The Decline and Recovery of Merck & Co.

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The Decline and Recovery of Merck & Co.
MGT Goodman Dortch
Troy University 6671
20 April 2013

In the early 2000’s Merck & Co. was on pace to have its most successful decade ever until the creation of the drug called Vioxx. Vioxx was once one of the most prescribed drugs in history; however side effects which caused heat attacks and strokes led to the drug’s abrupt removal from the market. The drug itself was not the reason for Merck’s decline but merely a byproduct of their corporate decisions. This analysis will examine the factors that contributed to Merck & Co.’s decline and what the company has done to reverse its fortune. Also this analysis will offer recommendations to the company to prevent such an event from happening again. Introduction

Merck & Co. was once one of the most admired pharmaceutical companies in the United States, but in 2004 the company was dealt a devastating blow. This devastating blow came in the form of Vioxx, an anti-inflammatory drug used to treat arthritis. A side effect of Vioxx caused a number of patients to experience heart attacks and strokes. Before Vioxx was removed from the market, the drug generated sales of over two billion dollars. Although Vioxx is seen as the cause for Merck & Co.’s decline, the real reason for company’s decline can be best described by Jim Collins’s, author of “How the Mighty Fall and Why Some Companies Never Give In”. Jim Collins describes five stages of decline in his book of which two of these stages are experienced by Merck & Co. These two stages are called stage 2 “Undisciplined Pursuit of More” and stage 3 “Denial of Risk and Peril”. Merck & Co. avoided experiencing the fourth stage of decline with their quick decision to remove Vioxx from the market. Had Merck & Co. not made this decision, their recovery would not have happened as quickly as it did and their litigation issues would have been considerably more severe. Stages of Decline

The first stage of decline experienced by Merck & Co. was the “Undisciplined Pursuit of More”. CEO Ray Gilmartin, in his 1995 annual letter to shareholders, announced that the company’s number one business objective was becoming a top tier growth company (Collins, 2009). Perhaps concerned over the realization that several of their drugs would lose U.S patent protection in the early 2000s, Merck aggressively pursued their growth strategy over the next seven years (Collins, 2009). Merck’s growth was dependent upon creating breakthrough drugs and research and development. According to a Harvard Business case study completed in 2005, the probability of new molecule creating a profit was about 1:15000 (Gilbert and Sarkar, 2005). This aggressive growth strategy coupled with the low odds of creating a new breakthrough drug could lead one to correlate that risks would be taken and that quality would suffer. In 1999 Merck’s latest breakthrough drug was launched, Vioxx.

The second stage of decline experienced by Merck & Co. was the “Denial of Risk and Peril.” In 1999 Merck initiated its largest and fastest launch of their new product, the drug Vioxx. As early as 2000, four years before the drug was removed from the market, evidence existed that Vioxx carried an unacceptable level of cardio vascular risk (The Lancet, 2004). According The Lancet, the evidence presented in 2004 pointed to Merck’s failures of post marketing surveillance and a failure of the Us Food and Drug Administration (FDA). The FDA at the time estimated 27,000 cases of cardiovascular complications due to Vioxx and analyst estimated a litigation bill of over $20 billion (Simmons, 2008). Merck’s reputation was severely damaged along with lost revenues, a diminished market capitulation, the loss of key employees, and the loss of top industry talent. Merck’s stock dropped from $45 a share to $26 a share in a matter of six weeks (Collins, 2008). Stages of Recovery

Merck’s recovery started in...
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