Continued laments on R&D performance

Poor performance of Pharma R&D seems to have never left the newsservices or the hearts of all in the industry.  It is interesting to see the stories of 2011 echoing back for a decade.  Here are some current “news” items with pundits and leaders declaring “action” and “concerns” (few citing viable new directions however, and the case still remains out on whether mergers in this arena create value to shareholders or society)  For instance, just in February 2011:
 
“.. must swallow bitter pill”                                   Great “wordsmithing”, but …
“…dire warning on meager R&D productivity”       David Redfern of GSK targets R&D returns of 14%
“…Painful Changes to Trigger more M&A”             Mergers yield results or merely distract?  
 

 So let’s go back along memory lane;   

 You can search your own and I encourage others to read the actual articles, but some highlights year to year:   

2001 “… surprising conclusion that rather than improving R&D productivity the impact of genomics (will increase costs of NME’s)”  2002 “… On the surface, it seems that R&D productivity is back on track”  2003 “… reconfiguration of the value chain, ongoing global consolidation and M&A and plummeting R&D productivity  2004 “… A large, unmet need exists for improved research and development (R&D) productivity, as declining New Chemical Entities   2005    “… is focusing on improving its research and development (“R&D”) productivity by focusing on select therapeutic areas”  2006 “… could be the start of a break-out from the R&D productivity doldrums that has plagued the major Pharmas in recent years”  2007 “… industry will not be in a strong position to capitalize on opportunities unless R&D productivity improves”  2008 “… a time when the pharmaceutical industry needs to challenge traditional thinking in order to improve its R&D productivity”  2009 “… KINDLER: It is true that past transactions have sometimes often impeded R&D productivity”  2010 “… view mergers and acquisitions as a quick-fix solution with no evidence of long term gains in terms of R&D (returns)”  
 

All told, the first graph above provides a sense of the constancy of this issue.  Its magnitude is reflected in the frequency of “hits” – over one hundred such articles per year!  Ironically, the last article is titled:  “Should we be concerned about R&D productivity?”   When are we going to really do something about this decade-long abyss?   Have we really tried?   If GSK thinks we can go from 11% to 14% returns on R&D investments from 2011 to 2014, how?   Can it be measured on such a short term basis?  

Industry value has dropped nearly 30%

This second graph can give the impression of an apparent irrevocable trend, but leaders can outperform the median.   I believe the answer to these questions is yes, but we need more than mergers that distract, and more than phantoms of promise like HTS in the 1990’s, or genomics/proteomics…   We need a coherence of focus and a methodology that is honest and encompassing.

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One Response to Continued laments on R&D performance

  1. Rick wobbe says:

    At the risk of seeming out of touch with current accepted wisdom, I would like to suggest that part of the problem is that our measures of pharma productivity have focused to a fault on one thing, financial return, and THAT is part of the problem. Examining productivity of the industry in terms of its tangible, unique product, drugs that effectively and safely treat diseases (rather than, seemingly single-mindedly, on profit, sales or some other purely monetary measure), clearly reveals a productivity decline that began in the 1980s and continued almost unbroken until today (except for one blip in the 90s that had nothing to do with corporate actions, but rather, ironically, FDA action).

    Comparing financial productivity with product productivity indicates that the two can behave independently, at least for a while, presumably due to the fact that it’s far easier and faster to adjust profitability (through pricing and marketing strategies, M&A, “denominator management”) than it is to stimulate underproductive research (through whatever actions we seem to have failed to take thus far). It hardly seems surprising that focusing too much on purely monetary measures and remedies for productivity would leave fundamental issues that lie in the black box between money-in and profit-out unseen and unaddressed.

    The situation suggests to me that we should try to recall the meaning of the (formerly?) well-known George Merck statement that, “… medicine is for the people. It is not for the profits. The profits follow.” Perhaps it’s a sign of the times that an ex-Merck employee recently told me that Merck has been removing plaques with that quote from their facilities. It seems the words are now considered quaint but irrelevant to our times, but it’s hard to argue with the fact that they were uttered during a decades-long period where discovery of new medicines was 10-20-fold more productive, year after year after year, that it is today. The profits (and perhaps sustainable investor ROI) follow…

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