BOOKS staffers' walls at the company's research center and onetime headquarters in Rail way Ν J., is quoted from memory today by Merck staff—and by Wall Street analysts. Undeniably the people at Merck had an and there were tax benefits in donating the THE MERCK DRUGGERNAUT: The attitude. But they also had a lot of respect drug. Merck made the most of the public Inside Story of a Pharmaceutical in the industry and on Wall Street to justi relations angle, but free forever hadn't been Giant, by Fran Hawthorne, John Wiley & fy it. During the late 1990s, the firm was done before in pharmaceuticals—and it Sons, 2003,290 pages, $24.95 (ISBN 0viewed as above the fray in the pharma hasn't been done since. 471-22878-8) ceutical industry's crusade against generic George W. Merck, son of founder competition and aboveboard in its mar George Merck and head of the company keting tactics. Its early work from 1925 to 1955, set the REVIEWED BY RICK MULLIN on AIDS was recognized as ex stage for the company's rise to emplary by the government, glory. He launched the re N HER INTRODUCTION TO "THE the industry, and even AIDS search arm of what had been Merck Druggernaut," Fran Haw activists. It was considered the primarily a manufacturing ven thorne writes that she dropped the place to be for the brightest re ture. The result: Major break original subtitle, "The Last Good Drug searchers. Merck avoided the throughs such as streptomycin Company," deeming it a nonstarter merger mania of the 1990s, and cortisone. He also defined with a 21st-century readership. The idea even as Glaxo and Pfizer closed the company's credo in a 1950 of a good drug company, she decided, megadeals that pushed Merck speech given at the Medical would not resonate with an audience that into third place in sales. College of Virginia: "We try views big pharmaceutical companies as never to forget that medicine "Godzillas" that price-gouge the elderly on Now that big pharma has is for the people. It is not for essential medications, spending billions of been tarred with the same the profits. The profits follow, and if we dollars advertising brand-name drugs as brush as big oil and big tobacco, however, have remembered that, they have never they muscle out the generic competition. Merck is just another Godzilla, a victim of failed to appear. The better we have re Hawthorne, a journalist with 20 years' big changes in the industry and in business membered that, the larger they have been." experience covering the industry opted in in general. This socioeconomic formula, tacked on stead for "The Inside Story of a Pharma By 2000, the industry had taken a big ceutical Giant." This is a bland profits business model as far as it but truer subtitle for a book that, could go, leaving its players over in charting the reversal of fortune sized, its products overpriced, at Merck, charts the downward and its public image seriously spiral of big pharma as a whole. compromised. Meanwhile, the She might have profiled any of social compact between work today's large pharmaceutical com ers and employers was being panies in telling her story shredded everywhere. Multiple rounds ofdownsizing and reengi But using Merck as a vehicle neering had convinced the pro works well because the compa fessional workforce that every ny's peculiar brand of hubris one was in it for themselves. adds a classical element of tragedy Once the world's larg Pharmaceutical researchers est pharmaceutical company, became less committed to the Merck earned a reputation as a large companies, where noth research pioneer with a social ing seemed to be done on a drug conscience. Ranked at the top that wasn't a guaranteed billionof Fortune magazine's "Most Ad dollar blockbuster. Researchers mired Companies" list for a started swarming out of Merck, record seven years in a row from Pfizer, and Glaxo and into the 1987 to 1993, Merck could boast emerging biotechnology and of never having had a drug re pharmaceutical services sectors called in the U.S. where they believed their ef forts would do more good. With The company valued its hu the loss of a clear cutting edge manitarian role in society as a in R&D, the pharmaceutical in provider of medicines. In 1987, dustry in general lost its moral it made Mectizan (ivermectin), a ascendancy as profits very clear new drug to prevent river blind ly took center stage. ness, available for free forever to impoverished populations in Although Hawthorne gives tropicalAfrica and Latin Amer HUMANITARIAN Sculpture titled "The Gift of Sight" comprehensive treatment to all ica. With treatment requiring reminds visitors to Merck's headquarters of the company's of the pressures, mistakes, and only one annual dose, Mectizan gift of the drug Mectizan to tropical countries to prevent immutable forces that pushed would never be a blockbuster, river blindness. the industry downward, she
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places no focused emphasis on the key issue of loss of purpose in the research lab. Rather, it is an underlying theme running through the book. "Druggernaut" is peppered with interviews with ex-Merck researchers, who are now employed in the emerging sectors. Hawthorne astutely sets up Merck's Railway operations as center stage in a centurylong drama. It was the great leveler, on the one hand, situated in a town that most New Jerseyans associate with its state prison. On the other hand, it was an egalitarian Emerald City where white collars, blue collars, and lab coats shared the same lunch table. But in 1992, when the company moved business executives to bucolic Whitehouse Station, N.J., the Rahway Utopia shattered. Top management no longer chatted informally with scientists, to the detriment of the drug pipeline, ^et researcher hubris is nowhere more evident than in the certainty that Merck made Rahway America's research mecca—regardless of what emerging pharmaceutical and biotech companies were building in new industry hubs such as Cambridge, Mass.; San Diego; and the San