Since merck yanked its anti-inflammatory drug Vioxx (rofecoxib) from the market, the action has been called a corporate disaster, a regulatory failure, a crisis in public health, and even a death blow to the blockbuster model. Is it?
So, let's begin.
Still, the Vioxx recall stands out. The largest ever by sales, it also clearly "couldn't have come at a worse time for Merck," Wertheimer says. But it could also be said that Vioxx is less than the disaster that's been depicted, precisely because the company has been faltering. While surely a blow to Merck's earnings and prestige, it is far from a stunning reversal. It's also been years since the company was most admired. Jim Hall, president of the life sciences practice at consultancy Wood Mackenzie, says it was already losing its preeminence as a science-driven pharmaceutical company. Adds Ryan: "Merck hasn't grown its earnings for the last four years, and is not likely to for the next several." The implication is that investors who dumped the stock overreacted, as investors frequently do. An analysis by Tracer Analytics (see below) bears this out. Merck's prospects, either way, are not much changed.
The withdrawal of Vioxx, however, makes Merck's road to recovery steeper. Most obviously, Ryan says, it puts management "in a very precarious position." But she doesn't blame CEO Ray Gilmartin for the Vioxx mess, saying, "I think the company did the right thing." And Wertheimer says, "This was a pretty tough call. You can't just blame it all on Merck." Indeed, Morris offers praise. "How many companies," he asks, "would sacrifice a $2.5 billion product without trying to keep it on the market? It's consistent with Merck's history, taking that kind of perspective on healthcare. From what I can tell so far, they've been incredibly decisive and responsible."
But Ryan reminds us that the recall "follows a lot of other disappointments associated with management decisions," and Hall says there's a real question "whether Gilmartin's the right person to pull them through this." Gilmartin, he thinks, "is going to go. He announced he's retiring in 2006, so he has between zero and 12 months left now. From a patient-customer point of view there are enough questions about Merck and its leadership that announcing a new leader would help restore confidence."