Case

31 Teaching Note

Merck and the Recall of Vioxx

Overview
On September 30, 2004, officials at Merck & Co., Inc., the sixth largest pharmaceutical firm in the U.S.
and a respected “blue-chip” company, announced that it was withdrawing its Vioxx pain reliever from the
market because a new study indicated that the drug doubled the risks of heart attacks and strokes in patients
taking it longer than 18 months. Merck’s stock immediately plunged 27 percent and continued to fall fur-
ther in upcoming weeks, in response to the $2.5 billion annual revenue loss from Merck’s second best-sell-
ing drug and a rapidly mounting potential of costly lawsuits. An estimated 20 million Americans and
another 60 million people in 80 foreign countries had taken Vioxx, primarily for relief of arthritis and acute
pain, since it had been introduced in May 1999.
As early as 2000, there had been warning signs that Vioxx might have problems. Prior to the recall, roughly
30 lawsuits alleging that Vioxx was unsafe and had caused patients to suffer heart attacks and strokes, some
resulting in death, had been filed in state and federal courts. In the weeks following the recall, the number
of lawsuits multiplied quickly, reaching close to 700 by some counts. Some of these were class-action suits
filed by high-profile trial lawyers on behalf of all potential claimants. Wall Street analysts estimated that
Merck’s legal costs to settle Vioxx claims could range as high as $18 billion over the next decade.
Merck’s sterling reputation as the “gold standard” of the pharmaceutical industry and one of the bluest of
the blue chip companies took a huge hit as the circumstances surrounding the recall came to light over the
next several months. Internal e-mails, an incriminating training aid sent to Merck salespeople entitled
“Dodge Ball Vioxx”, and pressures that Merck put on outside medical experts suggested that Merck per-
sonnel knew of or at least suspected Vioxx’s dangers well before the recall. A front-page Wall Street
Journal story on November 1, 2004 headlined “E-Mails Suggest Merck Knew Vioxx’s Dangers at Early
Stage.”
The ethical problems Merck had regarding Vioxx are somewhat surprising and unexpected, given that
Business Ethics magazine had named Merck one of its 100 Best Corporate Citizens for the past five con-
secutive years. Merck, ranked No. 48 in 2004, was the only pharmaceutical company to gain a spot on the
list in each of the five years that Business Ethics has published it and was also one of only two pharma-
ceutical companies to make the list.

Suggestions for Using the Case

This case was written specifically for use as part of a module on “strategy, ethics, and social responsibil-
ity.” The issue of “what did Merck management know and when did they know it?” ought to provoke con-
siderable discussion. The length of the case—about 17 pages—reflects more an attempt to provide a fairly
complete and detailed presentation of the many circumstances surrounding the Vioxx recall, rather than a
multiplicity of issues and analytical complexity. The whole case is focused on a single, central issue: Did
Merck executives engage in a “cover-up” of Vioxx’s dangers and side effects or did top executives act in
an ethical, responsible, and timely manner to protect the best interests of the patients who were taking pre-
scriptions for Vioxx? The case includes a wealth of information for students to consider in evaluating the
propriety of Merck’s actions. And the high-profile nature of the Vioxx recall will make it easy for students

489
490 Case 31 | Merck and the Recall of Vioxx

to do further research on the Internet to see what’s happened since the case was written.
The Merck case can be assigned immediately following coverage of Chapter 10, but it also works fine near
the end of the course after you have covered all 13 chapters.
There’s an accompanying video which we suggest showing at the beginning of the class discussion. The
video is just under 7 minutes long and should be useful in catalyzing the case discussion.
The teaching outline and analysis section of the teaching note is oriented more toward providing you with
questions to pose to stimulate class discussion and debate of the issues, rather than providing “answers.”
In most instances, there is room for students to take either side in arguing whether Merck’s actions were
ethical or unethical. The real learning from this case comes from a full and spirited airing of the ethical
issues, not so much from concluding who was “right” and who was “wrong”—although there is ample
room, we think, to be critical of some of the actions and behaviors of Merck executives. Most students will
probably conclude that Merck’s conduct during the research of Vioxx and the manner in which it was mar-
keting Vioxx can definitely be questioned from an ethical perspective.
We think the content and the issues embedded in the case render it best suited to a class discussion, as
opposed to an oral team presentation. But you can certainly use this case for a short written case assign-
ment. Any of the three following questions ought to work well:
„ What is your evaluation of whether Merck executives acted ethically in researching the safety of
Vioxx and in their marketing of Vioxx? What evidence supports the conclusion that the actions and
behavior of Merck’s executives were ethical and aboveboard? What evidence indicates that
Merck’s executives may well have engaged in unethical or socially irresponsible actions?
„ In what specific regards do you think that Merck may have acted unethically leading up to the
recall of Vioxx? Provide evidence to support your conclusions.
„ Did Merck executives live up to the company’s core values (see Exhibit 1) in the way they han-
dled the research, marketing, and recall of Vioxx? Why or why not?

