally the prevention of potentially cancerous growths in the human colon. With eight weeks left on the study, the External Data Monitoring Board notified Merck officials that the preliminary results revealed that people who took the drug for more than 18 months had double the risk of heart attack or stroke than if they took a placebo. According to Dr. Kim, "Beginning after 18 months, there was a discernible and unexpected increase in cardiovascular disease rates." ,9 The preliminary results of Merck's study, along with the presence of two other competing Cox-2 inhibitors, Pfizer's Celebrex and Bextra, were the major factors that influenced Merck's ultimate decision to pull Vioxx from the market. 10 Gilmartin defended Merck's decision saying that, "withdrawing the drug was going to be the responsible thing to do." 11 Warning Signs Merck had known about the possible serious risks associated with Vioxx years before the company recalled the pain medication. In 2001, a research team at the Cleveland Clinic published a paper in The Journal of the American Medical Association that discussed the serious increased heart attack risk of taking Vioxx. 12 The study found that Vioxx produces a risk of heart attack five times greater than naproxen sodium, a frequently used over-the-counter antiinflammatory drug with comparable benefits. 13 Merck replied that early conclusions were inconsistent and that naproxen had anproven protective effect. 14 In another study called VIGOR (Vioxx Gastrointestinal Outcomes Research), Merck found similar results and submitted its findings to the FDA in June 2000.15 The VIGOR study found that Vioxx users had an increased risk of heart attacks and strokes compared to naproxen users. 16 These results, along with findings of other Vioxx studies, forced the FDA to require Merck to implement labeling changes about the increased risk of heart attacks and strokes in April 2002. 17 The fact that the FDA required a label change due to the overwhelming amount of data showing the risks of Vioxx, should have caused major concern for Merck and Vioxx users. Other studies show that higher dosages of Vioxx can increase a patient's risk of cardiovascular events even further. In August 2004, Kaiser Permanente, a large, nonprofit health maintenance organization, reviewed its patient records of 1.4 million people who were taking one of the many nonsteroidal anti-inflammatory drugs, including 26,748 patients who were taking Vioxx. Kaiser found that patients taking Vioxx in dosages greater than 25 milligrams faced a threefold increased risk of cardiovascular problems. 18 Merck refuted this study, saying it was a survey based on patient records rather than a clinical trial measuring the drug's effectiveness and side effects against a control group taking a placebo. 19 E-mails within the company further suggest that Merck knew about the dangers of Vioxx even before the FDA approved the drug. In February 1997, Briggs Morrison, a Merck official, wrote that patients taking Vioxx would "get more thrombotic events" (blood clots) unless they took aspirin, as well. 20 Another Merck research employee, Alise Reicin, responded in an e-mail, Increase cardiovascular events. With all of these internal and external warning signs, many people wonder why the drug was approved in the first place and why it took so long to pull the drug off the market. Merck's Study Backfires With all of the negative studies pointing to Vioxx's dangers, Merck attempted to prove the drug's benefits to patients with colon polyps through its APPROVe [Adenomatous Polyp Prevention on VIOXX] trial. Merck conducted this random trial of 2,600 patients with colon polyps, expecting to find that Vioxx helped their affliction. Much to Merck's disappointment, the study found that 3.5% of Vioxx users in the study suffered heart attacks or strokes after taking the medicine for 18 months, compared to only 1.9% of the participants taking a placebo. 22 This change appears to be small as it is only a 1.6% increase in the absolute risk of cardiovascular events. However, the relative risk increases by 84% from taking Vioxx, which means Vioxx almost doubles a person's chance to suffer a heart attack. The FDA Approval Process The United States Food and Drug Administration acknowledges that no drug is completely riskfree. The FDA approves a drug only after it undergoes thorough laboratory, animal, and human testing. The human testing portion of the approval process is the most extensive and important. The table in Exhibit 1 summarizes the three different phases of human testing. After successful clinical trials of approximately 5,000 patients, the FDA originally approved Vioxx in May 1999. The agency claims that its original safety database on Vioxx did not show an increased risk of heart attack or stroke from consuming the drug. However, the FDA does admit, "Vioxx received a six-month priority review because the drug potentially provided a significant therapeutic advantage over existing approved drugs due to fewer gastrointestinal side effects, including bleeding.,, 23 Exhibit 1: Phases of Human Testing Source: "From Test Tube To Patient: New Drug Development in the United States" (1995). 