MRK v. AMGN: A Comparison of R&D Productivity

Richard

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In response to the Wall Street Journal report that MRK is planning a major shift in its R&D approach, we compare MRK’s R&D productivity to AMGN’s (where current MRK R&D chief Roger Perlmutter led R&D from 2001 – 2012)

AMGN has had consistently superior R&D productivity as compared to MRK over the last two decades

AMGN has produced more earnings and more quality adjusted innovation per dollar of spending than both MRK and the broader peer group of large drug and biotech companies, though AMGN’s recent performance has fallen to the peer group level. In contrast, MRK’s earnings and quality adjusted innovation per research dollar spent have consistently lagged the peer group

AMGN’s productivity advantage is large enough, and consistent enough, to imply that these differences are at least partly attributable to different management approaches taken by the two firms. By extension, it is reasonable to infer that applying the AMGN approach to MRK can be expected to raise MRK’s R&D productivity

Despite the potential for gains in MRK’s R&D productivity, it must be stressed that AMGN’s absolute level of R&D productivity appears to hover around the peer group standard, which we believe is roughly negative 7 percent – thus raising MRK productivity to the AMGN standard is insufficient; MRK productivity must be raised further

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