Assignment Questions
1. Do you see anything unethical about how Merck handled the research of Vioxx’s safety?
2. What evidence supports the conclusion that the actions and behavior of Merck’s executives were eth-
ical and aboveboard insofar in how the marketing of Vioxx was handled?
3. What evidence indicates that Merck’s executives knew that there were important safety issues regard-
ing Vioxx that were not adequately disclosed to doctors and patients?
4. Do you see anything unethical about how Merck handled the marketing of Vioxx? Is it ethical for a
pharmaceutical company to market its drugs directly to the public as opposed to marketing through
doctors (by informing them of the benefits and potential adverse side effects of their drugs)?
5. Did the Federal Drug Administration do a good job in monitoring the safety of Vioxx? Should the FDA
have been more aggressive in pushing Merck to do more research and clinical trials regarding the
safety of Vioxx following the results of the Naproxen study? Should the FDA have insisted on stronger
warning labels? Why or why not?
6. Did Merck act appropriately in recalling Vioxx and ceasing all efforts to market Vioxx in September
2004? Should it have recalled the drug sooner? Why or why not?
 Case 31 | Merck and the Recall of Vioxx 491

Teaching Outline and Analysis

1. Do you see anything unethical about how Merck handled the research of Vioxx’s
safety?
Prior to delving into this question, you may want to spend a minute or two describing the role of nature
of drug research at Merck. Merck describes itself as a global research driven organization. Merck’s
research-grounded strategy had three core elements:
„ Develop a core competence in drug research by supporting the efforts of the best and brightest sci-
entists and medical researchers Merck could assemble.
„ Do very thorough clinical studies of promising drugs discovered in Merck’s research labs to deter-
mine their effectiveness on patients and to explore the nature and extent of side effects.
„ Seek to gain speedy regulatory approval of newly discovered medicines by using the results of the
previously done research and clinical studies to thoroughly document the benefits and safety of the
drugs submitted for approval.
Since the mid-1980s, Merck personnel had published more scientific papers than personnel at any
other drug company, and Merck had patented more compounds than any of its competitors. The cen-
tral figure in executing Merck’s research-based drug discovery strategy was Edward M. Scolnick, a
graduate of Harvard Medical School, who had published roughly 200 scientific papers and risen
through the ranks at Merck to become its chief of research. Scolnick was reputed to have a superior
intellect and his persistent drive for research excellence permeated the Merck’s research activities. For
at least a decade before he retired in 2003, Scolnick was considered the de facto No. 2 person at Merck
(after the CEO Raymond V. Gilmartin). Scolnick’s approach to dealing with the regulatory approval
process was for Merck to submit fastidious supporting documentation for the new drugs it asked the
FDA to approve.
In its statement of core values (Exhibit 1), the company says, “We are dedicated to the highest level of
scientific excellence and commit our research to improving human and animal health and the quality
of life.” The company’s web site postings, in elaborating on the company’s core values and the con-
duct expected of Merck employees, said:
„ Every Merck employee is responsible for adhering to business practices that are in accordance
with the letter and spirit of the applicable laws and with ethical principles that reflect the highest
standards of corporate and individual behavior.
„ Improper behavior cannot be rationalized as being in the company’s interest. No act of impropri-
ety advances the interest of the Company.
During the 1995-2001 period, Merck’s vaunted scientific reputation, high-caliber clinical studies, and
solid supporting documentation resulted in the company gaining approval for all 13 new drugs it sub-
mitted to the FDA, with an average review time of 11 months. Vioxx won approval in a six-month
review time.
Hence, there is ample reason to have expected that Merck’s research and documentation of Vioxx’s
safety would be first-rate. But the information in the case describing the Vioxx-related research indi-
cates otherwise. Students can point to several aspects of the research process relating to Vioxx which
raise ethical concerns:
„ Internal e-mails at Merck indicated that executives were concerned about the limited sales poten-
tial for Vioxx unless Vioxx could be successfully marketed as a better, safer painkiller alternative
to cheap over-the-counter NSAIDs. A November 1996 memo by a Merck official indicated the
company was wrestling with this marketing dilemma; various personnel apparently discussed con-
492 Case 31 | Merck and the Recall of Vioxx

ducting a trial to demonstrate that Vioxx was gentler on the stomach than over-the-counter
painkillers. To show the difference, takers of Vioxx could not take any aspirin (which some arthri-
tis patients did because of the cardio-protective benefits). But this raised concerns at Merck; as the
author of the memo noted, “there is a substantial chance that significantly higher rates” of cardio-
vascular problems would occur in the group only taking Vioxx.
„ A February 1997 e-mail by another Merck official said that unless patients in the Vioxx group also
took aspirin (known for its blood-thinning and cardiovascular benefits) “you will get more throm-
botic events and kill the drug.” In response, a Merck vice-president for clinical research indicated
the company was in a “no-win situation” because giving study subjects both Vioxx and aspirin
could result in gastrointestinal problems and not giving them aspirin raised “the possibility of
increased CV [cardiovascular] events.” It is not clear what came out of the discussion about the
study that Merck officials had in 1996-1997. But in early 1999, around the time that Merck won
FDA approval to market Vioxx, Merck began an 8,000-person clinical trial that compared people
taking a high dose of Vioxx against those taking naproxen. The patients taking Vioxx were not
allowed to take aspirin.
„ Even though Vioxx gained FDA approval on May 21, 1999 after a six-month review, there were
reservations on the part of some reviewers about Vioxx’s possible blood vessel effects—a possi-
ble red flag that Vioxx had safety problems form a cardiovascular standpoint. The chief basis for
Vioxx’s approval by the FDA rested mainly on its relevance for the estimated 15 percent of arthri-
tis sufferers who could not take over-the-counter pain relievers on a sustained basis because of the
resulting gastrointestinal side effects.
„ In March 2000, Merck found surprising results from an 8,000-person clinical trial it initiated in
early 1999 to see if Vioxx posed less gastrointestinal risks than NSAIDS. The trial showed that
arthritis patients taking Vioxx had more than 2 times as many serious cardiovascular events as
those on naproxen, an NSAID sold under the Aleve brand, among others. The key numbers are
shown below:
People Taking People Taking
Vioxx Naproxen
Total number of people in clinical trial 4,047 4,029
Number of adverse cardiovascular events 101 46
Percent of people in trial having adverse
cardiovascular events 2.50% 1.14%
Number of digestive system adverse events 48 97
Percent of people in trial having adverse
digestive system events 1.19% 2.41%

