May 31, 2006
Bad News for Merck
I recently had the opportunity to discuss the Vioxx trials with two M.D.s who are both active in research. Both concluded that Merck had shaded results and had not been forthcoming. While one initially supported Merck, neither was very sympathetic when we spoke.
My hunch is that this disclosure will not bolster my side of the argument:
Merck has contended that the study shows an increased risk of heart attacks and strokes only for patients taking Vioxx for 18 months or longer, and made that contention a foundation of its legal strategy. The company said in a statement yesterday that the correction doesn't change the study's results.But, using the method that the study's guidelines recommended, Vioxx's risks don't appear to change over time, compared with the risks to patients taking a placebo, in a statistically significant way. The changes could be due to chance.
Plaintiffs' attorneys, who have been sparring with Merck in courtrooms across the country for months, seized on the error. "This latest revelation confirms that Merck's 18-month argument is scientifically meritless," said David Buchanan, an attorney with Seeger Weiss LLP. "For that reason, it has no place in any courtroom."
Longtime readers know I am completely in the bag for "Big Pharma." I see their being constantly attacked from the FDA, trial bar, and demagogic politicians (cf. Sen. John Edwards).
I'll admit this looks bad, but I will ask what I asked the physicians: mistakes in Judgment were made, does this mean that a great American pharmaceutical firm should be shut down? Should they lose their company over this?
With 11,500 lawsuits outstanding, and the firm's principal defense seemingly removed, not much math is required. If every patient who took Vioxx and has heart disease is entitled to tens of millions, its $72 Billion market cap could be swallowed up quickly.
Heart disease is common, and probably very common in the demographic most likely to take a Cox-2 (my doctor pals didn't like that assertion but I contend it holds some intuitive value. The actors on the commercials for herpes treatment seem considerable younger than the Vioxx/Celebrex crowd).
Farewell Merck! Sorry we'll never see al the wonder drugs you would have created. But at least some lawyers' kids will be buying some nice cars.
Pharmaceuticals Posted by jk at May 31, 2006 10:22 AM
I don't think Merck will "go away."
In the worst case, their intellectual property and people get auctioned off to the highest bidders. However the deal(s) take place, they'll be structured so the new owner doesn't have to pickup Merck's debt.
Posted by: AlexC at May 31, 2006 3:53 PMCertainly their existing assets will have value. My concern in all of this is to support the creation of new drugs. Merck will likely disappear as an R&D powerhouse.
Worse still is the message to investors: stop supplying capital to biotech firms. If research is successful, AND the FDA is placated that the forms were filled out right, you can still lose it all in court.
Better to invest in a new router or a tractor company -- and P/E ratios prove it!
Posted by: jk at May 31, 2006 5:29 PMComment by email:
I am one of the physicians referenced and want to say that I wholeheartedly agree with JK that pharmaceutical companies face a daunting challenge trying to bring new innovative therapies to market in a world with the FDA breathing down their neck on one side and trial attorneys on the other. As someone who specializes in treating an incurable, fatal malignancy, I desperately want them to succeed in finding new medicines and, by and large, don't begrudge them making a profit. Personally, I think the whole Vioxx/cardio risk thing was overblown and don't believe for a second that every patient who had a heart attack on Vioxx deserves compensation. I don't want to see Merck destroyed over this. Where he and I part company is in deciding how much culpability Merck has. I was very sympathetic to their case until I heard they deliberately withheld data from the FDA and NEJM. In the medical world this is VERY BIG (akin to one of us hiding assets or lying to the IRS...you just don't do it). They now have a huge credibility/ethics issue. Had they been forthcoming with what they knew, doctors and patients could have made informed decisions. But knowing they withheld data makes me wonder what else they have withheld from us. Do you really want your physician risking your life by trusting such a company?
Posted by: jk at June 1, 2006 9:56 AMAnd another email:
One corrective to dishonest business practices is the certainty that wrongdoing will be punished. The great thing about the rule of law and capitalism is that man's interest in self preservation might keep him on the straight and narrow when his sense of ethics or honesty might fail. The CEO who demands above board accounting or honest research might only do it to keep himself out of hot water but it protects the company's customers and investors all the same. I don't know if Merck should be run out of business over this but I do know that one holy ass kicking sends a message that fudging data isn't such a red hot idea.
Posted by: jk at June 1, 2006 9:59 AMI thank them both (by the way, the one who said "holy ass kicking" is not an MD, I just thought I'd clear that up...)