24 Complaints about the lack of long-term studies have bombarded the FDA due to the quick approval process of Vioxx and other drugs. The pharmaceutical industry, according to observers and critics, routinely pressures the FDA for swift approval of new drugs, despite clinical trials that study too few patients for too short of a time for side effects to emerge. "More than half of all drugs introduced have a new side effect after approval with the current system," says Curt Furberg, a public health sciences professor at Wake Forest University School of Medicine. 26 Crystal Rice, an FDA spokeswoman responded, "Our job is to appropriately balance our decisions, based on the risk-benefit profile for a drug and the societal need and desire for new drugs., 27 Richard Horton, editor of The Lancet, a British medical journal, claims the FDA is accountable for failing to act after a 2001 study demonstrated Vioxx's dangers. Mr. Horton has requested a comprehensive renovation of the agency's process for reviewing drug safety. 28 Silence at the FDA? Perhaps the FDA, or at least officials within the agency, did try to act after learning of the cardiovascular dangers of Vioxx. Dr. David J. Graham, associate director for science in the FDA Drug Center's Office of Drug Safety, said he faced firm opposition within the agency to his findings that high doses of Vioxx tripled risks of heart attacks and stroke. Dr. Graham spoke with members of the Senate Finance Committee on Thursday, October 7, 2004. In a statement made after Finance Committee investigators interviewed the researcher, Senator Chuck Grassley, (R-Iowa) said, "Dr. Graham described an environment where he was 'ostracized,' 'subjected to veiled threats' and 'intimidation." ,29 Senator Grassley added, "Merck knew it had trouble on its hands and took action. At the same time, instead of acting as a public watchdog, the Food and Drug Administration was busy challenging its own expert and calling his work 'scientific rumor. ,"30 Wider Scrutiny of All Drugs When knowledge of the dangers of a drug surface, other similar drugs face increased scrutiny. Vioxx is a Cox-2 inhibitor, part of the family of non-steroidal anti-inflammatory drugs (NSAIDs). Acting FDA Commissioner Dr. Lester M. Crawford stated that the FDA would closely monitor similar non-steroidal anti-inflammatory drugs. "All of the NSAID drugs have risks when taken chronically, especially of gastrointestinal bleeding, but also liver and kidney toxicity. They should only be used continuously under the supervision of a physician." 31 Two pain-relieving medicines in the same class as Vioxx that the FDA said they would re-examine data on are Pfizer's Celebrex and Bextra. 32 Pfizer says it will most likely add a "black-box" warning - the very strongest kind - to the label of Bextra. Spurred by heavy advertising, COX-2 inhibitors took off faster than any other group of drugs after Celebrex and Vioxx went on sale in 1999. Critics say that these industry advertisements do not sufficiently emphasize the drugs' potential risks. 33 Vioxx's situation may result in a constriction of medical advertising rules, just as they stood to be relaxed. 34Only weeks after Merck pulled Vioxx off the market, the FDA ordered Pfizer to pull certain Viagra ads that did not disclose any of its known risks. 35 Federal regulators are now more likely to require longer-term studies before approving Merck's new drug Arcoxia, which is considered a successor to Vioxx and is now available for sale by prescription in 47 other countries. 36 The FDA has postponed approval on Merck's Arcoxia due to the Vioxx recall and requested additional data. Merck's Problems Go Beyond Vioxx For seven consecutive years in the 1980s, Merck had been rated "Most Admired Company in American business" by a Fortune magazine corporate reputation survey. After the withdrawal of Vioxx, many people thought that this reputation would be tarnished, not knowing that Merck had already begun to run into problems before the recall. For most of the company's existence, Merck had an impeccable reputation and was perceived to be the "gold standard" in the pharmaceutical industry. Now that reputation is being questioned, and the Vioxx recall is not the only reason. 37 As recently as 2003, Merck faced problems with two major new drugs that the company expected to be blockbusters. Under the direction of Merck's former research chief, Edward Scolnick, Merck scientists were developing two new drugs for treatment of diabetes and depression. However, the company was forced to discontinue work on both drugs after unsuccessful animal studies and clinical trials. In addition, Merck's popular anticholesterol drug Zocor, which accounts for roughly $5 billion in annual revenues, twice that of Vioxx, loses patent protection in 2006, allowing generic anticholesterol drugs to flood the market. 