(Links between short- and long-term operations) As is the case of Genentech, Inc., drug companies rely on their research activities as the primary source of future revenues and profits. The capital budget is the principal tool used to allocate resources to research activities.

Merck & Co., a giant in the drug industry, recently unveiled a list of its products in early development stages. The products included drugs to treat major maladies such as arthritis and cancer. Analysts who were present at the unveiling were unimpressed. Some of the analysts com¬ mented that it is not Merck's long-term prospects that are in question; rather, “its short-term, pipeline contains no clear breakthroughs. That poses potential problems for the bottom line, because the company's core products—cardiovascular drugs—face increasing competition, and several new drugs have fallen short of expectations."

[SOURCE: Robert Langreth, “Drag Pipeline at Merck Gets Weak Review,” Wall Street Journal (May 22, 1996), p. B6. Reprinted by permission of The Wall Street Journal © 1996 Dow Jones & Company, Inc. All Rights Reserved Worldwide.]

Prepare a written report in which you explain how short-term operations and plans are linked to long-term operations and plans. This report should be di¬ rected at an audience that is expected to have little knowledge of formal business planning systems. The major point to be explained in your report is why stock analysts would meet Merck’s announcement of an aggressive R&D program with apathy because success of current operations is marginal.

Problems