Francisco Bay Area. H a w t h o r n e gives thoughtful consideration to the shift from science to business at the core of Merck in her treatment of two successive chief executive officers: P. Roy Vagelos and Raymond V Gilmartin. Vagelos, a Horatio Alger type who worked his way up through the labs in Rahway, is credited with establishing the gold standard among pharmaceutical labs. He also takes credit for making what turned out to be perhaps the worst business decision in the company's history—buying Medco, a drug distribution company The purchase of Medco, it was thought, would be yet another trendsetting move in the early 1990s when it looked like insurance companies, not doctors, would make prescription decisions. But when the Clinton Administration's health care reforms were crushed, Merck was left with a stable but decidedly noncore operation that many critics viewed as a conflict of interest. Merck failed to find a buyer for Medco, and it opted in April to spin off the company to shareholders. Gilmartin, a West Point graduate and Harvard M.B.A. with no science back-
ground, presided over the serious decline in the laboratories. However, Hawthorne is careful not to blame the businessman following the scientist for the evils that befell Merck. She makes it clear that Vagelos would have had to deal with the same pressures as Gilmartin, and that he would have had just as hard a time. Her portrayal underscores the need for balancing business and science in a science-based business. Wall Street loved Merck until the end, which came, according to Hawthorne, on a cold April day in 2002 when Gilmartin— still the chairman, president, and CEO— surprised analysts by telling them that not only had the company missed its earnings forecast for 2001, but that earnings would be unchanged in 2002 at $3.12 per share rather than the $3.40 that analysts were predicting. Things had unraveled rapidly at Merck in the months prior to that meeting. The Journal of the American Medical Association published an article on the cardiovascular risks of taking Merck's Vioxx (rofecoxib) and other COX-2 inhibitors. Merck's new drug pipeline was petering out. And Merck had botched its good standing in the AIDS community because of pricing and legal actions taken in conjunction with other pharmaceutical majors. Hawthorne devotes chapters to most of the major issues that changed Merck and big pharma, including pricing and direct-toconsumer advertising. In a chapter called "The Freebie Circuit," she describes the use of extravagant gifts to persuade doctors to prescribe name-brand drugs. These freebies got so out of hand that last year the Pharmaceutical Research & Manufacturers of America was forced to publish a restrictive code detailing exactly what can be given. Merck had issued its own restrictions a year before. Each issue outlined in the book is fully explored and illustrated with punchy anecdotes and interesting historical and cultural perspectives. In one marvelous passage, Hawthorne compares the swollen Pfizer to Ursula the sea witch in the final scene of the animated Disney movie "The Little Mermaid." In another example, the long-standing drug-pricing quandary is supported with a stretch from Adam Smith's 'An Inquiry
With the loss of a clear cutting edge in R&D, the pharmaceutical industry in general lost its moral ascendancy as profits very clearly took center stage.
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into the Nature and Causes of the Wealth of Nations," from 1776: "The skill of an apothecary is a much nicer and more delicate matter than that of any artificer whatever, and the trust which is reposed in him is of much greater importance. ... His reward, therefore, ought to be suitable to his skill and trust" even though the expense of a year's production may not total £40. Hawthorne, who admits she sees validity in the negative opinion that the public holds of big pharma, paints a broad picture in "Druggernaut" of a fascinating industry in crisis. Her systematic history-telling, however, precludes the kind of analysis that would inevitably focus on the core of the crisis: the inability of large pharmaceutical companies to continue to monopolize the cutting edge in developing new drugs. As far as mechanics are concerned, the book is current with very recent industry news and has the feel of a well-researched feature in a weekly magazine. It is, after all, written by a business journalist. Hawthorne is a senior contributing editor at Institutional Investor and has covered health care for Fortune and Crains New York Business. It's clear that "Druggernaut" did not sit around long at Wiley—in fact, the copy editor could have taken another crack at it. There are enough typos and other glitches to merit mention. The book also is devoid of photographs, charts, tables, or any other graphics. In all, it comes across as rushed through production. Hawthorne concludes that Merck's historic "good" behavior— its early support for Medicare prescription coverage, its efforts to speed access to the AIDS drug Crixivan (indinavir), its refusal to fight nasty against generic competition—will help the firm in the years ahead. For the company to rise above the pack again, she says, it will need to jump-start its blockbuster machine in Rahway That may not be easy, because decoding of the human genome has opened a door of opportunity to fast-moving entrepreneurs—people like George Merck the elder. Pharmaceutical companies will continue to play a key role in discovering new drugs. For example, Glaxo in recent years completely restructured its R&D with the goal of making labs more entrepreneurial (C&EN, April 21, page 35). But the innovation edge in pharmaceuticals is likely to be found among companies much smaller and faster than Merck or any of the members of big pharma. Senior Editor Rick Mullin, based at CèENs Northeast Bureau in Edison, N.J., writes regularly on the pharmaceutical industry. C&EN
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