38 Merck had also been experiencing problems financially since the year 2000 . After the company's stock price peaked in 2000 at $95 per share, Merck watched its market capitalization fall by $150 billion with the company's shares losing just over half their value between 2001 and 2003. Merck's earnings have been in decline since 2001 and the company saw one of its worst financial years ever in 2003. Even though sales grew by 5%, Merck experienced a decline in net income for the second straight year with a decrease of 4.5%. Merck, once the world's largest pharmaceutical company, is now just number six on the list. 39 Financial Effects of the Recall The September 30th recall of Vioxx caused Merck to lose a drug that accounted for $2.5 billion in sales, accounting for about 11% of the company's total revenue in 2003. According to analysts, Vioxx contributed even more to the company's overall net income. Analysts estimate that sales of Vioxx contributed $1.2 billion, or 18%, to Merck's $6.59 billion net income in 2003. The scene on Wall Street was even worse for the company. On the day of the recall, Merck's shares dropped $12.07, a 27% decline in value, down to $33 per share, which was the company's lowest closing price in eight years. 40 Merck also caused Wall Street's blue chip stocks to suffer a loss. Representing 3.27\% of the Dow Jones Industrial Average, Merck's surprise recall caused a 0.6% decrease in the Dow on September 30th. 41 As a result of Merck's news, the New York Stock Exchange traded at 27 times its normal level, 144.5 million shares. 42 In addition, Merck had informed analysts that the company was likely to take a charge against earnings in the second half of 2004 of between $700 and $750 million because of the Vioxx withdrawal, causing Merck's annual earnings to decline by 50 to 60 cents per share. The charge against earnings would be taken to account for the costs of customer returns of pills, lost future sales and obsolete inventory associated with the recall. 43 Merck Faces Criminal Probe and Lawsuits In a quarterly regulatory filing on November 8, 2004, Merck disclosed that the U.S. Department of Justice subpoenaed the company as part of a criminal investigation into Merck's handling of Vioxx. The company acknowledged that the Justice Department requested information from Merck regarding the company's research, marketing and selling activities for Vioxx as part of a federal healthcare investigation under criminal statutes. 44 The focus of the investigation could be centered on whether or not Merck misled regulators or even caused federal health programs to pay for Vioxx when its use was unwarranted. 45 The company also announced that the U. S. Securities and Exchange Commission was launching an informal inquiry into Merck concerning Vioxx. The inquiry is expected to investigate whether Merck properly informed investors about the results of clinical trials and other probing research that exposed the drug's risks. 46 In addition to the U.S. Government investigations, Merck has begun to quantify litigation that the company already faces concerning Vioxx. Incentives for the litigation have been sparked by a report on the FDA website that concludes that over 27,000 deaths could be attributed to the use of the drug. 47 The company is a defendant in about 375 personal injury lawsuits, some of which were filed before the drug's recall, involving more than 1,000 plaintiff groups. 48 Groups of plaintiff's lawyers began conducting conferences at various locations around the U.S. on Vioxx litigation in order to discuss specific strategies for the lawsuits. According to plaintiff's lawyer Daniel E. Becnel Jr., who has led such organizations in the past, "we can't compete with big pharmaceutical companies by ourselves, but when we get together, we can become formidable." At the end of 2004 , the wave of lawsuits was expected to increase, while the company believed that some of them might go to trial as early as 2005.50 Are Others at Fault? Although Merck heavily marketed Vioxx and the FDA never recalled the drug despite many studies demonstrating its dangers, many people feel other parties are culpable. Some have blamed doctors, insurance companies, and the American health-care system for the number of heart attacks caused by Vioxx. Only a small portion, about 15%, of Vioxx users were benefiting from its lower incidence of stomach bleeding, which is the main benefit of the drug, as opposed to the use of common, over-the-counter naproxen. 51 Many patients were angry with their doctors for not informing them that Aleve or Advil would work just as well as Vioxx, if they were not susceptible to stomach bleeding from naproxen. 