Merck headed on the wrong track with its Vioxx strategy
All this time I was arguing that Merck had poor leadership and was pursuing bad business strategy, now I can also say that it has horrible legal strategy. As I, along with most other analysts, had expected, Merck not only lost what was supposed to be an easy case for Merck to win, but also slammed with a huge payment – a quarter billion dollars. If you compare that to $700 million or so that the company has budgeted for its legal problems that are expected to last for the rest of this decade, you can see how out of touch the management is with reality. In other words, while Raymond Gilmartin has been fired, anyone else at Merck who is making these poor decisions should be asked to leave immediately so that any more shareholder value destruction can be avoided. To put it in perspective, during last 12 months, while all the major indices have gone up between 5 and 30%, Merck’s stock has actually declined by 30% and it will only go down from here.
I think that there is still time for the Merck board to act by selling the firm in pieces. A company that has declared that it will fight thousands of lawsuits from Vioxx victims one-by-one cannot really develop great products. It will exist merely to help an army of lawyers thrive. And today’s verdict shows that not only have Merck’s lawyers given wrong advice to the firm, the management at the company does not have the insight to throw out lawyers from the boardroom and develop business strategy without lawyers.
Indeed, bad products will be developed and customers will be hurt but by having a robust product recall strategy, a company will do just fine. But by fighting a war with people who used to be one-time customers of Merck, the company is merely setting itself up for eventual destruction.
And keep your eyes and ears open for another company that is doing the same – Pfizer. Please, if you are reading this, never do what Merck and Pfizer executives are doing. Throw out your lawyers from the boardroom and develop business strategy with smart people in the room. And never fight with your customers – even when they are wrong and accuse you of things that you may not have done. And if they are right (particularly if she is an old widow), embrace them, fix your mistakes, and move on.
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