A Notre Dame case study produced by research assistants
Grant Bartucci and Andrew Gust under the direction of
Professor J. S. O’Rourke, IV. Copyright 2006.

• Vioxx timeline
• History of Merck & Co.
• Terminology
• Warning signs and the FDA’s role
• Merck’s problems go beyond Vioxx
• Criminal probe and lawsuits
• Critical Issues
• Stakeholders

May 1999:
Vioxx launched in
U.S.
February 2001:
FDA says Vioxx is safer on stomachs than
Celebrex
September 2001:
FDA warning letter about Vioxx
August 2004:
Kaiser
Permanente study
June 2000:
VIGOR study results show
Vioxx’s increased cardiovascular risks
August 2001:
Cleveland Clinic study in JAMA about Vioxx risks
April 2002: Black box warning due to increased heart risks
September 2004:
Merck withdraws
Vioxx from worldwide market

• September 24 : Data and Safety Monitoring
Board notifies Merck of preliminary test results.
• September 27 : Peter Kim, head of Merck research, decides to pull Vioxx from the market.
• September 27 – 29 : Team of 25 people, including Joan Wainwright, VP Public Affairs, meets to plot strategy.
• September 30 : Raymond Gilmartin, CEO of
Merck, announces the Vioxx recall.
Peter Kim
Raymond Gilmartin

• In 1668, Frederic Jacob
Merck started a chemical firm in Darmstadt,
Germany.
• In 1953, Merck merged with
Sharp & Dohme.
• In 1891, George Merck brought the company to the U.S. and set up Merck
& Co., Inc. in New York.
• In 1993, Merck & Co.,
Inc. acquired Medco
Containment Services.

• Merck is a global research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human health products.
• Currently has 70,000 employees in 120 countries and 31 factories worldwide.
• Products are sold in more than 200 countries and the company operates in many countries as Merck Sharp &
Dohme (MSD).

• NSAIDs: Non-steroidal anti-inflammatory drugs. Examples include Advil (ibuprofen) and Aleve (naproxen sodium).
• Cox-2 Inhibitors: Class of drugs developed to reduce pain and inflammation without causing side effects of ulcers and gastrointestinal bleeding. Examples include
Vioxx (rofecoxib), Celebrex and Bextra.

• Discovered in a Merck research lab in 1994.
• Only Cox-2 inhibitor with a proven benefit for ulcers and gastrointestinal bleeding.
• Prescribed in dosages of 12.5 and 25 mg.

• Cleveland Clinic study in 2001
– Found 5 times greater risk of heart attack for
Vioxx users compared to naproxen users.
• Kaiser Permanente study in 2004
– Found Vioxx users are 3 times as likely to have cardiovascular events.

Source: http://www.medscape.com/pi/editorial/cmecircle/2002/1000/figure-4.gif

• The study also shows increased risk of heart attack and stroke from taking Vioxx.
• FDA issues a “black box” warning on Vioxx labels.

• APPROVe (Adenomatous Polyp Prevention on VIOXX) study.
• Merck tried to demonstrate that Vioxx helps patients with colon polyps.
• Results unexpectedly show an 84% increase in relative risk of cardiovascular events from taking Vioxx.

• FDA claims its original data on Vioxx displayed no increased risk of heart problems.
• Vioxx received a 6-month priority review due to its fewer gastrointestinal side effects.
• Complaints of Vioxx’s quick approval and lack of adequate action after various studies.

• Dr. David J. Graham, associate director for science in the Office of Drug
Safety, faced firm opposition to his findings on Vioxx’s increased risk of heart attacks and strokes.
• Senate Finance Committee interviews
Dr. Graham on October 7, 2004. The
Committee applauds Merck’s actions and questions the FDA as “public watchdog.”
Dr. David J. Graham

• FDA says it will re-examine data on Pfizer’s Celebrex and Bextra.
• FDA tightens control over drug commercials failing to reveal known risks.
• FDA postpones approval of
Arcoxia, Merck’s newest Cox-2 inhibitor.

• Since 2000, when Merck’s stock price peaked at $95 per share, the company’s market capitalization has decreased by $150 billion.
• Earnings have been in decline since 2001.
• In 2003, Merck saw one of its worst financial years. Net Income decreased for the second straight year with a decline of
4.5%.

• Merck’s popular anticholesterol drug Zocor, which accounts for over $5 billion in annual revenues, loses patent protection in 2006.
• Merck was forced to discontinue work on two potential blockbuster drugs:
– Substance P – developed for depression, failed in a pivotal clinical trial.
– MK 0767 – developed for diabetes, was found in animal studies to have a risk of cancer.

• Vioxx accounted for $2.5 billion in sales, about
11% of Merck’s total revenue in 2003.
• Analysts estimate that Vioxx sales accounted for
18% of Merck’s overall net income for 2003.
• On September 30, 2004, share price dropped
$12.07, a 27% decline to $33 per share.
• The surprise recall caused the Dow Jones
Industrial Average to decline 0.6%, while the
NYSE traded at 27 times its normal level.