52 If so few people benefit from taking Vioxx over naproxen, why did the company spend $100 million a year in direct-to-consumer advertising for the drug ?53 Some critics attribute the problem to a regulatory system that drives the cost of developing new drugs to exorbitant levels, which encourages large pharmaceutical firms to heavily market medicines to "over-insured baby boomers." 5 Patients may even be at fault for taking a drug with no significant benefits greater than an over-the-counter medicine. Even if doctors did offer patients not susceptible to stomach bleeding the option of over-the-counter naproxen, most patients would see the prescription drug as superior. Doesn't an expensive prescription drug that insurance pays for somehow seem like a better treatment than an inexpensive over-the-counter drug that can be taken without a physician's approval? What's Next for Merck \& Company? For Joan Wainwright, "every day is a new day." This statement has emerged as the mantra of officials at Merck \& Co., Inc. in their struggle to deal with the surprising recall of Vioxx and its numerous consequences. Ever since the recall in September 2004, Merck has been the center of attention in the pharmaceutical industry. The company has lost considerable market share on Wall Street, in addition to declining sales and profit levels since the year 2000 . Merck is facing a barrage of lawsuits and is the subject of two separate government investigations. With all these issues on the doorstep, Joan Wainwright, along with her communication team, must determine how Merck \& Company can regain public trust and rebuild the firm's reputation once again as the "gold standard" in the pharmaceutical industry. Questions 1. What are the critical issues in this case and who are the stakeholders? 2. What stakeholders should Merck target first in its corporate response? What should be Merck's initial response? 3. How should Merck handle the criminal investigation and lawsuits? 4. Who should communicate Merck's message to the public? 5. Should Merck retain an external firm to assist in creating an effective response? What role should such external counsel play? 6. Should Merck work with the FDA on improving the drug approval process? If not, should Merck concentrate on changing its own research methods? Merck \& Company, Inc.: The Recall of Vioxx (A) On the afternoon of Friday, September 24, 2004, Joan Wainwright, Vice President of Public Affairs at Merck \& Company, sat in the jury waiting room in a Baltimore, Maryland courthouse. "One last time," she thought, as she checked her Blackberry for e-mail, just to see if there were any last-minute issues to address before the weekend. It was 3:00 p.m., eastern daylight time. An urgent message asked her to call Merck's General Counsel about news from the Data and Safety Monitoring Board. Wainwright asked the court bailiff for permission to use the phone and quickly returned the call. What she learned wasn't good: the latest clinical study on Merck's blockbuster arthritis drug, Vioxx, had produced strongly unfavorable results. The Data and Safety Monitoring Board recommended stopping the Vioxx study with eight weeks remaining, citing an increased risk of heart attack and stroke in patients taking the drug. 1 Following the court's adjournment for the day, Wainwright rushed home to participate in a 5:00 p.m. conference call with other Merck executives, including the General Counsel and Chief of the U.S. Marketing Group. The conference call discussed scenario planning, leaving Merck with two viable options: leave Vioxx on the market with a "black box" warning or pull the drug. While Wainwright spent the weekend contemplating the logistics of communicating the company's decision to many different audiences, Merck's Chief Executive Officer, Raymond Gilmartin, assigned Dr. Peter Kim, the company's Research and Development Chief, full authority to make a decision on Vioxx based on patient safety. 2 Regardless of the decision Dr. Kim would soon make, Joan Wainwright knew that life in the near term would change dramatically for the Communications and Pubic Affairs team at Merck. History of Merck \& Company With a lineage that can be traced as far back as 1668, Merck \& Company, Inc. began as a modest chemical firm opened by Frederic Jacob Merck in Darmstadt, Germany. In 1891, George Merck brought the company to the United States and set up snop in New York. Unginany estabished as a fine chemicals supplier, Merck \& Co., Inc. began to conduct pharmaceutical research by the early 1930 s. In 1953 , the company entered into a merger with pharmaceutical specialty firm Sharp \& Dohme, creating a company known as Merck Sharp \& Dohme. Forty years later, Merck acquired Medco Containment Services, Inc., a leading pharmacy benefits management company in the United States. 3 Today, the firm known as Merck \& Co., Inc. is headquartered in Whitehouse Station, New Jersey. The company still operates in many countries under the name Merck Sharp \& Dohme. Today, Merck is a global research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human health products. By 2004 , the company would have about 70,000 employees in 120 countries and 31 factories worldwide. Today, Merck \& Co., Inc. sells its products in more than 200 countries. 