The case states that a total of 45 serious cardiovascular thrombotic events occurred among the 4,047
patients taking Vioxx compared to 19 among the 4,029 patients taking naproxen. According to Merck,
this was largely due to a difference in the incidence of non-fatal heart attacks: 18 for Vioxx and 4 for
naproxen. The number of cardiovascular thrombotic deaths was similar in patients treated with Vioxx
(n = 7) compared to naproxen (n = 6). Deeper analysis showed that the heart-attack rate in the Vioxx
group appeared to be four times as high as the naproxen group. Something akin to these results was
seemingly anticipated in the 1996-1997 memos and e-mails.
Medical experts outside Merck who were familiar with the Vioxx-naproxen study hypothesized that
the results raised valid concerns that Vioxx could indeed be causing cardiac problems. Merck took the
position that the differential risks could be attributable to the added side benefits of taking naproxen
 Case 31 | Merck and the Recall of Vioxx 493

rather than to problems with Vioxx. Merck personnel reportedly believed that known properties of
naproxen were responsible for the differential.
At this juncture, you may want to remind the class that in a March 9, 2000 e-mail with the subject line
“Vigor”—the name Merck gave to the Vioxx vs. naproxen clinical trial, Merck’s chief of research, Ed
Scolnick, wrote that the results showed that the cardiovascular events “are clearly there. It is a shame
but it is a low incidence and it is mechanism based as we worried it was;” Scolnick in his e-mail then
compared Vioxx to other drugs with known side effects, writing “there is always a hazard.” Scolnick
went on to say that he wanted other data available before the Vioxx-naproxen results were made pub-
lic, so that “it is clear to the world that this” was a characteristic of all Cox-2 inhibitors, not just Vioxx.
Here you may want to pose several questions:
„ What do you make of Scolnick’s statement in his e-mail “there is always a hazard?” Is this an affir-
mation he knew Vioxx had serious safety problems or simply a “statement of fact” that all pre-
scription drugs have potentially harmful side effects (as indicated in the accompanying warnings
that come with each prescription)?
„ Did the “Vigor” or Naproxen study raise a significant red flag about the safety of Vioxx for peo-
ple with cardiovascular problems?
„ What significance would you place on the statistics shown in case Exhibit 4 if you were a patient
taking Vioxx?
„ Does the fact that shortly after learning of the naproxen-Vioxx cardiovascular differential, Merck
embarked on a long-term study of 2,600 patients called APPROVe indicate that Merck was trying
to “do the right thing” and learn more about the dangers of Vioxx for patients with cardiovascular
problems? APPROVe was designed to see whether Vioxx would lead to a reduction of colon
polyps (which if shown to be the case would give doctors another reason to prescribe Vioxx), but
it was also said to be “a true controlled trial” that compared Vioxx with a placebo instead of
another drug, thereby providing a more definitive test of whether Vioxx increased blood vessel
risk.
„ Why do you suppose that Merck did not immediately do further study of the dangers of Vioxx for
patients with cardiovascular problems?
„ Why do you suppose that officials at the FDA when they became aware of the Vioxx-naproxen
results did not follow up with demands that Merck immediately investigate via clinical trials the
possible risks of Vioxx for people with cardiovascular problems? Was it because they thought the
APPROVe study would provide sufficient evidence? Or because they concurred with Merck’s
explanation about the results of the Vioxx-naproxen study? Or because they had been pressured by
Merck lobbyists to go along with Merck’s explanation of the results of the Vioxx-naproxen study
as opposed to the concerns advanced by outside medical experts? Or because they were negligent
and not doing an effective job of oversight and regulation?
Not until February 8, 2001 did the FDA Arthritis Advisory Committee meet to discuss concerns
about the potential cardiovascular risks associated with Vioxx—and then no action was taken to
require that Merck alter its warning labels or do further clinical research. A little over three months
after the FDA advisory committee meeting, Merck issued a press release on May 22, 2001, enti-
tled “Merck Reconfirms Favorable Cardiovascular Safety of Vioxx.”
As these “facts” come to light, we suggest posing some questions:
„ Was Merck “stretching the truth” with its May 2001 press release headlining that it had recon-
firmed the favorable cardiovascular safety of Vioxx?
494 Case 31 | Merck and the Recall of Vioxx

„ What was the “reconfirming” evidence? The Vioxx-naproxen results? The FDA’s failure to take
action following the meeting, indicating that the concerns about the potential cardiovascular risks
of Vioxx was not “serious” enough to warrant changing the label warning or insisting that Merck
do additional clinical trials of Vioxx’x safety for patients with cardiovascular problems?
„ Why do you suppose that Merck sponsored continuing medical “education” symposiums at
national medical meetings in an effort to temper concerns about adverse cardiovascular effects?
Because there were no problems and it wanted to stamp out any concerns? To put its spin on the
“proper” interpretation of the Vioxx-naproxen results summarized in case Exhibit 4, namely that
Vioxx had no cardiovascular toxicity but, rather, naproxen was cardio-protective? To allay the fears
of some doctors about prescribing Vioxx? To protect and enhance the revenues it was getting from
sales of Vioxx?

2. What evidence supports the conclusion that the actions and behavior of Merck’s
executives were ethical and aboveboard insofar in how the marketing of Vioxx was
handled?
Students might point to the following as evidence that Merck’s actions were within ethical bounds:
„ Merck’s interpretation of the Vioxx-naproxen study results (case Exhibit 4) was just as “valid” as
other interpretations.
„ Shortly after learning of the naproxen-Vioxx cardiovascular differential, Merck embarked on a
long-term study of 2,600 patients called APPROVe to see whether Vioxx would lead to a reduc-
tion of colon polyps (which if shown to be the case would give doctors another reason to prescribe
Vioxx). APPROVe was a true controlled trial that compared Vioxx with a placebo instead of
another drug, thereby providing a more definitive test of whether Vioxx increased blood vessel
risk.
Beyond these two actions, we see little that is ethically praiseworthy in Merck’s actions.

