|
To look at research and development,
we look at four American pharmaceutical companies. Table T-13.9
below presents research and development expenses compared to
revenue data.
|
Table T-13.9 |
|
Comparison of research and development of four US
firms in 1998 |
|
. |
Merck |
Upjohn |
AHP |
Mylan |
|
Revenues total (in $ millions) |
29,452 |
6,758 |
13,463 |
721 |
|
Non-pharmaceutical revenues (in $ millions) |
16,612 |
631 |
4,561 |
0 |
|
Pharmaceutical revenues (in $ millions) |
12,840 |
6,127 |
8,902 |
721 |
|
Research and development expense (in $ millions) |
1,821 |
1,199 |
1,655 |
62 |
|
R&D/pharmaceutical revenue |
0.142 |
0.196 |
0.186 |
0.086 |
|
R&D/total revenue |
0.062 |
0.177 |
0.123 |
0.086 |
|
Source: Annual Reports |
Previous analysis of Merck's performance indicated that this
was a very successful and profitable company. Its annual report
repeatedly emphasizes leadership as the key to its marketing,
personnel hiring and technological research strategies (for instance,
Merck points to R&D annual growth of 11% over past ten years,
on page 35 of its annual report). An investigation of Merck's
research and development expense challenges Merck's assertion.
Merck used to be the largest American pharmaceutical company
(it is not since several mergers in the industry pushed it to
third position). In fact, Merck lost its leadership position
as pharmaceutical product developer because it merged with Medco
in 1993, a managed health care provider which managed only a
3% net profit margin in 1998 compared to 45% on Merck's pharmaceutical
products.
In 1998, Merck's R&D expense is still respectable at 14%
relative to its pharmaceutical revenue, but lower than Upjohn's
19.6% and AHP's 18.6%. However, as a proportion of total revenue
Merck's R&D expense has fallen to 6.2%, compared to 17.7%
for Upjohn and 12.3% for AHP. This is the lowest Merck's R&D
expense relative to total revenue has been in the past ten years
(it decrease each year). This is less than Mylan's R&D expense
relative to revenues of 8.6% which is a small generic drug manufacturer
that takes over production of drugs on which patents expire.
Merck has entered in a number of joint ventures, and one of these
was terminated by Merck acquiring rights to all products for
$ 1,039 millions which is shown in the income statement as a
one time charge for acquired research instead of being capitalized.
This is also a strategy more fit for a second rate company than
an industry R&D leader
Merck is likely to have difficulties in regaining its former
dominant position because Merck is held back by its Medco division
in any opportunity of acquiring a competitor or being acquired. |
