2010 R&D budget: $8.12 billion
2009 R&D budget: $5.6 billion
Change: Up 45 percent
While Pfizer was making points with the analysts recently by slashing its R&D budget, Merck is sticking with its development plan. And its post-Schering buyout development drive will push its expenses north of $8 billion.
"The only way to achieve our 2013 target would be through deeper short-term" cost cuts, said CEO Kenneth Frazier during the annual numbers review. "Instead, I have decided that investing in the future of the business is the best long-term strategy."
Peter Kim, president of Merck Research Laboratories, recently told the Korea Economic Daily that the company might actually boost R&D spending this year, pushing as high as $8.5 billion in a record effort to get new products out into the marketplace.
It's a bold strategy. To put that into perspective, Merck recorded $5.6 billion in R&D costs in 2009. And underscoring just how expensive failure can be, Merck wrote off $1.7 billion for the failure of Vorapaxar.
Later this year Merck investors will be looking for some dramatic paybacks for the pricey R&D commitment. The research team is most likely to find it in boceprevir, which has aced a series of late-stage studies for hepatitis C but faces a major challenge for next-gen status from Vertex's telaprevir. Then there's Merck's closely-watched cholesterol drug anacetrapib. Widely billed as a potential blockbuster, last fall investigators in charge of the pivotal trial cited "jaw dropping" results, with a striking 138 percent increase in good cholesterol and a 40 percent drop in bad cholesterol among patients already taking statins. Another hot prospect is ridaforolimus, an oral mTOR inhibitor that has the potential to target multiple cancers. A year ago Merck restructured its partnership with Ariad to acquire global control over the development and commercialization of the cancer therapy.
Merck also isn't done with licensing deals and smaller buyouts, as it proved when it acquired SmartCells (which has been working in diabetes) in a recent $500 million deal. And the company is making a major effort to leap to the front of the pact of Big Pharma companies engaged in developing biosimilars.
To be sure, Merck hasn't been shy about lopping off R&D operations that don't fit into the future that it has designed for itself. Old Schering research sites were particularly hit hard last spring. But don't look for any draconian downsizing a la Pfizer--at least not yet.