4 Merck \& Company Public Affairs Joan Wainwright, who has been a Merck \& Co. vice president since June of 2000, directs a public affairs team at the company's headquarters that consists of approximately 100 people who are organized into a Corporate Communications Group, a Media Relations Group, and support for each of the company's divisions. Those include a Worldwide Human Health Public Affairs Group, U.S. Human Health Public Affairs Group, Merck Manufacturing Public Affairs Group, Merck Research Public Affairs Group, and a Merck Vaccine Division Public Affairs Group. She also supervises a Merck Washington, D.C. office responsible for monitoring federal relations and policy. What is Vioxx? Discovered in a Merck research facility in 1994, Vioxx (known generically as rofecoxib) is one among a class of drugs called Cox-2 inhibitors. This class of painkilling drugs was developed to reduce pain and inflammation in the human body. Cox-2 inhibitors compete with another class of drugs known as nonsteroidal anti-inflammatory drugs (NSAIDs) that are used as analgesics to reduce pain. Although Cox-2 inhibitors are also a part of the NSAID class, they were developed to reduce pain while eliminating the most common side effects of other NSAIDs, such as ulcers and gastrointestinal bleeding. 6 Vioxx was approved in 1999 by the United States Food and Drug Administration (FDA) for the treatment of pain, inflammation, and stiffness caused by arthritis. The drug was later approved for use in the treatment of rheumatoid arthritis in both children and adults. 7 Vioxx is the only Cox-2 inhibitor which is proven to have a benefit for ulcers and gastrointestinal bleeding. The Recall After the initial notification of Vioxx risks by the Data and Safety Monitoring Board on September 24, 2004, Peter Kim had to decide what to do about the drug's future. With overwhelming results showing Vioxx's cardiovascular risks, Dr. Kim made the final decision to pull the drug from the market on Monday, September 27, citing patient safety as the motivation for the decision. For the next three days, Joan Wainwright and a team of 25 Merck officials assembled in a "war room" to discuss the communication of the recall. announcement that would change the face of Merck and the entire pharmaceutical industry. Gilmartin announced that Merck was pulling its popular arthritis painkiller Vioxx from the worldwide market. At the time of the recall, about two million people were taking Vioxx. Since the drug's approval in 1999 , more than 100 million prescriptions had been written for the drug. 8 The decision to pull Vioxx from the worldwide market was based on data from a clinical trial that Merck had instituted to test whether Vioxx had alternative uses, principally the prevention of potentially cancerous growths in the human colon. With eight weeks left on the study, the External Data Monitoring Board notified Merck officials that the preliminary results revealed that people who took the drug for more than 18 months had double the risk of heart attack or stroke than if they took a placebo. According to Dr. Kim, "Beginning after 18 months, there was a discernible and unexpected increase in cardiovascular disease rates." ,9 The preliminary results of Merck's study, along with the presence of two other competing Cox-2 inhibitors, Pfizer's Celebrex and Bextra, were the major factors that influenced Merck's ultimate decision to pull Vioxx from the market. 10 Gilmartin defended Merck's decision saying that, "withdrawing the drug was going to be the responsible thing to do." 11 Warning Signs Merck had known about the possible serious risks associated with Vioxx years before the company recalled the pain medication. In 2001, a research team at the Cleveland Clinic published a paper in The Journal of the American Medical Association that discussed the serious increased heart attack risk of taking Vioxx. 12 The study found that Vioxx produces a risk of heart attack five times greater than naproxen sodium, a frequently used over-the-counter antiinflammatory drug with comparable benefits. 13 Merck replied that early conclusions were inconsistent and that naproxen had anproven protective effect. 14 In another study called VIGOR (Vioxx Gastrointestinal Outcomes Research), Merck found similar results and submitted its findings to the FDA in June 2000.15 The VIGOR study found that Vioxx users had an increased risk of heart attacks and strokes compared to naproxen users. 16 These results, along with findings of other Vioxx studies, forced the FDA to require Merck to implement labeling changes about the increased risk of heart attacks and strokes in April 2002. 