April 14, 2016

Kanter makes the argument that International Business Machines (IBM) has been a mainstay company espousing a core set of corporate values that sets it apart from the rest. “Since its founding in 1911, IBM was known for a strong culture and a commitment to fairness and social responsibility, operating under a set of principles articulated by founder Thomas Watson” (Kanter, 2009, p. 2). For good reason such a conclusion has been made given that the letters IBM still get a nod from many in the world. Few would consider the notion that even though IBM has been in the technology industry for over a century, that it is has become an also-ran firm. On the contrary, the words “respect” and “prestige” come to mind to many in and out of the IT industry as a formidable employer and business. Scandals and ethical problems have not been a problem for this lasting firm. “Like all large companies, IBM faced occasional controversies, but these were minor and rare. IBM tried to prevent harm in its day-to-day business dealings through its ethics code, the Business Conduct” (Kanter, p. 3). IBM values are viewed as relevant everywhere. “In Russia, communications executive Igor Larin ran research to see how the Russian market thought about the “innovation that matters” value and found that innovation was desirable to everyone from customers to President Putin” (p. 2). IBM’s “Business Conduct” preamble has kept it grounded in ethics and values. It would appear that having corporate values and ethics do not equate to driving a business to irrelevance. Values and sales are indeed compatible. It seems to have worked for IBM all too well. Values sell.

On the other spectrum is another company, also enjoying 100+ years in business, and also known globally. Scandals in the past 15 years have cost this business billions of dollars due to ethical missteps. Merck Pharmaceuticals was once known as the largest pharmaceutical company in the world with supreme ethical standards, donating medicines around the world to help global plights. While today it continues to leave its imprint in the medical field, it is no longer widely respected. It has suffered credibility in the business world on signifcant levels. The mere mention of their former blockbuster drug, Vioxx, brings derision on the firm given it cost patients lives, they were found guilty of falsifying clinical data in the interest of bringing their drug to market and they obfuscated. Falsifying clinical data is so contemptuous that few physicians or medical prescribers will reach for those medications when prescribing them to their patients even if they survived “black box warnings”. From beginning to end, from discovery of the drug in the lab to yanking it off of the market, Merck fumbled in ways that were avoidable. “Two medical-journal studies suggest Merck & Co. violated scientific-publishing ethics by ghostwriting dozens of academic articles, and minimized the impact of patient deaths in its analyses of some human trials of a top-selling drug later linked to cardiac problems” (Winslow & Johnson, 2008). It does not help that one of the medical-journals mentioned in the quote includes the Journal of American Medical Association (JAMA), one of the 3 most respected medical journals in the world. To earn the scorn of JAMA is a considerable business setback while keeping in mind that Merck has existed for many decades of honorable drug making. Merck pivoted, shifted and sunk into a black hole where not even gravity could rescue it, but actions that did not have to come to be.

When a drug is brought to market it must have a sizable amount of clinical data to support its business vision before approaching the Food & Drug Administration (FDA) for approval. Yet, from its inception, Merck broke ethical standards with the very data they had sought to submit to the FDA and before the drug was to see the light of day in local pharmacies across the USA. Thus the “company engaged in a systematic strategy to ghostwrite dozens of Vioxx studies that appeared in medical journals and then list academics as principal authors” (Winslow & Johnson, 2008).

The idea of ghostwriting dozens of clinical studies is indeed perilous. Ghostwriting might work for US Presidential speech writers but not when it comes to getting drugs approved by the FDA.

How did a stellar company fall to such great depths? Patent expirations is one reason. Merck lost quite a few patent exclusivity rights in the 1990s with multiple blockbuster drugs (e.g. Zocor, Prilosec, Vasotec, Mevacor, Pepcid) and they were desperate for revenue. “Between 1999-01 Merck lost its patent protection on five of its best-selling drugs; two other drugs were to lose their patent protection by 2007, and Merck had not had a blockbuster drug for years. Merck was feeling the stress of losing market share and profits. Merck was under pressure to maximize its profits in a company whose profits had flattened” (Culp & Berry, 2007, p. 35).

Their response? Merck did the unthinkable for a giant pharmaceutical conglomerate. The Merck leadership showed a lapse in judgement by submitting falsified data, their drug got approved, and soon they were making billions of dollars. Merck leaders did not bat an eye. For 5 years Vioxx was a blockbuster drug of tremendous proportions. Then came 2004 and Merck leaders found themselves in the spotlight but not in a position that any corporate leader would wish. Their “brought-to-market” strategies for Vioxx were now in the public forum. They lost control of the sale message. Medical scientists were coming forward stating that they had discovered inconsistencies in the findings of Merck’s claims. Merck eventually “voluntarily” removed Vioxx from the market in 2004 but by then the damage had been done to patients, their respect in the medical industry have suffered, andthen came the rebuke by medical associations. Their financial credibility tumbled and it was all avoidable.

