Allison Watkins, senior director of Merck’s Vaccines Division, leaned back in her office
chair. It was February 9, 2006. She glanced at the clock and noted that most of theday had
somehow slipped away. Nonetheless, her most important task remained unfinished: Watkins
needed to decide on the pricing of Gardasil, Merck’s newest vaccine and one of the company’s
mostimportant product launches of the year. Watkins knew that her decision was crucial.
Watkins had hired an outside consulting firm to recommend a price for Gardasil. The firm
had suggested a price of$120 per dose, or $360 per person, as each person required three doses
over six months to achieve adequate immunity. The Gardasil marketing team disagreed about this
recommended price; some thought itwas clearly too high, whereas others said it was too low. The
latter group argued that Merck would be missing a major opportunity by setting the price at such
a low level. Watkins now needed todecide whether to follow the consulting firm’s
recommendation or to set a different price.
Merck & Co., Inc.
Merck & Co. was the world’s seventh-largest pharmaceutical company at the end of 2005.Founded in 1891, Merck prided itself on being a research-driven company that consistently
developed drugs and vaccines considered first or second in their class and market. In 2005 Merck
had revenues of$22 billion and an adjusted net income of $4.6 billion (see Exhibit 1). The
company, based in Whitehouse Station, New Jersey, employed 61,500 people.
In the late 1980s Merck was the world’s mostrespected and top-ranked pharmaceutical
company. Merck had become a pharmaceutical leader by introducing a succession of
revolutionary medicines, including drugs to lower cholesterol and treatmentsfor congestive heart
failure and HIV.
All this changed in September 2004, when Merck received information from a clinical trial
that one of its drugs, Vioxx, a treatment for arthritis, was...