17 The fact that the FDA required a label change due to the overwhelming amount of data showing the risks of Vioxx, should have caused major concern for Merck and Vioxx users. Other studies show that higher dosages of Vioxx can increase a patient's risk of cardiovascular events even further. In August 2004, Kaiser Permanente, a large, nonprofit health maintenance organization, reviewed its patient records of 1.4 million people who were taking one of the many nonsteroidal anti-inflammatory drugs, including 26,748 patients who were taking Vioxx. Kaiser found that patients taking Vioxx in dosages greater than 25 milligrams faced a threefold increased risk of cardiovascular problems. 18 Merck refuted this study, saying it was a survey based on patient records rather than a clinical trial measuring the drug's effectiveness and side effects against a control group taking a placebo. 19 E-mails within the company further suggest that Merck knew about the dangers of Vioxx even before the FDA approved the drug. In February 1997, Briggs Morrison, a Merck official, wrote that patients taking Vioxx would "get more thrombotic events" (blood clots) unless they took aspirin, as well. 20 Another Merck research employee, Alise Reicin, responded in an e-mail, Increase cardiovascular events. With all of these internal and external warning signs, many people wonder why the drug was approved in the first place and why it took so long to pull the drug off the market. Merck's Study Backfires With all of the negative studies pointing to Vioxx's dangers, Merck attempted to prove the drug's benefits to patients with colon polyps through its APPROVe [Adenomatous Polyp Prevention on VIOXX] trial. Merck conducted this random trial of 2,600 patients with colon polyps, expecting to find that Vioxx helped their affliction. Much to Merck's disappointment, the study found that 3.5% of Vioxx users in the study suffered heart attacks or strokes after taking the medicine for 18 months, compared to only 1.9% of the participants taking a placebo. 22 This change appears to be small as it is only a 1.6% increase in the absolute risk of cardiovascular events. However, the relative risk increases by 84% from taking Vioxx, which means Vioxx almost doubles a person's chance to suffer a heart attack. The FDA Approval Process The United States Food and Drug Administration acknowledges that no drug is completely riskfree. The FDA approves a drug only after it undergoes thorough laboratory, animal, and human testing. The human testing portion of the approval process is the most extensive and important. The table in Exhibit 1 summarizes the three different phases of human testing. After successful clinical trials of approximately 5,000 patients, the FDA originally approved Vioxx in May 1999. The agency claims that its original safety database on Vioxx did not show an increased risk of heart attack or stroke from consuming the drug. However, the FDA does admit, "Vioxx received a six-month priority review because the drug potentially provided a significant therapeutic advantage over existing approved drugs due to fewer gastrointestinal side effects, including bleeding.,, 23 Exhibit 1: Phases of Human Testing Source: "From Test Tube To Patient: New Drug Development in the United States" (1995). 24 Complaints about the lack of long-term studies have bombarded the FDA due to the quick approval process of Vioxx and other drugs. The pharmaceutical industry, according to observers and critics, routinely pressures the FDA for swift approval of new drugs, despite clinical trials that study too few patients for too short of a time for side effects to emerge. "More than half of all drugs introduced have a new side effect after approval with the current system," says Curt Furberg, a public health sciences professor at Wake Forest University School of Medicine. 26 Crystal Rice, an FDA spokeswoman responded, "Our job is to appropriately balance our decisions, based on the risk-benefit profile for a drug and the societal need and desire for new drugs., 27 Richard Horton, editor of The Lancet, a British medical journal, claims the FDA is accountable for failing to act after a 2001 study demonstrated Vioxx's dangers. Mr. Horton has requested a comprehensive renovation of the agency's process for reviewing drug safety. 28 Silence at the FDA? Perhaps the FDA, or at least officials within the agency, did try to act after learning of the cardiovascular dangers of Vioxx. Dr. David J. Graham, associate director for science in the FDA Drug Center's Office of Drug Safety, said he faced firm opposition within the agency to his findings that high doses of Vioxx tripled risks of heart attacks and stroke. Dr. Graham spoke with members of the Senate Finance Committee on Thursday, October 7, 2004. In a statement made after Finance Committee investigators interviewed the researcher, Senator Chuck Grassley, (R-Iowa) said, "Dr. Graham described an environment where he was 'ostracized,' 'subjected to veiled threats' and 'intimidation." ,29 Senator Grassley added, "Merck knew it had trouble on its hands and took action. At the same time, instead of acting as a public watchdog, the Food and Drug Administration was busy challenging its own expert and calling his work 'scientific rumor. ,"30 Wider Scrutiny of All Drugs When knowledge of the dangers of a drug surface, other similar drugs face increased scrutiny. Vioxx is a Cox-2 inhibitor, part of the family of non-steroidal anti-inflammatory drugs (NSAIDs). Acting FDA Commissioner Dr. Lester M. Crawford stated that the FDA would closely monitor similar non-steroidal anti-inflammatory drugs. "All of the NSAID drugs have risks when taken chronically, especially of gastrointestinal bleeding, but also liver and kidney toxicity. They should only be used continuously under the supervision of a physician." 