After years of impressive profitability, the top 15 companies in the pharmaceutical industry lost $850 billion in shareholder value from December 2000 to February 2008. Among the causes fingered by various commentators are the rise of generics, pricing pressures, regulatory requirements, and legal entanglements. In this article, Garnier, the CEO of GlaxoSmith-Kline, examines what he believes is the main problem: declining R&D productivity. One clear sign of this is that, despite a growth in the industry’s investment in R&D between 1980 and 2006 from $2 billion to $43 billion, the number of drugs approved by the FDA in 1980 and in 2006 was roughly the same.
The old model for the industry is in big trouble. Among the major challenges, shorter product monopolies have fueled marketing wars; a slowdown in new-product introductions has left companies with oversize sales and marketing machines; pricing pressure is increasing globally; revenues plunge when patents expire; and all costs are continuing to climb. More fundamentally, pharmaceutical companies have grown into large and complex organizations. Poor management of the new levels of complexity has turned passionate engagement and courageous risk taking into risk aversion, promises with no obligation to deliver, and bureaucratic inertia. Garnier says that leaders (not limited to pharmaceuticals) have also made the mistake of thinking that R&D was scalable, could be industrialized, and could be driven by detailed metrics (scorecards) and automation. The result has been a loss of personal accountability, transparency, and the passion of scientists in discovery and development.
What is to be done? Garnier says that power must be returned to the scientists. This can be done by reorganizing R&D into highly focused groups headed by inspirational leaders, seeking the best science outside as well as inside a company, fixing broken processes, and promoting a strong culture of innovation and passion for excellence. GSK has replaced its mammoth R&D organizational pyramid with 12 “centers of excellence”—small cross-disciplinary groups, each of which is focused on a family of related diseases. These centers are built around two things: a specific mission (such as discovering the most effective therapies for Alzheimer’s and other neurological diseases) and the stage of the R&D process required to perform that mission (such as the choice of a particular target for attacking the disease). Activities that lie outside the core mission and R&D process must be moved outside the center of excellence.
Garnier explains his two radical ideas for changing R&D processes. The one that is being implemented at GSK is to separate R&D for first-in-class drugs by discovering new targets and disease mechanisms and producing a breakthrough medicine from that for best-in-class drugs for attacking a validated disease target. Most R&D organizations make a mistake in intertwining these radically differing objectives. The other radical idea is still on the drawing board. This is “the progressive blockbuster,” and would require a reinvention of the clinical stage of R&D for breakthrough drugs.
The company has taken other measures, including overhauling incentives for the scientists who actually make discoveries, and pursuing contractual relationships with academia and biotech companies in a bid to secure the best science, no matter its source. Other steps that big pharma can take are to improve the quality of leadership, offshoring clinical trials, and simplifying and accelerating the development of new blockbuster drugs by targeting only a limited segment of the potential patient population and then expanding to others over time. GSK’s progress to date is evidenced by the fact that when it become the transformation of its R&D, it had only two products in late-stage development. Now it has an industry-leading 34.
Payment required for full access. ManyWorlds receives no money from this referral.