The WSJ notes that Pfizer and Merck, the number one and number two sized Big Pharmas in the world, took different tacks when confronted with prospect of cutting R&D or maintaining EPS for the coming year. Pfizer cut R&D. Merck cut its future earnings estimates. Let's take a look.
Pfizer reduced R&D so that it will spend approximately $6.5 to $7 B in 2012 vs the $9.3 B it spent in 2010. That necessitated closing its Kent facility and cutting heavily at its Groton site. It also cut several programs to "focus" its R&D efforts on a lesser number of programs. The market gave Pfizer a short-term reward by raising its stock price about 4% since the Tuesday announcement.
Merck on the other hand reduced its EPS estimate from $3.82 to a range of $3.65-$3.76. It plans to up the R&D budget from $8.1 B in 2010 to $8.5 B in 2011. Merck's CEO Ken Frazier said he "wouldn't make deeper cuts" as it woudl jeopardize Merck's future development. The market promptly responded to this long-term strategy (like pharma and investing is supposed to be) by chopping Merck's stock by 3.3%.
If I had to place my bet right now, I'd say that the company that invest in R&D and innovation will do better in offering its shareholders a long-term ROI than one that continues to reduce its R&D efforts - especially to boost short-term EPS gains. Where's the drive to innovation to meet unmet medical need in that? I guess Pfizer CEO Mr. Read gets to stay in place another quarter.