Dollars and Jens
Saturday, August 20, 2005
To start with a disclaimer, this is all written off-line, from memory, late in the evening. I may have slightly misremembered a fact or two, and there are many other facts which I don't know. Also, if Colby Cosh contradicts me, trust him, and if Derek Lowe contradicts either of us, ignore both Cosh and me.

Merck has long been known in the pharmaceutical industry as among the most innovative companies, if not the most innovative large company. They spend less time working on "me too" drugs — i.e., drugs that compete with other drugs on the market — and more time working on riskier solutions to unsolved problems.

As Jim Collins details in Built to Last, this is not because of a particular management group so much as a long-standing culture. Collins relates the story of a drug they created to treat river blindness, a third-world disease. They knew that the people who contract this disease can not usually afford brand-name drugs, but Merck hoped to recoup its investment by selling the drug to a charity. When they could find no such charity, they produced it anyway, at a loss. The reason given was not that the CEO had a personal desire to spend shareholders' money in this fashion, but rather that the employees would have been demoralized if the drug they worked so hard to create didn't end up actually helping people. They came to Merck to make people healthier, and Merck was going to see that that happened.

A lot of drug companies have hit a rough patch over the last few years, and there has even been talk of whether the drug industry has done all it can do with small molecules (as opposed to genomics). Merck has had more than its share of pain. In 2003, about four of their phase III trials concluded, all in failure. And, of course, there's Vioxx.

Cox-II inhibitors, of which Vioxx was the first, are safer than the class of drugs they supercede, but they are not asprin, let alone harmless. This is one reason why they require a prescription. Of course, in our wacky health-care system, requiring a prescription often means the consumer has to pay less, because insurance picks up most of the tab, and somehow "safer than its predecessors" got translated into "safe". Merck appears to have, at best, failed to correct this understanding, and deserves blame for that.

Once the resulting problems were noticed, Merck pulled Vioxx off the market. I thought this an overreaction, if an understandable one — Merck wanted to reassure consumers, employees, and the rest of the public that they weren't going to sell anything unsafe. Pfizer later added an extra warning to their own Cox-II inhibitor, and I believe Vioxx is back on the market with extra labeling indicating who should be taking it and who should not be. This is roughly what I wanted them to do. Vioxx does, after all, do more good than harm for many people, and they should be allowed to benefit from it.

This is my perception of Merck. This is the context in which I saw the verdict that Merck is liable for $24 million for contributing to a man's death and around $200 million in punitive damages, with further lawsuits doubtless in the works. I would think $24 million high, even if I weren't sympathetic to the defendant; I have little to say about punitive damages, except that I've never seen the logic in awarding them to the plaintiff.

Merck is not perfect. Nor is any large organization — men, as the saying goes, are not angels, and large organizations of people are less inclined toward nobility than are individuals. When Merck's employees do good, Merck profits, and when their employees do bad, and are not checked, it is reasonable to hold Merck liable. But it's difficult to see such a blow to a company which has been among the best in its class, and which is already on its knees.

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