It is pretty obvious that Merck management is getting ready for winding up the firm's operations. That does not come as a surprise. Most analysts (and media headlines) have been questioning if Merck will survive the Vioxx recall mess. It could have survived if the management was willing to take a more conciliatory approach. In the opinion of iProceed, there are several fundamental flaws with Merck's approach to handing recall of Vioxx:
- No matter what, you never antagonize your customers (which in this case are patients, and not healthcare companies as Merck might like to believe). By taking a very hostile approach and telling Vioxx customers that something was wrong with them rather than Vioxx, Merck is essentially telling its customers that it doesn't care. As the cases go to trial, a lot of ugly details will come out that will show that Merck knew as early as 2000 that Vioxx was a problematic drug but it continued to aggressively advertise it to consumers, rather than dealing with the issues. It also engaged an army of employees and consultants to debunk the argument for which evidence was developing that Vioxx may be responsible for increased risk of heart attacks. This attitude will not make it a darling among its customers. We are not aware of many companies that survived by attacking their customers.
- Appalling it may seem now, but Merck leveraged its relationship very well with FDA. It is now becoming quite obvious that FDA was a partner in the crime that Merck committed. But don't expect the FDA to help it any more. Washington is an ugly place when it comes to loyalties. It is unlikely that any Washington politician will accept a single dollar from Merck anytime soon; so there is no reason for Merck's friends in Congress and at the FDA to bother helping it.
- Over the years, a pharmaceutical company has become more of an R&D enterprise. Merck did a great job at that. Merck is ranked at #7 on the Technology Review's Innovation Index (it spent over $3 billion on R&D which is 14% of its 2003 sales). R&D organizations don't perform very well when they have such massive distractions. It would not be a great surprise that top scientists will soon flee Merck and distractions from lawsuits and political theater in Washington will make it harder for Merck executives to focus on growth and value.
Great companies can be destroyed by the short-sightedness of its executives and that is exactly what is happening at Merck. For business leaders at other companies, it is a classic story of what not to do so we would recommend that you follow the developments at Merck carefully and learn from them.
Related articles
Vioxx recall lessons for business leaders
Strategic lessons from Vioxx recall
Pharmaceutical companies need makeovers