On September $30,2004,$ Merck & Co$.$ announced the withdrawal of Vioxx, its highly profitable pain relieverfor arthritis sufferers, from the market. This announcement came only seven days after companyresearchers found in a clinical trial that subjects who used Vioxx more than $18$ months had a substantiallyhigher incidence of heart attacks. Merck chairman and CEO Raymond V$.$ Gilmartin described the action asthe responsible thing to do$.$ He explained, Its built into the principles of the company to think in thisfashion. Thats why the management team came to such an easy conclusion$\mathrm{.}2$ In the lawsuits thatfollowed, however, damaging documents emerged casting doubt on Mercks claim that it had actedresponsibly by taking appropriate precautions in the development and marketing of the drug.Development of VioxxFor decades, Mercks stellar reputation rested on the companys emphasis on science$-$driven research anddevelopment. Merck employed some of the worlds most talented and best$-$paid researchers and ledother pharmaceutical firms in the publication of scientific articles and the discovery of new medicines forthe treatment of serious conditions that lacked satisfactory therapies. For seven consecutive years in the$1980$s$,$ Merck was ranked by Fortune magazine as Americas most respected company. Merck receivedwidespread accolades in particular for the decision, made in $1978,$ to proceed with research on a drug forpreventing river blindness $($onchocerciasis$),$ which is a debilitatng parasite infection that afflicts many inAfrica, even though the drug was unlikely to pay for itself. Eventually, Merck decided to give away thedrug, called Mectizan, for as long as necessary at a cost of tens of millions of dollars per year. This kind ofprincipled decision making was inspired by the words of George W$.$ Merck, the son of the companysfounder: We try never to forget that medicine is for the people. It is not for the profits. The profits follow,and if we have remembered that, they have never failed to appear. The better we have remembered it$,$the larger they have been.Vioxx is an example of Mercks innovative research. Developed as a treatment for the pain of arthritis, thedrug acts as an anti$-$inflammant by suppressing an enzyme responsible for arthritis pain. Other drugs inthe class of nonsteroidal anti$-$inflammatory drugs $($NSAIDs$)$ inhibit the production of two enzymes COX$-1$and COX$-2.$ However, COX$-1$ is important for protecting the stomach lining, and so ulcers and stomachbleeding are potential side effects of these drugs. The distinctive benefit of Vioxx over other NSAID painrelievers, such as ibuprofen $($Advil$)$ and naproxen $($Aleve$),$ is that it inhibits the production of only the COX$-2$ enzyme, and not COX$-1.$ After approval by the Food and Drug Administration $($FDA$)$ in May $1999,$ Vioxxquickly became a popular best seller. More than $20$ million people took Vioxx between $1999$ and $2004,$and at the time of the withdrawal, with $2$ million users, Merck was earning $$2\mathrm{.}5$ billion annually or $11$percent of the companys total revenues from the sale of the drug.Competitive EnvironmentThe success of Vioxx came at a critical time for Merck. Not only were the patents on several profitabledrugs due to expire, opening the way for generic competition, but also the competitive environment ofthe entire pharmaceutical industry was undergoing rapid change. Competition from generic drugsincreased dramatically due to federal legislation and also due to the rise of large, powerful managed careorganizations, which sought to cut the cost of drug treatments through the use of formularies thatrestricted the drugs doctors could prescribe. The development of new drugs was increasingly shifting tosmall entrepreneurial research companies focused on specific technologies, which reduced thecompetitive advantage of the traditional large pharmaceutical firms. Mercks competitors responded tochanges in the competitive environment by acquiring small companies, developing new products thatduplicated ones already on the market $($so called me$-$too drugs$),$ entering the generics market, seekingextensions of patents after making only slight improvements, and engaging in aggressive marketing,including the use of controversial direct$-$to$-$consumer $($DTC$)$ advertising.The first four strategiesgrowth by acquisition, the development of me$-$too drugs, the production ofgenerics, and making improvements merely to extend patentsconflicted with Mercks culture andvalues. However, under the previous CEO, Roy Vagelos $($who guided Merck through the development ofMectizan for river blindness$),$ the company greatly increased its emphasis on marketing. This increase inemphasis was considered necessary given the short time available to sell a drug before the patent expired.In particular, evidence was needed not only to prove a products safety and effectiveness in order to gainFDA approval but also to persuade physicians to prescribe it instead of the competitors medications.Since much of the information that could persuade doctors was part of a drugs label, marketers neededto be involved in the development of a product from the earliest research stages in order to prepare apersuasive label. The label could be improved further by conducting tests, which were not scientificallynecessary but which generated clinically proven results that could be useful in persuading physicians.Under Gilmartin, the companys formally stated strategy became: Turning cutting$-$edge science intonovel medicines that are true advances in patient care with proven clinical outcomes.Decision to WithdrawIn announcing the withdrawal of Vioxx, Gilmartin described the evidence of increased risk of heart attacksas unexpected. In the first lawsuits against Merck that came to trial, evidence was presented to showthat company scientists had considered the potential heart problems with Vioxx as early as $1997.