3. What evidence indicates that Merck’s executives knew that there were important
safety issues regarding Vioxx which were not adequately disclosed to doctors and
patients?
We think the most damning evidence is the existence of the “Dodge Ball Vioxx” training aid. This 16-
page document, addressed to “all field personnel” was an “obstacle handling guide.” Each of the first
twelve pages listed one “obstacle” or concern that doctors might have about Vioxx, such as “I am con-
cerned about the cardiovascular effects of Vioxx” and “The competition has been in my office telling
me the incidence of heart attacks is greater with Vioxx than Celebrex.” Suggested responses for each
obstacle were provided. The final 4 pages each contained a single word in capital letters: DODGE.
Most class members will see the existence and use of this training aid as solid evidence that Merck
knew that there were important safety issues regarding the safety of Vioxx for patients with a history
of cardiovascular problems.
We suspect most class members will also see this training aid as convincing evidence that Merck per-
sonnel were acting unethically in marketing Vioxx and in trying to cover up Vioxx’s dangers for car-
diovascular patients. Here are some questions you can ask about the training aid:
„ What is your view of the Dodge Ball Vioxx training aid?
„ Why was it prepared and circulated to Merck’s sales force?
„ Is it “incriminating evidence” of unethical conduct at Merck? Why or why not?
 Case 31 | Merck and the Recall of Vioxx 495

A second piece of evidence that students may cite is that a former Merck sales representative told 60
Minutes that when a doctor expressed concerns about the cardiovascular effects of Vioxx, “We were
supposed to tell the physician that Vioxx did not cause cardiovascular events, that instead, in the stud-
ies, Naproxen has aspirin-like characteristics which made Naproxen a heart-protecting type of drug
where Vioxx did not have that heart-protecting side.”
„ Do you think the “coached response” is an accurate one, given the data in case Exhibit 4?
„ Is another reasonable interpretation of the same statistical data possible?
„ If you were a Merck sales rep, would you feel ethically comfortable providing a doctor with the
“coached response?”
A third piece of evidence that Merck was concerned is that, in 2000-2001, Merck played hardball with
academic researchers who expressed adverse to Vioxx. Here you may wish to ask several questions to
probe whether class member believe Merck overstepped the bounds of ethical propriety or whether it
was well within its rights in the actions it took.
„ What do you think about Merck canceling its sponsorship of several lectures by a Stanford pro-
fessor who openly questioned the safety of Vioxx and then having a Merck official call Stanford
Medical School, complaining that the professor’s presentations were “irresponsibly anti-Merck
and specifically anti-Vioxx” and threatening Stanford that if the lectures continued, the professor
would “flame out” and there would be consequences for Stanford (presumably in the form of
fewer Merck-sponsored research grants)?
„ How would you have felt about your lectures being cancelled by Merck if you were the Stanford
professor? Was Merck acting ethically or throwing its weight around?
„ How would you have felt if you were the person at the Stanford Medical School that the Merck
official called and allegedly threatened with a loss of research grants? Do you see anything wrong
with Merck’s actions?
„ Was it within ethical bounds for Merck to call the professor at the University of Minnesota who
had given Merck-sponsored lectures also complaining about what was being said about Vioxx,
and, further, to call the rheumatologist at Beth Israel Deaconess Medical Center in Boston who
had worked on research with rival Celebrex but who had also worked with Merck on occasion?
Were these calls “legitimate” or “illegitimate” application of pressure by Merck?
„ What about the pressure (the lawsuit and the cancellation of the conference sponsorship) involv-
ing the professor at the Catalan Institute of Pharmacology in Barcelona, Spain?
„ Were all these actions a highhanded attempt by Merck to squelch legitimate concerns and debate
about Vioxx from knowledgeable experts or were they actions that a company rightfully ought to
take to protect its own business interests?
Lastly, there were all those articles in medical journals, an article in The Wall Street Journal, and sev-
eral books by doctors expressing concern about the safety of Vioxx:
„ An article by three medical researchers, published in the Journal of the American Medical
Association on August 22, 2001, reviewed 4 studies with a total of about 18,000 patients and con-
cluded that “the available data raise a cautionary flag about the risk of cardiovascular events with
COX-2 inhibitors.” One of the researchers communicated the results of the study to Merck’s CEO
Ray Gilmartin, offering to visit Merck and present their findings—neither Gilmartin nor anyone
else at Merck responded to the researcher’s phone calls. Merck reportedly asked the New England
Journal of Medicine to run a Merck-authored rebuttal, but the journal editors refused.
496 Case 31 | Merck and the Recall of Vioxx