31 Two pain-relieving medicines in the same class as Vioxx that the FDA said they would re-examine data on are Pfizer's Celebrex and Bextra. 32 Pfizer says it will most likely add a "black-box" warning - the very strongest kind - to the label of Bextra. Spurred by heavy advertising, COX-2 inhibitors took off faster than any other group of drugs after Celebrex and Vioxx went on sale in 1999. Critics say that these industry advertisements do not sufficiently emphasize the drugs' potential risks. 33 Vioxx's situation may result in a constriction of medical advertising rules, just as they stood to be relaxed. 34Only weeks after Merck pulled Vioxx off the market, the FDA ordered Pfizer to pull certain Viagra ads that did not disclose any of its known risks. 35 Federal regulators are now more likely to require longer-term studies before approving Merck's new drug Arcoxia, which is considered a successor to Vioxx and is now available for sale by prescription in 47 other countries. 36 The FDA has postponed approval on Merck's Arcoxia due to the Vioxx recall and requested additional data. Merck's Problems Go Beyond Vioxx For seven consecutive years in the 1980s, Merck had been rated "Most Admired Company in American business" by a Fortune magazine corporate reputation survey. After the withdrawal of Vioxx, many people thought that this reputation would be tarnished, not knowing that Merck had already begun to run into problems before the recall. For most of the company's existence, Merck had an impeccable reputation and was perceived to be the "gold standard" in the pharmaceutical industry. Now that reputation is being questioned, and the Vioxx recall is not the only reason. 37 As recently as 2003, Merck faced problems with two major new drugs that the company expected to be blockbusters. Under the direction of Merck's former research chief, Edward Scolnick, Merck scientists were developing two new drugs for treatment of diabetes and depression. However, the company was forced to discontinue work on both drugs after unsuccessful animal studies and clinical trials. In addition, Merck's popular anticholesterol drug Zocor, which accounts for roughly $5 billion in annual revenues, twice that of Vioxx, loses patent protection in 2006, allowing generic anticholesterol drugs to flood the market. 38 Merck had also been experiencing problems financially since the year 2000 . After the company's stock price peaked in 2000 at $95 per share, Merck watched its market capitalization fall by $150 billion with the company's shares losing just over half their value between 2001 and 2003. Merck's earnings have been in decline since 2001 and the company saw one of its worst financial years ever in 2003. Even though sales grew by 5%, Merck experienced a decline in net income for the second straight year with a decrease of 4.5%. Merck, once the world's largest pharmaceutical company, is now just number six on the list. 39 Financial Effects of the Recall The September 30th recall of Vioxx caused Merck to lose a drug that accounted for $2.5 billion in sales, accounting for about 11% of the company's total revenue in 2003. According to analysts, Vioxx contributed even more to the company's overall net income. Analysts estimate that sales of Vioxx contributed $1.2 billion, or 18%, to Merck's $6.59 billion net income in 2003. The scene on Wall Street was even worse for the company. On the day of the recall, Merck's shares dropped $12.07, a 27% decline in value, down to $33 per share, which was the company's lowest closing price in eight years. 40 Merck also caused Wall Street's blue chip stocks to suffer a loss. Representing 3.27\% of the Dow Jones Industrial Average, Merck's surprise recall caused a 0.6% decrease in the Dow on September 30th. 41 As a result of Merck's news, the New York Stock Exchange traded at 27 times its normal level, 144.5 million shares. 42 In addition, Merck had informed analysts that the company was likely to take a charge against earnings in the second half of 2004 of between $700 and $750 million because of the Vioxx withdrawal, causing Merck's annual earnings to decline by 50 to 60 cents per share. The charge against earnings would be taken to account for the costs of customer returns of pills, lost future sales and obsolete inventory associated with the recall. 