September 30, 2004

• On November 8, 2004, Merck disclosed that the U.S. Justice
Department subpoenaed the company as part of a criminal investigation into
Merck’s handling of Vioxx.
• The company also announced that the
SEC would launch an informal inquiry into Merck concerning Vioxx.

• Merck faced lawsuits concerning Vioxx before the recall of the drug.
• Merck is now defendant in about 11,500 personal injury lawsuits.
• Thus far, Merck has faced six plaintiffs, winning three and losing three cases.

• What are the critical issues in this case?
• Which issues seem most urgent?
• Who are the principal stakeholders in this case? What’s at stake for them?
• Which actions would you advise the Merck management team to take first?

• Who should communicate Merck’s message to the public?
• Should Merck retain an external firm to assist in creating an effective response?
• Should Merck work with the FDA on improving the drug approval process?

• Criminal probe and lawsuits.
• FDA approval process.
• Merck’s reputation and public trust.
• Stock price decline and investor relations.
• Possibility of new CEO.
• Possibility of mergers/acquisitions.

• Patients taking Vioxx.
• The U.S. Food and Drug Administration.
• Shareholders.
• Other major pharmaceutical firms.
• Physicians.
• Plaintiff’s lawyers.
• Raymond Gilmartin.

• The $32m judgment against Merck in
Starr County, Texas in May 2006 is not necessarily bad news. Under Texas law, the punitive damages will be reduced to $7.75m.
• Merck plans to appeal the decision along with its two other losses.

• The fight-every-plaintiff strategy appears to be working. Merck’s lawyers have won three times, indicating jurors are willing to listen. Eventually the company will settle with those who persist.
• Merck is essentially betting that its deep pockets and steely resolve will scare off plaintiffs who are pursuing frivolous claims.

• Merck must determine what dollar value jurors put on valid claims and how they weed out plaintiffs whose heart attacks weren’t caused by Vioxx.
• No settlement will happen until the statute of limitations expires in most states on October 1, 2006.

• Experts estimate that the trials have so far cost roughly $70m each in fees and damages.
• Most analysts place Merck’s ultimate liability for Vioxx at about $10b, but that’s a manageable figure, considering
Merck’s large cash reserves.
Source: Fortune , May 15, 2006, p.28

• Joan Wainwright assembles a team of 25 professionals from
Merck public affairs, investor relations, U.S. and worldwide marketing, Merck research labs, and corporate counsel.
They begin drafting strategy for audience, channels, and message.
Joan Wainwright

• Wainwright’s team develops more than five dozen documents to notify investigators conducting the trials, participating patients, physicians and other patients worldwide, and several regulatory agencies.
• They also prepare materials for Merck &
Company employees, including field sales representatives.

• The Merck Public Affairs team prepares new materials for the drug Website: http://www.vioxx.com
• They also set up a toll-free hotline for physicians, patients, the media, and others:
1-888-368-4699.

• At 8:00 a.m., Thursday, September 30 th ,
Merck issues a press release announcing the worldwide recall of Vioxx.
• At 9:00 a.m., Raymond Gilmartin holds a press conference in New York.
• At 10:00 a.m., the company conducts an investor relations teleconference to explain the news to Wall Street.

• At the same time the press release began moving on wire services internationally,
Wainwright’s team sent an e-mail to all
Merck employees, explaining what happened.
• A second e-mail, moments later, provided a link to the Webcast of Gilmartin’s press conference in New York.

• Within three days of the announcement,
65% of the general public were aware of the news about Vioxx.
• By early December, that figure rose to 75%.
• During October and November 2004,
Merck’s public affairs team generated four billion media impressions on the topic.

• Vioxx.com Website traffic grew from 4,000 daily visits on September 29 to 234,000 visits on October 1 st .
• By December, Vioxx.com attracted more than two million visitors. Merck.com had one million more.
• The toll-free hotline received more than
120,000 calls in the first six days.

1. If you’re confronted with a crisis, learn everything you can about the issue and make sure you can stand behind the story.
2. Think about the worst-case scenario, plan for it, and recognize that you’ll be involved in the issue for a very long time.
3. Don’t underestimate the power of your critics, or overestimate the power of the press.

4. Understand that every day offers a new opportunity.
5. Have faith in your decisions. Once you’ve made a decision, don’t spend time endlessly second-guessing yourself.
6. Measure, measure, measure. It’s the only way you can show your staff and senior management what’s you’ve done.

7. Understand that employees are your greatest asset. This includes all corporate employees, not just communications.
8. Keep an eye on your team. Look for stress, disappointment, burnout.
9. Develop a team to handle the issue fulltime, going forward.
10. Realize that life goes on outside of the office. You have a life as well as a job.