„ The Wall Street Journal ran a front-page story on the heart risks of Vioxx and other Cox-2 inhibitor
drugs on August 22, 2001, citing the concerns of several medical researchers and the Vioxx-
naproxen results.
„ The national trial lawyers guild formed a “Cox-2 litigation group” in early 2002 and at their
national convention in 2003 devoted a session to Vioxx.
„ Before the Vioxx recall, more than 400 lawsuits had been filed on behalf of Vioxx patients.
„ A Merck-sponsored analysis, conducted by researchers at Harvard and Merck, found that Vioxx
was “associated with an elevated relative risk” of heart attacks compared to the use of Celebrex or
no similar painkiller. When Merck asked the researchers to tone down the conclusion about the no-
painkiller group and the Harvard researcher refused, Merck removed the name of the Merck
researcher prior to the article’s publication in Circulation in May 2004.
„ A book by John Abramson, a family doctor and clinical instructor at Harvard Medical School, pub-
lished in Summer 2004, concluded that even people who did not have a history of heart problems
doubled their risk of developing a cardiovascular problem by taking Vioxx instead of naproxen.
As a consequence, the debate on Vioxx switched from whether Vioxx lacked some of the cardiac-
related benefits of NSAIDs to whether Vioxx was inherently risky from a cardiac-stroke perspective.
Merck was fully aware of all the concerns about Vioxx, but students may question how hard Merck
was trying to resolve these concerns with clinical research trials of its own.
Some additional questions you may want to ask at this point in the class discussion:
„ Do you think that Merck’s reluctance to take actions that might be harmful to the company’s future
sales of Vioxx had anything to do with how management responded to the growing body of con-
cerns that Vioxx might present safety problems to patients with a history of cardiovascular prob-
lems?
„ Do you think that Merck’s dwindling supply of drugs with blockbuster sales potential in its
research/approval pipeline had anything to do with Merck’s aggressive defense that Vioxx was safe
and posed no special dangers beyond what was said in its warning label?
„ Do you think that Merck’s tactics in defending Vioxx against the questions being raised by outside
medical experts represented ethical misconduct? Do you think the defensive tactics Merck
employed were consistent with the company’s core values (presented in case Exhibit 1)?
„ Do you think the use of these tactics will come to haunt the company in the upcoming litigation?
„ As a potential juror in this litigation, would you be inclined to approve or disapprove of Merck’s
tactics? Would you see Merck’s tactics as a sign of possible “guilt?”

4. Do you see anything unethical about how Merck handled the marketing of Vioxx?
Is it ethical for a pharmaceutical company to market its drugs directly to the pub-
lic as opposed to marketing through doctors (by informing them of the benefits
and potential adverse side effects of their drugs)?
Students are sure to cite the existence and use of the Dodge Ball Vioxx training aid, which certainly
strikes us as blatantly unethical and incriminating.
A big marketing issue here, however, is whether ad campaigns to market Vioxx directly to consumers
represent an ethical and legitimate marketing practice. To spur class debate on this point, you may to
ask some of the following questions:
„ Are such ad campaigns an effort on the part of drug companies to get patients to “pressure” their
doctors for prescriptions?
 Case 31 | Merck and the Recall of Vioxx 497

„ Are such advertising campaigns in the public interest? Why or why not?
„ Do such campaigns, to the extent that drug prescriptions like those for Vioxx are frequently cov-
ered by health insurance, contribute to rising health care costs?
„ Do you think patients who read the magazine ads placed by the drug companies would ask (pres-
sure?) their doctors to write them prescriptions for Vioxx if the prescription costs were not cov-
ered by health insurance?
„ Are doctors likely to bend to patient pressure to write them prescriptions for painkillers like
Vioxx? Why or why not?
„ Should direct-to-consumer advertising for prescription drugs be limited or prohibited by
Congress?
„ Are drug companies “unethical” in spending tens of millions of dollars on direct-to-consumer
advertising of their drug products? Is such advertising socially responsible? Why or why not?

5. Did the Federal Drug Administration do a good job in monitoring the safety of
Vioxx? Should the FDA have been more aggressive in pushing Merck to do more
research and clinical trials regarding the safety of Vioxx following the results of
the Naproxen study? Should the FDA have insisted on stronger warning labels?
Why or why not?
We see little basis for commending the FDA in how Vioxx was handled. And there is much to criti-
cize:
„ The FDA could and should have been more vigilant in monitoring the cardiovascular risks that
seem to be associated with Vioxx.
„ It waited too long to have a meeting after the results of the Vioxx-naproxen study were released—
and then it took no action of consequence.
„ A case can be made that the Congressional hearings and actions following the Vioxx recall were
on target in criticizing the FDA’s drug monitoring practices and in calling for reform.
„ One wonders why the FDA did not push Merck hard for some actions on Vioxx following the
results of the study of the medical records of 1.4 million people insured by Kaiser Permanente,
given that the study was financed by the FDA and conducted under the auspices of David graham,
associate director for science and medicine at the FDA. The results of the study seem to clearly
wave a red flag about the dangers of Vioxx for patients with a history of cardiovascular problems.
The results, which were reported at a conference in France on August 25, 2004, showed:
z Patients taking the typical starting dose of Vioxx had a 50 percent greater chance of heart
attacks and sudden cardiac death than patients taking Celebrex.
z Patients taking the highest recommended daily dosage of Vioxx had nearly 2.7 times the risk
of heart attack and sudden cardiac death as patients taking Celebrex.
These results would seem to suggest the need for a product recall or, at the very least, changes in the
Vioxx warning label. Yet, insofar as we know, the FDA did nothing. Merck initiated the recall based
on preliminary results coming in from its APPROVe study.
Some questions to use in provoking debate about the FDA:
„ Do you approve of the way the FDA handled the issues surrounding the safety of Vioxx? Why or
why not?
498 Case 31 | Merck and the Recall of Vioxx

„ Do you think members of Congress were on target in having Congressional hearing and pushing
for the FDA to reform its procedures for monitoring the safety of drugs that were on the market?
„ Is there reason to suspect that the relationship between the drug firms and the FDA is “too cozy?”
„ What do you make of the FDA’s David Graham testifying before Congress that other officials at
the FDA downplayed mounting negative data on Vioxx? Is Graham just an “overzealous maver-
ick” that should not be listened to and whose views should carry little weight?
„ Do you agree with the direction of the reforms that the FDA is proposing? Is the FDA going far
enough in reforming its procedures and oversight?

