The R&D Returns “Ceiling”

R&D Returns "Ceiling"

The R&D Returns "Ceiling"; Some firms spent far less than $2B per New Medical Entity. Even spending 2-4x, none could create more than 2/year Why?


In late 1990’s it became apparent that the discovery and the launch of new medical entities seemed limited by how we approached R&D, and not by how much firms spent. This visualzation of performance by the top 20 firms was shocking to some… (see below for greater detail)     

This graph made clear that firms varied in the ability to create approvable new medical entities (NME’s).  Some notes on the design: 1)  Lehman counts NME’s instead of drugs with slight benefits over already approved products (“me-too” drugs were so common the FDA formally changed its receptivity to such filings.)  2) The horizontal axis reflects the average R&D budget in dollars spent by the firm over the prior eight years.  We saw this “R&D Ceiling” as provocative, challenging and a learning opportunity.  Best performers could introduce no more than 2NME’s per year.  While some of these spent as much as $2B/NME, some did the same trick for 1/4th of that cost.     

Were the firms spending “only” $0.5B per NME truly more effective?  Did they have some special approach that was so much better? Or was performance just a result of random results – what many folks called serendipity or “luck”?     

Here are the 2000 details – we can compare later years performance in a future post:Firms had VERY variable results - design or luck?     

“R&D is an unmanageable black hole we discard money into…?”  This graph’s suggestion of differing designs for R&D with diverging results fascinated me.  Some argue the pattern is random “good fortune”.  Later analyses I will post here in the future show this is not random luck.  They reveal instead that it is the underlying process or “R&D architecture” that create the “winners” in this universe.    

Later: more of my perspective and the core learning’s from the R&D Ceiling phenomenon. It did not prompt any broad change of approach for another five years for the industry, except for a few visionary leaders. Yes, the value of the NME entering the market should also be a factor when maximizing economic “R&D Returns” but these (operational effectiveness and architecting for R&D performance) were new concepts in the late 1990′s.   
What were your observations on this?   Your current thinking?

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