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Merck - The Biggest R&D Spenders In Biopharma

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Company: Merck
2011 spending: $8.4 billion
2010 spending: $8.12 billion
Change: +3.4%
Percentage of revenue: 17.5%

Merck CEO Kenneth Frazier felt the same pressure to cut the company's R&D budget last year as any of the Big Pharma companies. But he offered a vigorous defense of his strategy, asking investors for a little patience as the company pushed ahead on key development programs. And while Merck ($MRK) finished the year with a lackluster set of late-stage prospects, the company has since signed on to partner up on a late-stage cancer drug--replacing the troubled ridaforolimus--and now wants to mentor fledgling biotechs.

Last year, the budget was justified by the looming approval of boceprevir, a new hepatitis C drug that turned out to be heavily overshadowed by Vertex's telaprevir. Big hopes were held out for ridaforolimus. But weeks ago an expert panel voted overwhelmingly against an approval. Anacetrapib, the big cholesterol drug, is undergoing a battery of studies in hopes of adding to the "jaw dropping" data that investigators rounded up late last year. But that drug isn't likely to make it to regulators for another two or three years.

Its near-term hopes for approvals lie in the insomnia drug Suvorexant; Bridion (sugammadex), an anesthesia-reversing treatment obtained in the Schering-Plough buyout; the HPV cancer vaccine V503; Odanacatib for osteoporosis; and Tredaptive, to treat hardening of the arteries.

If none of these names are ringing a bell with you, join the crowd. When Merck ran out its top 5 prospects in February, a few analysts were taken aback by the weakness of the slate. An insomnia treatment? A win would offer entry into a crowded market. Some outside observers felt that Merck would need to change its R&D game plan and come up with some deals on late-stage products.

Merck is largely unresponsive to outside criticism. But a few weeks ago the pharma giant indicated that it may not be completely immune, in-licensing a late-stage cancer drug from Endocyte ($ECYT) in a billion-dollar deal. Merck says the drug--Vintafolide, or EC145--matches the profile of what it's looking for in a cancer drug, highlighting Endocyte's development of a companion diagnostic to identify patients most likely to respond to the treatment. And Endocyte says it's only months away from filing for EU approval. The treatment has been given orphan drug status in Europe.

Merck also recently signed up to work with Flagship Ventures' startup developers, demonstrating a deep interest in getting to know the very early-stage developers out there.

Among all the big pharma companies, though, Merck likes to keep much of its R&D work hidden behind a virtually impenetrable global façade. Last year, it even landed a pair of CRLs from regulators, only to try and bury the news in SEC documents. Its top investigators are often well out of reach of journalists and analysts. But at some point, Merck's going to have to open up more or face a rising tide of criticism.