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Perlmutter prunes R&D at Merck amid calls for change

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Merck ($MRK) unveiled lackluster second-quarter earnings on Tuesday, reminding industry watchers of the U.S. drug giant's need for new therapies. The need to renew the company's stock of new drugs puts recently appointed R&D chief Roger Perlmutter in the hot seat, and thus far his turnaround has been predictably slow to come.

Merck R&D chief Roger Perlmutter

Last month Merck confirmed that Perlmutter, a company veteran who previously ran research at Amgen ($AMGN), was culling the ranks of managers in what has been considered an underperforming research organization. As ISI Group analyst Mark Schoenebaum noted today, Perlmutter expects to cut R&D expenses by about $144 million in 2013 compared with last year. Merck spends about $8 billion annually on research.

The cutbacks come amid shrinkage in sales of key drugs from Merck such as the asthma treatment Singulair, which lost patent exclusivity over the past year. The company blamed such setbacks on an overall fall of 11% in quarterly sales, which came in at $11.01 billion and below Wall Street's expectations, Reuters reported.

A relatively slight reduction in R&D expenses might be far less inspirational than a promising therapy in the pipeline, and Merck highlighted that the FDA granted its cancer immunotherapy MRK-3475 (or lambrolizumab) its prized "breakthrough" status for rapid development and review during the second quarter. This nod follows a slate of promising early-stage data for the PD-1 drug, which Merck is advancing against melanoma, lung cancer and other tumors in multiple clinical trials.

Yet the immunotherapy program was one of the few high notes in an otherwise downbeat update on R&D activity. Over the past several weeks, the FDA has hit Merck with a complete response for its insomnia drug suvorexant, dimming the market prospects for the compound. And the agency also delayed its review of the anesthesia treatment Sugammadex to analyze information from an inspection at a clinical trial site.

"There is not much to smile about," Erik Gordon, an industry analyst and professor at University of Michigan's Ross School of Business, wrote, as quoted by The Associated Press. "The new R&D head's first move was to cut jobs. That won't be enough to get Merck on track."

Perlmutter says he wants to narrow the research focus of Merck without dramatic changes, Schoenebaum noted. As the history of the industry shows, there are no quick fixes for R&D and it often takes several years to know whether a major shift in pipeline strategy has panned out.

- here's Merck's earnings release
- and Reuters' report
- check out the AP article

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