43 Merck Faces Criminal Probe and Lawsuits In a quarterly regulatory filing on November 8, 2004, Merck disclosed that the U.S. Department of Justice subpoenaed the company as part of a criminal investigation into Merck's handling of Vioxx. The company acknowledged that the Justice Department requested information from Merck regarding the company's research, marketing and selling activities for Vioxx as part of a federal healthcare investigation under criminal statutes. 44 The focus of the investigation could be centered on whether or not Merck misled regulators or even caused federal health programs to pay for Vioxx when its use was unwarranted. 45 The company also announced that the U. S. Securities and Exchange Commission was launching an informal inquiry into Merck concerning Vioxx. The inquiry is expected to investigate whether Merck properly informed investors about the results of clinical trials and other probing research that exposed the drug's risks. 46 In addition to the U.S. Government investigations, Merck has begun to quantify litigation that the company already faces concerning Vioxx. Incentives for the litigation have been sparked by a report on the FDA website that concludes that over 27,000 deaths could be attributed to the use of the drug. 47 The company is a defendant in about 375 personal injury lawsuits, some of which were filed before the drug's recall, involving more than 1,000 plaintiff groups. 48 Groups of plaintiff's lawyers began conducting conferences at various locations around the U.S. on Vioxx litigation in order to discuss specific strategies for the lawsuits. According to plaintiff's lawyer Daniel E. Becnel Jr., who has led such organizations in the past, "we can't compete with big pharmaceutical companies by ourselves, but when we get together, we can become formidable." At the end of 2004 , the wave of lawsuits was expected to increase, while the company believed that some of them might go to trial as early as 2005.50 Are Others at Fault? Although Merck heavily marketed Vioxx and the FDA never recalled the drug despite many studies demonstrating its dangers, many people feel other parties are culpable. Some have blamed doctors, insurance companies, and the American health-care system for the number of heart attacks caused by Vioxx. Only a small portion, about 15%, of Vioxx users were benefiting from its lower incidence of stomach bleeding, which is the main benefit of the drug, as opposed to the use of common, over-the-counter naproxen. 51 Many patients were angry with their doctors for not informing them that Aleve or Advil would work just as well as Vioxx, if they were not susceptible to stomach bleeding from naproxen. 52 If so few people benefit from taking Vioxx over naproxen, why did the company spend $100 million a year in direct-to-consumer advertising for the drug ?53 Some critics attribute the problem to a regulatory system that drives the cost of developing new drugs to exorbitant levels, which encourages large pharmaceutical firms to heavily market medicines to "over-insured baby boomers." 5 Patients may even be at fault for taking a drug with no significant benefits greater than an over-the-counter medicine. Even if doctors did offer patients not susceptible to stomach bleeding the option of over-the-counter naproxen, most patients would see the prescription drug as superior. Doesn't an expensive prescription drug that insurance pays for somehow seem like a better treatment than an inexpensive over-the-counter drug that can be taken without a physician's approval? What's Next for Merck \& Company? For Joan Wainwright, "every day is a new day." This statement has emerged as the mantra of officials at Merck \& Co., Inc. in their struggle to deal with the surprising recall of Vioxx and its numerous consequences. Ever since the recall in September 2004, Merck has been the center of attention in the pharmaceutical industry. The company has lost considerable market share on Wall Street, in addition to declining sales and profit levels since the year 2000 . Merck is facing a barrage of lawsuits and is the subject of two separate government investigations. With all these issues on the doorstep, Joan Wainwright, along with her communication team, must determine how Merck \& Company can regain public trust and rebuild the firm's reputation once again as the "gold standard" in the pharmaceutical industry. Questions 1. What are the critical issues in this case and who are the stakeholders? 2. What stakeholders should Merck target first in its corporate response? What should be Merck's initial response? 3. How should Merck handle the criminal investigation and lawsuits? 4. Who should communicate Merck's message to the public? 5. Should Merck retain an external firm to assist in creating an effective response? What role should such external counsel play? 6. Should Merck work with the FDA on improving the drug approval process? If not, should Merck concentrate on changing its own research methods