Merck Chief Defends $8B R&D Budget As Vital Long-Term Investment

One of the biggest debates in Big Pharma right now revolves around whether execs should be chopping back their multibillion-dollar R&D budgets as they attempt to reinvent the whole pipeline process, or continue to bet ever-growing sums to R&D for new products to replace blockbusters now losing patent protection. Pfizer (NYS: PFE) scored big with the analysts when it followed GlaxoSmithKline (NYS: GSK) and others down the path to a more narrowly focused pipeline. But Merck (NYS: MRK) , Eli Lilly (NYS: LLY) and others are sticking to their expensive guns. And Merck CEO Kenneth Frazier is mounting a strong defense for his $8 billion R&D budget.

In a clear jab at Pfizer, which has outperformed Merck since revealing its dramatic cutback on R&D, Frazier says that short-term stock gains should not be made at the expense of long-term innovation.

"When one runs a company like Merck that has long lead times in terms of development, I think it's important to keep in mind that you're not necessarily running the company for the immediate reaction of the stock market," Merck CEO Kenneth Frazier told a group gathered by The Wall Street Journal, according to a report from Reuters' Lewis Krauskopf. In drug development, he added, innovation tends to run through cycles. You get waves of important approvals followed by the inevitable trough.

"If you look in the past, there have been other fallow periods for R&D, but over the long-term science has always made progress," he noted.

For now, Frazier is keeping the faith that his R&D operation is preparing to deliver the next big wave he can ride to a higher stock price.

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