crowned a new CEO last week, some disappointed investors saw fresh evidence of an entire industry that has yet to get its priorities straight.
Merck chose an insider without a background in medicine at a time when observers agree that the company desperately needs to focus on developing new drugs. Moreover, Merck made its selection even after its glory faded under a previous nondoctor, Ray Gilmartin.
Richard Clark, tapped last week to replace the embattled Gilmartin, is no master of drug research or even the marketing activities that, to the dismay of some, now seem to drive the industry. He has instead spent his 33 years at Merck concentrating on such areas as manufacturing and information technology.
"That was the best they could get?" asks Peter Cohan, an investment strategist who praises Merck's last physician CEO -- Roy Vagelos -- in his book
. "It is hard to see how a manager lacking experience in drug development can help revive the critical pipeline of new drugs that contributed to the success of this once great company."
These days, however, the entire drug industry seems far less admirable than it once did. The past year, in particular, has taken a heavy toll on both the industry's reputation and its stock performance.
Merck has simply fared worse than most. The company's withdrawal of Vioxx, a popular painkiller linked to heart attacks, has eliminated a huge source of corporate profits and triggered a flood of lawsuits that could lead to billions of dollars worth of damages.
But it has also raised concerns about the drug industry as a whole. Public leaders have begun to question how companies manage to gain regulatory approval of drugs like Vioxx and then turn them into wildly profitable blockbusters. And they have come to recognize the industry's incredible influence -- over drug development, approval and even consumption -- in the process. In this first installment of a five-part series this week,
examines these apparent conflicts and their implications for these companies and their investors.
Vera Hassner Sharav, president of the Alliance for Human Research Protection, has been warning about such powers for years.
"The companies design the drug trials," Sharav says. "They select the subjects. They maintain and interpret the data. They select which parts get published. They choose who will become the reviewers in the prestigious medical journals. And they pick 'key opinion leaders,' who they pay handsomely" to promote the drugs.
"It's perfect," she concludes. "They have it made."
But that formula, which doesn't guarantee important new cures, could be starting to backfire. Drug stocks like Merck and
have been profitable investments in the past. However, those stocks -- hurt by withdrawn drugs and the lack of new drugs to replace them -- have lately fared worse than the broader market. Both stocks are, in fact, worth about 25% less than they were just one year ago.
That decline has come at a time when government officials, particularly in the U.K., have stepped up their scrutiny of the industry.
During a recent in-depth study, U.K. leaders uncovered plenty that troubled them. For starters, they found that drug companies can specifically design clinical trials to deliver favorable -- but possibly misleading -- outcomes. Richard Nicholson, editor of the
Bulletin of Medical Ethics
, cited a Merck trial of Vioxx as one example.
"We wondered to ourselves why on earth Merck wants to compare this with naproxen," a drug popularly known as Aleve, Nicholson said. "They did not give us the details initially, and then when we asked and asked, we finally found out they had already carried out major trials against the two major anti-inflammatory drugs ... and found absolutely no advantage of their drug."
Yet another medical expert, the internationally recognized David Healy, said that drug companies often run numerous trials in an attempt to yield any favorable results at all. He said the companies then share only their positive findings and classify the rest of the trials, rather than the drugs themselves, as failures.
"The companies can pick out the pieces of data that suit them," Healy told
. "That's the part that gets the drug through" the regulatory process. "And after that, they only have to show the good bits of data to the rest of the world."
Healy is perhaps best known for highlighting problems associated with the popular class of antidepressants known as selective serotonin reuptake inhibitors, or SSRIs. He has long insisted that the drugs, including
household name Prozac, are less effective -- and less safe -- than many people realize.
Still, such drugs have been blockbusters from the beginning.
In the decade after SSRIs first hit the market, the U.K. committee noted, prescriptions for antidepressants more than tripled. Critics blame the 1992-97 "Defeat Depression Campaign," promoted by psychiatrists but financed in large part by the drug industry itself, for part of that trend.
The campaign "led us to being told that a third of the population were depressed, that we should screen for it, that we should start using antidepressants early, and we did," physician Des Spence told the U.K. committee. "As time has gone on, I have certainly begun to realize that in some ways, yes, there are many people who do have depression, but lots of people are just unhappy, and that is a part of life. So there is a whole generation of people coming up who almost feel that being unhappy is an abnormal state -- which, of course, it is not."
Meanwhile, SSRIs remain wildly popular drugs. Eli Lilly still profits handsomely from Prozac, the first "miracle" antidepressant of its kind, despite negative publicity and -- perhaps more importantly -- generic competition. The same can be said of
and its own SSRI, Paxil. Meanwhile, Pfizer continues to count Zoloft as one of its best-selling drugs.
Call for Change
Sharav, for one, is sickened by those sales.
"Suddenly, half the nation is mentally ill," she says. "That's nonsense."
Frustrated by the industry's power -- and inspired by the scrutiny overseas -- Sharav is now in the process of organizing an unprecedented conference that, she hopes, will ultimately convince national leaders of the need for sweeping changes. Already, Sharav has lined up an impressive roster of speakers who are eager to discuss ways to overcome the powerful influence of the pharmaceutical companies. She says that several noted authors and a slew of big-name medical researchers, "the whole Harvard crew," have agreed to participate. So has the insider from the U.S. Food and Drug Administration who exposed the agency's mishandling of Vioxx, she says, along with whistleblowers at companies like Pfizer and Merck.
Of course, Sharav realizes, the conference must secure financing outside the cash-rich drug industry it is attempting to expose.
"Nobody could get a roster like this," Sharav said. "But there's a little catch: How do we get sponsors? It is so difficult."
Still, Cohan points out that the drug companies face difficulties of their own, despite -- and perhaps even because of -- the power that has helped them out in the past. Even after exercising all of their influence, he notes, the companies still need a key ingredient for success.
"The whole industry has fallen down on drug development," he says. "And no amount of influence -- or even marketing -- can make up for a dry hole in the pipeline."
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