Deloitte’s annual look at the pharmaceutical industry’s return on its R&D investments Deloitte: Measuring return concludes that the projected return on R&D, from its 12 company cohort, has declined to 4.2% in 2015 from 10.1% in 2010, with forecast peak sales declining by almost 50% and the average cost of developing an asset climbing by a third. This depressing statistic, a rather disappointing Christmas present which cannot even be returned or exchanged, confirms what industry observers have known for some time and apparently legitimizes much of the M&A and business development activity within the industry as it seeks to improve its cost efficiency and boost pipeline success with external assets.
What is absent from this otherwise excellent report is any suggestion that the returns on R&D could be boosted by 5% points or more (ie at least doubling them) by the application of modern statistical analysis to the sales and marketing budgets of each company and rooting out wasted promotional effort. The tacit acceptance that sales and marketing spend, currently running at around 1.7x R&D spend, is a black box that cannot be deconstructed, analysed and reorganized more efficiently, is not only a great mistake but also places an unnecessary burden on the teams of scientists within the R&D departments of Big Pharma, who assume the blame for unproductive output. While the efforts to streamline the R&D process should no doubt continue the time has come to shift the focus of attention onto the mighty commercial organisations of Big Pharma.
Here are just a few questions that CEOs and CFOs alike should be asking their affiliates.
1/ Can you explain how every component of your promotional budget works, in isolation and in combination with others during the promotional cycle?
2/ Can you quantify the impact on sales of every component of your promotional budget, as well as cite the statistical significance of each effect?
3/ Has the methodology you are using to calculate your answers to the above been subject to peer review in recent academic journals (or are you using techniques that are not fit for purpose)?
Until every CEO/CFO can truthfully answer yes to each question above, the commercial efforts of Big Pharma will remain fertile ground for knee-jerk reorganisation and prey to shifts in fashion. Sadly, the frequent rounds of downsizing and rebuilding of field forces and the touching faith in new digital channels are a poor substitute for rigorous and robust statistical analysis. Big Pharma needs to do more than pay lip service to commercial effectiveness and the first company that does so will be rewarded with both huge competitive advantage and be an outlier on Deloitte’s R&D return graph. Now, that would be a Christmas present worth having.
The author was a Pharmaceutical Analyst at Lehman Brothers for 23 years as well as being involved with the PharmaFutures projects www.pharmafutures.org but is now writing independently. Stewart Adkins is a Director of Pharmaforensic Limited www.pharmaforensic.co.uk
Stewart Adkins was a Pharmaceutical Analyst at Lehman Brothers for 23 years and was involved with the Pharmafutures projects.