6. Did Merck act appropriately in recalling Vioxx and ceasing all efforts to market
Vioxx in September 2004? Should it have recalled the drug sooner? Why or why
not?
We suspect that most class members will see the wisdom of Merck’s product recall, although there is
certainly room for the view that only a change in the warning label was called for (assuming the results
of the APPROVe study were not more damning than Merck revealed in its recall announcement).
Several questions should be asked of class members here:
„ Do you agree with Merck’s position right up until it withdrew Vioxx that the evidence about
Vioxx’s cardiovascular effects was inconclusive?
„ Do you agree with Merck that it acted forthrightly and appropriately following the results of the
Vioxx-naproxen trial by putting out a press release and adding warning language? Could Merck
have done more and done it faster? Should Merck have moved more aggressively than it did to
warn doctors and patients about the possible dangers of Vioxx for those with cardiovascular prob-
lems?
„ Did Merck at all times act in a manner to put patient safety first? If you were a patient taking
Vioxx, would you be incensed over how Merck handled the Vioxx safety issue? Would you sue the
company if, while taking Vioxx, you suffered a heart attack or stroke?
„ Do you think Merck is likely to be swamped with paying litigation claims for its marketing of
Vioxx?
„ If you were a juror, based on what you read in the case, would you be inclined to award damages
to a patient who suffered a stroke or heart attack while taking Vioxx? Why or why not?
„ Should Raymond Gilmartin be forced to resign as Merck’s CEO? If you were a Merck share-
holder, would you vote to replace or retain Gilmartin?
„ Would you recommend being a buyer of Merck’s stock at the currently depressed price levels?
Why or why not?
„ What impact has the Vioxx affair had on Merck’s future business prospects?

7. What actions would you recommend that Merck take in the aftermath of the Vioxx
recall?
Students might propose some of the following:
„ Replace the Ray Gilmartin, the company’s CEO. It is time for a new strategy at Merck and for
renewed dedication to the company’s stated mission and core values.
 Case 31 | Merck and the Recall of Vioxx 499

„ Prepare to defend against the raft of lawsuits filed against the company. Put the best light on the
company’s actions regarding the handling of the Vioxx affair. One of the biggest problems the
company’s lawyers will have before a jury is how to “explain away” the Dodge Ball Vioxx train-
ing aid which, in our view, is definitely very incriminating.
„ Expect to have to pay billions in damages to patients taking Vioxx. Set aside a reserve of $15 bil-
lion or more to cover future claims.
„ Then work to bolster the number of promising drugs in Merck’s pipeline.
But the thorny issue is how to go about the process of restoring luster to the company’s tarnished rep-
utation. We think you should press the class for their ideas on what specific things Merck can begin to
do to rebuild its reputation. Some potential questions to ask:
„ How much damage has the Vioxx episode done to Merck’s reputation?
„ Will this damage be long-lasting or temporary?
„ Should shareholders be angry at management for the manner in which the Vioxx affair was han-
dled?
„ What can Merck management do at this point to begin to repair the damage done by Vioxx to the
company’s reputation? What actions would you recommend?
Key Point: The real value of teaching the Vioxx case comes from demonstrating to students just how
serious ethical misconduct can be—both in terms of dollar costs (in the billions of dollars in Merck’s
case) and in terms of the reputational damage. Repairing the damage to a company’s reputation is not
an easy task—Merck will be a long time recovering from the Vioxx aftermath. And its litigation costs
will likely be so large that the company will be cash constrained to undertake new drug research—an
especially troublesome problem, given that the number of new drugs with blockbuster sales potential
in Merck’s pipeline is quite low. So Merck is probably in for hard/lean times for the next 5-10 years
and shareholders will suffer the effects.
If there is time remaining, you may want to give a mini-lecture on why adherence to high ethical stan-
dards is so important in the business world and the very real damage to a company and to its managers
that occurs when ethical misconduct is brought to light. Many students, we find, view ethics as much
too “Sunday-schoolish” for business people to take seriously. Hopefully, the merck case will help dis-
abuse them of this notion.

Epilogue
At an FDA Advisory Committee meeting in February 2005, Dr. Peter Kim, Merck’s chief of drug research,
said:
When Merck made the decision to voluntarily withdraw VIOXX from the market, we stated that
we believed that it would have been possible to continue to market VIOXX with labeling that
would incorporate the data from APPROVe. We concluded, however, that based on the science
available at that time, a voluntary withdrawal of the medicine was the responsible course to take
given the availability of alternative therapies and the questions raised by the data.
Since we withdrew VIOXX from the market, the science has continued to evolve and new data on
some of those alternative therapies have become available. Given this new information, it is not
clear that the cardiovascular risk observed in APPROVe makes VIOXX unique in the class of sim-
ilar drugs marketed in the U.S.
500 Case 31 | Merck and the Recall of Vioxx