$ The firsthint of trouble came in that year as Merck scientists noticed that Vioxx appeared to suppress theproduction of a substance in the body that acted naturally to reduce the incidence of heart attacks.Although the significance of this discovery was recognized, no follow$-$up investigations were undertaken.More significant evidence that Vioxx might contribute to heart attacks was produced by a study concludedin $2000$ that was designed to compare the gastrointestinal effects of Vioxx and naproxen in order toimprove the label of the Merck product by proving that Vioxx was less harmful to the stomach lining.Although the study, called VIGOR $($for Vioxx Gastrointestinal Outcomes Research$),$ showed that Vioxxusers had heart attacks at a rate four to five times that of the naproxen group, researchers were uncertainwhether the difference was due to an adverse effect of Vioxx in causing heart attacks or a beneficial effectof naproxen in preventing them. The heart attacks in the trial occurred mainly in the Vioxx subjects whowere already at greatest risk of heart attacks, and all subjects were prohibited from taking aspirin $($whichis known to prevent heart attacks$)$ in order to gain reliable results from the study since aspirin affects thestomach. When the results of the VIGOR study were published in the November $2000$ issue of theprestigious New England Journal of Medicine, the beneficial effects of naproxen were emphasized in away that implied that Vioxx was safe for people without the risk factors for heart attacks. After initiallyresisting pressure by the FDA to include a warning on the Vioxx label, Merck finally agreed in April $2002$to add the evidence of an increased incidence of heart attacks. However, the language on the labelemphasized, again, the uncertainty of the cause and recommended that people at risk of heart attackscontinue to use an anti$-$inflammant for protection.In the meantime, Merck continued its aggressive marketing campaign. Between $1999$ and $2004,$ Merckspent more than $$500$ million on DTC television and print advertising. This expenditure was intended tokeep pace with the heavy spending by Pfizer for its competing COX$-2$ inhibiter Celebrex. Merck alsomaintained a $3,000-$person sales force to meet with doc tors for face$-$to$-$face conversations about Vioxx.To support this effort, Merck developed materials that provided salespeople with responses to questionsfrom skeptical physicians$\mathrm{.}3$ One document, called an obstacle handling guide, advised that questionsabout the risk of heart attacks be answered with the evasive explanations that Vioxx would not beexpected to demonstrate reductions in heart attacks and was not a substitute for aspirin. Anotherdocument titled Dodge Ball Vioxx concluded with four pages that were blank except for the wordDODGE! in capital letters on each page. Company documents also describe an effort to neutralizeskeptical doctors by enlisting their support or at least defusing their opposition by offers of researchsupport or engagements as consultants.The timeline below outlines key events in the development, approval, and marketing of Vioxx and theoutcome for Merck.The History of VioxxThe Food and Drug Administration $($FDA$)$ has a multi$-$phase approval process to evaluate the testing,safety, and labeling of all new prescription drugs to be sold in the United States. The FDA also monitorsthe post$-$marketing safety of approved drugs, to ensure that the public is informed of any new healthrisks that are revealed by widespread use and additional studies.Criticisms and DefensesThe study that conclusively established that Vioxx increased the risk of heart attacks was called APPROVe$($Adenomatous Polyp Prevention on Vioxx$),$ which, according to critics, had only a marketing and not alegitimate scientific purpose$\mathrm{.}5$ Although the company could have delayed the withdrawal until ordered todo so by the FDA, Merck acted voluntarily. Gilmartin said that the company was really putting patientsafety first.However, one critic replied, If Merck were truly acting in the interest of the public, of course,they should have done more studies on Vioxxs safety when doubts about it first surfaced$\mathrm{.}7$ Another criticobserved that such studies could have been conducted for a fraction of the cost of the $$500$ million spenton advertisingAn editorial in the New York Times declared that companies must jump at the first hint of risk and warnpatients and doctors of any dangers as clearly and quickly as possible. They should not be stonewallingregulators, soft$-$pedaling risk to doctors or promoting drugs to millions of people who dont need them.A $179-$page report commissioned by the Merck board concluded, by contrast, that executives andresearchers acted with integrity in addressing incomplete and conflicting evidence and that theirconclusions were reached in good faith and were reasonable under the circumstances$\mathrm{.}10$ The reportclosed with the observation that the quick response after the APPROVe study is not consistent with theview that Mercks corporate culture put profits over patient safety.Questions:Q$1-$ Who were the stakeholders outside of the firm?Q$2-$What happened with the company?Q$3-$ What are the problems with the company?Q$4-$ What are the alternatives of the problems?Q$5-$ What are your recommendations for the company?