PharmExec Blog

How Do We Raise R&D Productivity?

Dr Brian D. Smith

Dr Brian D. Smith

That’s the big question that no one has answered yet. So perhaps its worth breaking it down into smaller parts, suggests Dr Brian D Smith.

An ill-posed question is a mathematician’s term that well describes what many Big Pharma companies are asking themselves, namely, how can we raise R&D productivity? It’s ill-posed because it has not one but several answers, and would get better, clearer answers if it was broken down into several smaller, better-posed questions.
The first question should be “what makes R&D productivity so low?” This was well addressed in a recent paper by some of Lilly’s R&D team, which, using an econometric analysis, identified that late-phase attrition was the biggest cost driver. Not a very surprising result, although the details of their work provided some startling illustrations of the huge impact that, for example, pushing a product into Phase III prematurely can have on R&D costs per launch.

More enlightening were their conclusions about other factors that reduce the profit bang gained for each R&D buck. Of these, the one most likely to grow in importance was the implication of developing a product without thinking about the health economics and market access hurdles it would eventually have to jump. Despite the prominence given to market access in recent years, it seems that many firms still think about it too late in the development process, reducing a technically successful development to a commercially unsuccessful launch.

The second question is how should we organize for R&D or, in a sense, how should we un-organize, since the emerging industry paradigm involves the dismantling of the internal R&D monster into its parts. This can be seen in horizontal disintegration, of which GSK’s approach is an example, breaking up R&D into smaller, often therapy area-based units. It is complemented by vertical disintegration, now well advanced in the industry, in which biotechs discovery new molecules and which are then licensed in, developed and commercialized by Big Pharma.

These examples, however, only give us a broad hint that the old model is dying. To optimize productivity, we still need to know exactly how and where to draw the lines in a newly ‘dis-integrated’ R&D process. Self-evidently, this is an issue of transaction cost economics, for which Oliver Williamson was awarded the Nobel Prize for economics in 2009. Few pharma companies seem have grasped the transaction cost nettle, however.

The final question, which I’m asked most often, is “What is best-practice in managing R&D productivity?” This certainly sounds like a well-posed question that everyone ought to ask, but it doesn’t seem to benefit the asker for two reasons. Firstly, whilst the whole industry is searching for the answer and, whilst early signs of evolution are visible, it is too early to point clearly to best practice. And, of course, when it is possible to be sure what best practice is, it will no longer be a source of competitive advantage, only competitive parity.

The second reason that “What is best practice?” fails as a question is that we know that the answer begins with “It depends…” It seems certain that the best way to raise R&D productivity will be contingent on the particular context of the company. If so, any company clutching at ‘best practice’ straws is likely to drown.

So, as I hope I’ve shown, the big question about R&D productivity can’t be answered yet. But by breaking it down into smaller, better questions we can make a start.

Dr Brian D. Smith is a Visiting Research Fellow at the Open University Business School, Editor of the Journal of Medical Marketing and runs, a specialist consultancy.

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