We do know that VIOXX offers unique benefits among coxibs marketed in the U.S. It was the only
coxib with proven risk reductions in GI events vs. naproxen as demonstrated in the VIGOR study.
Also, it was the only coxib that was not contraindicated in patients with sulfonamide allergies.
We also know that response to pain medication is variable. What works well for one patient may
not work at all for others. We have heard numerous reports from patients, including patients with
chronic, debilitating pain, that VIOXX was the only medicine that relieved their pain.
Merck is a data driven company. We made the decision to voluntarily withdraw VIOXX from the
market in September based on the clinical data available at that time. In the past two days we have
seen new clinical data on other medicines in this class. Merck believes that these data suggest a
class effect, but the size of the class is uncertain. If the advisory committee and FDA conclude that
the benefits of this class outweigh the risks in some patient populations, then we would have to
consider the implications of these new data given the unique benefits VIOXX offers.
Merck has not altered its position on the voluntary withdrawal of VIOXX. Anything further would
be speculation.
In Merck’s 2004 annual report, CEO Raymond Gilmartin said the following in his letter to shareholders:
Merck conducts its business based on guiding principles of scientific excellence, ethics and
integrity, and, above all, putting patients first. These principles and values have allowed Merck to
play a leading role in discovering and developing medicines and vaccines that preserve and
improve human life. And they have shaped both the manner in which we have responded to the
challenges of the past year as well as our ongoing efforts, on behalf of patients and shareholders
alike, to position Merck for future success and growth. The decision we announced on September
30, 2004 to voluntarily withdraw Vioxx from the market reflects the depth and sincerity of Merck’s
commitment to patients. I would like to share with you the reasoning behind our voluntary with-
drawal of Vioxx and our vision for Merck’s future.
At the outset, I will address a question that undoubtedly has been on the minds of many Merck
investors. Can Merck withstand the loss of revenue associated with the voluntary withdrawal of
Vioxx and continue with its strategy for long-term growth? Our answer is a clear “Yes.” We say
this because the only strategy that can deliver long-term growth is one that is characterized by
putting patients first, which is what our actions regarding Vioxx are all about.
We can continue to execute our strategy because Merck remains a financially strong company,
fully capable of making the investments necessary to drive future growth for our shareholders. Our
late-stage pipeline and fundamental research capabilities, both internal and external, continue to
strengthen. We continue to make significant progress on initiatives aimed at permanently reducing
our cost structure by enhancing Merck’s productivity, efficiency and effectiveness. Our people
remain focused on implementing our strategy to meet the challenges and opportunities offered by
the revolution in biosciences and the demands of patients, providers and healthcare systems world-
wide. And our current commitment to our shareholders–our dividend–remains secure.
Recently an advisory committee of the U.S. Food and Drug Administration (FDA) met to evalu-
ate and make recommendations concerning the use of nonsteroidal anti-inflammatory drugs,
including the coxibs. The advisory committee concluded that the overall benefits of Vioxx out-
weigh its risks. We look forward to discussions with the FDA and other regulatory authorities
about Vioxx.
We acted swiftly to respond to the voluntary withdrawal of Vioxx in ways that will strengthen our
business going forward.
We moved quickly to redeploy our sales force, to immediately capitalize on opportunities to
grow our in-line products, as well as to support the anticipated launches of four new vaccines
 Case 31 | Merck and the Recall of Vioxx 501

and muraglitazar, a first-in-class treatment for Type 2 diabetes that we will co-promote with
Bristol-Myers Squibb. A New Drug Application was submitted to the FDA for filing in
December 2004.
We promptly re-balanced our supply chains to make maximum use of our flexible manufac-
turing plants to handle new products. That flexibility is expected to save us approximately
$300 million in capital expenditures and will allow us to meet demand without the need to hire
about 300 additional personnel.
The situation we face is not business as usual, but at the same time, we also recognize that the
long-term growth strategy we have been carrying out is still very much the right one, given the
environment in which Merck–and the industry–will be operating in the years ahead. In light of the
challenges we face, we are continuing to look for additional ways to implement that strategy to
further enhance Merck’s growth.
The primary attribute of the environment in which we are and will continue to operate is simply
stated: patients, physicians and payers will continue to demand ever greater value from the drugs
we offer.
„ Patients, who are increasingly informed about and engaged in their healthcare choices, want
true clinical benefit from the medicines they take.
„ Physicians, who are increasingly demanding clear, concise information that is relevant to their
practice and respects the demands on their time, look to Merck, more than ever before, to pro-
vide high-quality clinical and scientific educational materials and programs.
„ And payers, who are under growing pressure to contain costs, want the medicines we offer to
provide true clinical benefit–and not offer just another “me too”–and they want them available
at a competitive price.
Taken together, all of these factors have caused us to change the way we approach every aspect of
our business, across the entire Company, without compromising the core values that have long dis-
tinguished Merck: patient safety; high ethical standards; scientific excellence.
While honoring our core values, we have re-examined everything we do here at Merck to find new
and effective ways to improve our ability to discover and develop novel medicines that provide
true clinical value to patients at competitive prices.
We are achieving impressive progress in changing the drug discovery and development process by
making use of the benefits of the scientific revolution now under way and by implementing inno-
vative practices and procedures at every stage. As a result:
„ We are working to increase the probability of success in the labs and accelerating both early-
and late-stage development efforts;
„ We are achieving significant improvements in the progression of compounds through our
pipeline, and are bringing an increased number of new mechanism compounds into the
pipeline;
„ We are also preparing for four new vaccines. These include a vaccine for simultaneous immu-
nization against chickenpox, measles, mumps and rubella, which was filed with the FDA in
August, and vaccines to help prevent human papillomavirus (HPV) infection and related cer-
vical cancer and genital warts, shingles and the pain associated with it, and rotavirus, expected
to be filed in either the second quarter or the second half of 2005. We accelerated the filing of
the applications to the FDA for both the shingles and rotavirus vaccines;
„ We are improving our prospects for success through external licenses and alliances. As
recently as 1999, we closed on just 10 licensing deals. In 2004, we closed on 50 such trans-
502 Case 31 | Merck and the Recall of Vioxx

