2009-03-29-Bain-Bringing_pharma_R_D_back_to_health_12页_901kb

Pharma R&D: A New Approach to Innovation and Success

Core Content

The traditional approach to pharmaceutical R&D is no longer sustainable. The cost to develop and launch a new drug has more than doubled since the late 1990s, while R&D productivity has declined significantly. Pharma companies are struggling to generate value from their innovation investments, with a return on invested capital (ROIC) for new drug development dropping from 9% in the early 2000s to just 4% today. This has led to a critical need for a new, more efficient R&D strategy that focuses on returns rather than just scale.

Main Points

1. The Problem with Traditional R&D

• High costs: The cost to develop a new drug has increased from $1.1 billion in the late 1990s to $2.2 billion today.
• Declining productivity: R&D productivity, measured by new molecular entities (NMEs) and biologic license applications (BLAs) per dollar, has fallen by 2.1% annually.
• Low ROIC: Pharma companies have seen a significant drop in returns from new drug development, making the current model economically unviable.

2. A New Approach: Returns-Driven R&D

• Three key steps are outlined to transform R&D:
  • Step 1: Take the customer's pulse
  • Step 2: Scan for outside innovation
  • Step 3: Act on the right numbers

3. Step 1: Take the Customer's Pulse

• Early customer engagement is crucial. Pharma companies should involve payers and other stakeholders from the start of the R&D process, not just at the final stages.
• Payers are becoming more powerful and cost-conscious, demanding clear evidence of value for money.
• Novartis is a notable example, working with NICE in the UK to design better clinical trials and improve reimbursement outcomes.

4. Step 2: Scan for Outside Innovation

• Innovation is not limited to internal R&D. Pharma companies should actively seek external ideas and collaborate with other industries such as medical devices and diagnostics.
• Procter & Gamble’s "Connect + Develop" strategy is a successful model, where 50% of innovation comes from outside the company.
• GSK and Eli Lilly have also embraced this approach by setting up dedicated teams and platforms to access external science.

5. Step 3: Act on the Right Numbers

• Financial discipline is essential. Pharma companies should project returns and costs accurately, using realistic assumptions and total costing.
• ROIC hurdle rates must be set and continuously tracked to ensure that only the most promising projects receive funding.
• AstraZeneca and Pfizer have demonstrated this by reallocating R&D resources based on expected returns rather than just revenue potential.

Key Information

• Cost of drug development has increased dramatically over the past two decades.
• Payer input is critical for aligning R&D with market realities and improving the chances of reimbursement.
• External innovation can be a valuable source of new ideas, and pharma companies should not be limited to in-house research.
• Financial rigor is necessary to assess and prioritize R&D projects based on expected returns, not just revenue potential.
• Leadership is key to driving this change, requiring a blend of scientific and business acumen.

Conclusion

Pharma companies must shift from a scale-driven to a returns-driven R&D model. This involves early engagement with payers, active scanning of external innovation, and disciplined financial decision-making. By doing so, they can improve innovation outcomes, align R&D with market needs, and enhance the profitability of their drug development pipelines. The transition will be challenging, but it is essential for the future of the industry.