5 strategies to reduce costs and increase efficiency in pharmaceutical R&D

The pharmaceutical industry has come a long way since the first drug store reportedly opened in Baghdad in the 8^thcentury. The relatively recent development of antibiotics and a plethora of drugs that can treat diseases from cancers to AIDS have had a dramatic impact on the lives of billions of people globally. The pharmaceutical industry itself grew from fairly humble origins to one estimated to represent over €614 bn globally in 2011, according to figures from the European Federation of Pharmaceutical Industries & Association (EFPIA).

However, there is trouble afoot in the industry that brought us Valium, Prozac & Viagra.

For years, the pharmaceutical industry could sit back and relax as blockbuster drugs raked in high profits margins. These drugs, protected by patents, accounted for a huge percent of revenue for the big pharmaceutical companies. When the patents expire, there is often a huge loss of revenue for the original manufacturer, with estimates that generic drugs drain up to 90 percent of sales, according to a report in Healthcare Global.

The mass expiration of patents – which some are calling it a "patent cliff" – means that generics have flooded developed markets leading to both increased competition for the pharma giants and greatly reduced margins on the drugs that had been the industry’s cash cows during the "golden ages" of the 1990s.

Years of what some critics have called chronic under-investment within research and development means that the pipeline for the next generation of blockbuster drugs is now all but running dry. In addition, given that it takes an average of 12-13 years from identification of a potentially new drug until the time it reaches the market – that is leading to a serious cash crunch for pharmaceutical companies and has set off a wave of mergers and acquisitions, as well as layoffs within the industry.

A report published last year by consulting and accountancy giant Deloitte found that R&D is somewhat of a "productivity pain point" within pharmaceutical organizations. According to the report, the average cost of successfully bringing a product to market has increased by more than 25% (from $830 mn in 2010 to $1,048 mn in 2011 while the R&D Internal Rate of Return (IRR) has dropped year-on-year from 11.8% to 8.4%.

"We’re likely to see companies establishing centres of excellence which bring together value analytics, simulation and modelling expertise, and finance and portfolio management capabilities to inform capital allocation decisions during drug development," said Julian Remnant, head of Deloitte’s European R&D advisory practice in a press release about the report.

Meanwhile, the EFPIA says that only 1 or 2 per 10,000 drugs ever makes it to market.

The industry is now seeking to reduce operational costs and improve cycle time within research and development. Here are five strategies that pharmaceutical companies can use to gain efficiency and streamline R&D processes:

1. Outsourcing

   Over the past decade pharmaceutical companies looked to outsourcing at least part of their R&D processes to emerging markets and low cost centers. As in other industries, significant savings can by relocating certain operations to areas where labor costs are cheaper. According to AMR Research, today most pharmaceutical and biotech companies outsource at least a proportion of their clinical trial management process.

   Some experts, however, caution that outsourcing a process as critical to the future success of the company as R&D carries hefty risks. A report by PA Consulting recommends that companies consider moving only parts of research and development to lower cost centers. Innovation, the consultancy says, is still centred at home.

2. Business Process Management (BPM)

   Business Process Management can help pharmaceutical companies gain efficiency through a combination of process improvement, standardization and technology automation. Trevor Naidoo, a senior director in Industry Strategy and Insight at Oracle, writes that "optimizing and automating business processes can lead to a reduction in redundancies. Most manual tasks can be eliminated, considerably decreasing the risk of errors and rework in the process."

   Insta-intelligence, a consulting group, identified several areas where BPM can help pharmaceutical organizations shorten the time to market and enable regulatory compliance within the research and development phase of a new drug including: automating & simplifying clinical trials processes, minimizing errors and risks, improving communication and helping to facilitate a collaborative research environment.

3. Lean process improvement

   Lean process improvement, a methodology based on eliminating "non-value adding" activities, has been used within manufacturing for years. Increasingly however, industries such as healthcare, banking, and, indeed, pharmaceuticals have jumped on the lean bandwagon as the method has proven effective at increasing the efficiency of operations and reducing costs. Simple Lean techniques such as the 5S (which has been described as a form of "organizational house-keeping") and the 5-whys can help improve workplace efficiency within laboratories, while the focus on eliminating unnecessary steps can help speed up certain processes to reduce cycle times.

4. Big data

   The much vaunted arrival of "big data" – i.e. larger volumes of data than we’ve ever been able to analyze – holds great potential for pharmaceutical companies looking for insights that may yield the new blockbuster drugs the industry so needs. In a recent article published on Forbes.com, strategy consultancy McKinsey observed that big data may help pharmaceutical companies "drive down costs and increase patient safety" by mining "real world data" from healthcare providers.

5. Strategic industry partnerships & cross company standardization

   While not strictly a process excellence technique, the strategic involvement of pharmaceutical companies within external industry partnerships can help to streamline and improve operations that one company operating in isolation cannot. That’s the principle behind a recently announced initiative that has seen a group of 10 big pharmaceutical companies - GlaxoSmithKline, Pfizer, Johnson & Johnson, Bristol-Myers Squibb, Eli Lilly, Abbott Laboratories, AstraZeneca, Sanofi, Boehringer Ingelheim, and Genentech, a unit of The Roche Group - sign up to an initiative aimed at improving the way that clinical trials are run.

   "There is widespread alignment among the heads of R&D at major pharmaceutical companies that there is a critical need to substantially increase the number of innovative new medicines, while eliminating inefficiencies that drive up R&D costs," said Garry Neil, CEO of TransCelerate BioPharma, which is spearheading the efforts. "Our mission at TransCelerate BioPharma is to work together across the global research and development community and share research and solutions that will simplify and accelerate the delivery of exciting new medicines for patients."

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