actions, which run from research collaborations to preclinical and clinical compounds and
technology transactions–a five-fold increase over just five years; and
„ With the exception of the delay in the approval of Arcoxia in the U.S., we are on or ahead of
schedule with our planned regulatory submissions and Phase III development programs.
All of these actions will allow us to discover and develop the novel drugs the market demands, which,
in turn, will drive earnings and cash flow and thus shareholder value.
We are making impressive progress in permanently reducing our cost structure company-wide. Indeed,
we have succeeded in accelerating initiatives already under way, resulting in increased cost savings
earlier than anticipated.
„ By the end of 2004, we eliminated 5,100 positions throughout the Company, exceeding the
target of 4,400 positions we announced in October 2003. This will result in about $300 mil-
lion in savings in 2005, achieving the high end of our original estimate.
„ We anticipate that our inventory reduction efforts will realize another $300 million in cost sav-
ings by 2006, while our capital initiatives are on track to generate more than $600 million in
savings by 2008.
„ The changes we have made to procurement are expected to generate another $1.2 billion in
savings through 2008, while our shared services program should deliver additional significant
savings down the road.
„ Furthermore, we expect the savings we are generating in manufacturing to offset inflation.
These actions will enable us to offer our novel medicines at the competitive prices the market
demands.
Next, in early 2004, we began a market-driven redesign of our marketing and selling model, as well
as of our managed care model, to deliver greater value to providers and payers.
„ We are reducing the number of products our professional representatives cover, so they can
offer more in-depth knowledge to their physician customers. In addition, each representative
calls on fewer physicians, so they have greater knowledge of physicians’ practices. This pro-
vides physicians with greater value from their interaction with Merck’s representatives.
„ We are customizing our disease information, patient education and formulary information to
meet the needs of the physician practice and managed care environment.
„ We are making ever greater use of the “e-channel,” making a variety of Merck resources–such
as product and disease information, patient education, guidelines and risk assessment
tools–readily available to providers on their desktop computers.
„ We are working closely with health plans to enhance appropriate utilization of our products
and improve overall care, and to help promote access, we are working with both providers and
payers to support the success of the Medicare Drug Benefit in 2006.
These initiatives are enabling us to furnish providers and payers with the value they want from their
interactions with Merck, while allowing us to support both our in-line products and our new products
more efficiently and effectively.
All of these efforts are made possible because of Merck’s strong financial foundation. Our financial
strength enables us to invest in the business to drive growth, as well as supports significant shareholder
returns. We are committed to maintaining annual dividends in excess of $3 billion and to continuing
share repurchases, over time, from operating cash flow.
Merck’s financial strength is reinforced by strong future cash flow generation potential. Our conserv-
ative financial management allows us to invest in business growth. Our financial strength also allows
 Case 31 | Merck and the Recall of Vioxx 503

us to continue to aggressively seek the sort of external growth opportunities, ranging from preclinical
compounds to in-line products, which add real value to our pipeline. Our financial strength will help
drive our Company’s future growth.
The past year presented Merck with an extraordinary challenge. But we have met this challenge in a
manner consistent with our commitment to patient safety, to the highest standards of ethics, and to sci-
entific excellence.
„ We moved quickly to respond to the effects of our voluntary withdrawal of Vioxx on the
Company, and the actions we took are producing results.
„ We have accelerated changes already under way to meet the opportunities and challenges we
face given the demands of the market and of the environment in which we operate.
As a result, Merck is moving forward into 2005 well positioned to achieve the future long-term growth
to which we are committed and which you, our shareholders, expect.
In fiscal 2004, Merck reported sales of $$22.9 billion (up 2.0% over 2003) and earnings of $5.8 billion
(down 14.9% from 2003). Diluted EPS was $2.61 versus $3.03 in 2003. The company’s stock price was
trading in the $32-$33 range in early April 2005, up from its 2004 low of $25.60.
On April 7, 2005, the FDA took sweeping action to address the health risks of COX-2 inhibitors and
NSAIDs, instructing companies to issue sterner warnings on their labels and pressuring Pfizer to suspend
sales of Bextra. The FDA announcement was seen as a signal that the agency was taking a more forceful
stance on dangers tied to all medicines, amid increased pressures from Congress and consumers that
stemmed from Merck’s decision to pull Vioxx off the market. Pfizer said it respectfully disagreed with the
FDA’s position on Bextra, but it agreed to suspend sales of Bextra in the U.S. and Europe following the
FDA’s actions.to
As part of its action, the FDA ordered a boxed warning of cardiovascular and gastrointestinal risks on 19
painkilling drugs, including Celebrex (a COX-2 inhibitor that was the leading competitor of Vioxx), all
other prescription versions of medicines known as NSAIDs (non-steroidal anti-inflammatory drugs), plus
such over-the-counter painkillers such as Advil (which had U.S. sales of $620 million in 2004) and Aleve.
With Vioxx and Bextra off the market, that left Celebrex as the only COX-2 inhibitor still being sold. Sales
of Celebrex were down in January and February 2005, following all the media publicity surrounding the
adverse side effects of COX-2 inhibitors. Celebrex was still being marketed in April 2006—a new study
indicated that it might have colon cancer protecting qualities.
In May 2005, Ray Gilmartin stepped down as Merck’s CEO; he was replaced by Richard T. Clark, a Merck
veteran with experience in manufacturing and managed care.
As of April 2006, Merck was facing some 9,600 lawsuits over Vioxx. So far, Merck had lost 1 lawsuit at
trial (resulting in a jury award of $253 million in damages that involved the death of a Vioxx patient—the
verdict was being appealed by Merck) and had been acquitted by juries in three other cases (all three
involving short-term use of Vioxx). One of the pending lawsuits was a class action brought by health care
insurers and other parties that paid for Vioxx taken by policyholders; the plaintiffs were seeking damages
of up to $9.6 billion (and could trigger triple damage awards under state law if Merck was found guilty).
Merck was appealing the court verdict upholding national class action status for this case. Merck’s strat-
egy in defending against all the lawsuits filed so far was that each case has individual facts that should be
decided on an individual basis. The latest estimates were that Merck could face a liability of $30-$50 bil-
lion for its role in the Vioxx debacle.
Please check our periodically updated case epilogues at the password-protected Instructor Center
(www.mhhe.com/thompson) for the latest information we have on Merck and Vioxx. The online epilogues
are updated quarterly. You can also check the company’s latest financial results and press releases regard-
ing late-breaking developments at www.merck.com.
504 Case 31 | Merck and the Recall of Vioxx