I hate to be placed in the position of seeming to defend falsification or withholding of medical data. I'm uncomfortable in that spot and should probably accede more to the expert's opinions. I certainly cannot claim to know how prevalent is the use of linear time vs. logarithmic time. It strikes this layman as arcane, but I am a layman.
If it is as bad as both of my knowledgeable friends say it was, I should certainly be on their side. As my second emailer points out, it is a free market correction mechanism. Perhaps my energy would be better spent fighting the other viscous drags on innovation: FDA bureaucracy and Senator John Edwards's political ambitions.
Posted by: jk at June 1, 2006 10:09 AMThere is nothing "free market" about punitive and exemplary damage awards. Here we have the prospect that a multi-billion dollar company that markets hundreds of effective medications to billions of people can be financially annihilated by the courts on behalf of 11,500 patients who used a single medication one or more times. This shows that the "correction" has a non-linear relationship to the "error." In the electronics world we call such a circuit, "unstable."
Posted by: johngalt at June 1, 2006 3:47 PMAnd another thing: Did anyone see the assets of Dow Corning reapplied in the marketplace after frivolous and scientifically unsound lawsuits drove them into the ground over silicone breast implants?
Posted by: johngalt at June 1, 2006 3:52 PMhttp://www.pbs.org/wgbh/pages/frontline/implants/cron.html
The Dow Corning comparison is invalid, as Dow Corning's product worked as they said it should, and was safe, as their research and later research at the Mayo Clinic showed. Dow Corning was the victim of junk science and juries that didn't understand the evidence they were presented with, not dishonest research or unethical leadership. Merck screwed the pooch and got caught. Given the litigious climate we live in, and the enormous expense and difficulty of bringing a drug to the market, how can any stockholder condone falsifying and witholding data when it's inevitable discovery will lead to the ruin of the business. Frankly I am shocked that the science guys on Three Scources and the rule of law guys on Three Scources are so situational in what they will and will not condemn.
Posted by: sugarchuck at June 1, 2006 5:55 PMI'm a big fan of tort reform. Put me down for both "loser pays" and severe restriction or elimination of punitive damages or "pain and suffering" damages.
In fact, however, lawsuits are completely compatible with free markets. Individual juries in individual districts will hear individual cases and each will make its own decision. The sum of this is the pain to be inflicted on Merck.
Posted by: jk at June 1, 2006 6:55 PMSC, I liken this to GAAP accounting and assume there is a large discretional area when to recognize revenue and when to use logrithmic time. If they purposefully and willfully falsified research, by all means cry havoc and let loose the dogs of the tort bar.
But if a great American Pharma concern behaved -- as the WSJ Ed Page suggested -- and made a judgement call, I am willing to give them some benefit of the doubt. To be fair, my physician frinds are closer and strongly disagree.
Posted by: jk at June 1, 2006 7:01 PM-- and I am not situational. The less attractive truth is that I am myopically and reflexively pro-business. Without clear (obvious) malfeasance, I will root for the evil corporation against the brave litigant every time.
That will not go over well at my Senate confirmation hearing, will it?
Posted by: jk at June 1, 2006 7:49 PMI'll take your point a step further Sugarchuck: Given the litigious climate we live in, and the enormous expense and difficulty of bringing a drug to the market, how can any stockholder condone {bringing a drug to the market when a single error on a single drug may} lead to the ruin of the business?
This is the essence of my earlier point, and not that Merck should be forgiven if they pulled a "Pinto Gambit." I don't know enough about the regulatory process and the specifics of how Merck complied with it to say that they "screwed the pooch" here. I suspect even JK's doctor friends don't know the entire story, though I'm prepared to be proven wrong.
Posted by: johngalt at June 2, 2006 3:05 PMI like the reference to the Pinto. Very good point! And now a thought on some collateral damage done by Merck. The next time someone introduces legislation providing some relief from the trial lawyers, the liberal du jour will jump up and say we can't loosen these laws; if anything our experience with Merck shows they should be tighter still.
Posted by: sugarchuck at June 2, 2006 4:12 PM | What do you think? [13]This situation further strained the relationship between physicians and drug companies/drug reps. There are a great many doctors who gladly accept huge salaries for treating patients, yet expect drug companies to provide drugs on a non-profit basis. The drug companies are thus forced, unfairly, to operate under a cloud of suspicion. The cloud, post-Merck, just got bigger and darker, proving that people motivated by profit are unethical and corrupt. Maybe the best remedy for this is to buy your MD a Thomas Sowel book.