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Merck & Co

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Yale School of Management
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Merck & Co. had built an enviable reputation not just as a paragon of the pharmaceutical industry but as one of America's most admired businesses. The company had produced medical breakthrough after medical breakthrough, engaged in extensive philanthropy, and instituted progressive human resources policies, all the while delivering stellar financial performance. And yet, after withdrawing its blockbuster drug Vioxx in September of 2004, Merck found its reputation and its financial stability in danger. The day after the announcement, Merck's stock plunged 30%. In the coming months, articles appeared alleging that Merck knew that its pain reliever increased the risk of heart attack even as its sales staff pushed the drug to doctors and over 20 million patients. Within the year over 10,000 lawsuits had been filed, and a few analysts wondered if Merck would be forced into bankruptcy.

But not all of the public's attention had been focused on Merck. The company maintained that it had followed FDA regulations in testing, releasing, and marketing Vioxx. Merck even had withdrawn Vioxx voluntarily after studies it sponsored made the definitive link between cardiovascular events and Vioxx. Taking a broader view, commentators and Congressmen began to question the role that the FDA and other government agencies played in regulating the entire pharmaceutical industry. Capitol Hill speeches and newspaper editorials outlined numerous reform plans.

In the past, health crises had often driven changes in the relationship between the government and the pharmaceutical industry. The U.S. had created a unique environment with broad patent protection, no price controls, and rigorous safety testing that had allowed drug companies to thrive. In creating these regulations, the government had sought the proper balance of policies to simultaneously encourage innovation, insure safety, and limit costs. In the wake of Vioxx, many were arguing that the balance had been thrown off, but there was little agreement on what, if anything, should be done. 

Published Date: 25/09/2006

Suggested Citation: Jaan Elias, Spencer Hutchins, and Andrea Nagy, " Merck & Co," Yale SOM Case 06-013, September 25, 2006.

Keywords: Pharmaceutical