Wharton School of Management Deputy Dean and marketing professor David C. Schmittlein “believes that Merck is facing “a financial crisis – loss of revenue, loss of confidence in the product pipeline, loss of the company’s ability to pursue product development…The (Merck) product line is not perceived as being as strong as it had been some years back” (Yao, 2004).

It is worth using the “Five Why’s Technique” to analyze Vioxx’s trajectory and the engine behind Merck leadership. The Five Why’s was developed by Mr. Sakichi Toyoda, founder of Toyota Industries. When using the Five Why’s Technique, Serrat states that there are 3 key elements when using it. These are: “(i) accurate and complete statements of problems, (ii) complete honesty in answering the questions, (iii) the determination to get to the bottom of problems and resolve them” (Serrat, 2010, p. 31). My pharmaceutical 10+ years career experience tells me that the last 2 points are the more troubling ones for corporate managers.

5 Why’s Technique & Merck:

  1. Desperation for revenue. Why?
  2. Loss of patents for drugs. Why?
  3. No in-house pipeline that produced blockbuster sales to replace patent expiration drugs. Why?
  4. Failure of business aggressiveness to either adopt outside molecules from smaller biotech firms, lack of R&D muscle to produce blockbuster drugs and/or enter into a contractual joint promotional relationship with another pharma company to co-promote a blockbuster drug. Why?
  5. Lack of leadership vision to prepare accordingly

In the end the Merck leaders were to blame for not only failing to bring new products to market, but they also allowed the ghostwriting of “clinical data” and were brazen enough to submit these to the very government agency that could close their business franchise. Equally telling about the Merck leadership is how they responded to the initial damaging exposure of their bogus data. They sought to bury it from the FDA because it they knew removing Vioxx from the market would have cost Merck billions of dollars sales (Culp & Berry, 2007).

To earn the rebuke of the Journal of American Medical Association in 2 separate scholarly peer-review pieces, is essentially to earn the shunning of the medical establishment. I recall working for another Big Pharma company where I promoted within the Oncology Franchise a chemotherapeutic product that was very popular. Drugs belonging to the Cox-II Inhibitor class like Celebrex and Vioxx were seen as possible adjuncts to chemotherapy by virtue of the fact that Cox-II inhibitors appeared at the time to shrink tumors. Cox-II Inhibitors prevent inflammation thus it could shrink a tumor since a tumor is a type of inflammation at the outset, an immune response. The word “tumor” in Latin means “to swell”. Eventually the tumor becomes rapidly dividing, uncontrolled cell growth. When the news hit the streets that Merck had submitted to the FDA fabricated data for their Vioxx drug, not a single of my oncology physician clients within my pharmaceutical world would touch it. By association with the Cox II Inhibitor Class, they started to shun Celebrex as well, even though Celebrex was made by a rival company, Pfizer, also a US global company. Thus Merck’s question of ethics cost Pfizer as well given they shared a class of agents on the market.

Returning to the Five Whys, it would have required the Merck leadership to be honest in answering all questions and be willing to get to the bottom of the problem. How did they do with these?

“Gurkirpal Singh, a professor at Stanford University’s medical school, said that a Merck senior executive had contacted his superiors to warn that if Singh continued to express his concerns about Vioxx he would have career problems in the future. Singh explained, “I was warned that if I persisted in this fashion, there would be serious consequences for me” (Culp & Berry, 2007, p. 27).

“In the case of the Vioxx debacle, Merck’s employees were good team players and good servants, but they lost their moral compass. Executives and employees buried their morality in order to sell its blockbuster drug, Vioxx” (Culp & Berry, 2007, p. 33).

The Merck leadership violated two of the 3 items already mentioned: being dishonest and refusing to get to the bottom of the problem. Their removing Vioxx from the market in 2004 was, as they say in business, a day late and a dollar short.

Merck got their coveted FDA approval for Vioxx and launched their drug. However, history shows that their compromising ethics cost them dearly.

The antithesis of IBM is this: not having corporate values or business leaders who adhere to them costs the firm revenue and compromises both the shareholders and stakeholders.

References

Culp, D. R. and Berry, I. (2007) Merck and the Vioxx debacle: Deadly loyalty. Journal of Civil Rights and Economic Development: Vol. 22: Iss. 1, Article 1.

Kanter, R.M. (2009). IBM’s values and corporate citizenship. Harvard Business School Publishing, Product: 308106-PDF-ENG.

Ohno, T. (2006). Ask ‘why’ five times about every matter. Retrieved from http://www.toyota-global.com/company/toyota_traditions/quality/mar_apr_2006.html

Serrat, O. (2010).The five ways technique.Washington, DC: Asian Development Bank.

Winslow, R., & Johnson, A. (2008, April 16). Merck’s publishing ethics are questioned by studies. Retrieved from http://www.wsj.com/articles/SB120828763322216997

Yao, D. (2004). Death of a drug: the aftermath of Merck’s recall. Retrieved from http://knowledge.wharton.upenn.edu/article/death-of-a-drug-the-aftermath-of-mercks-recall/