Business Organisation and Policy in Pharmaceutical Industry - Essay Example

PROBLEM OF RESEARCH & DEVELOPMENT IN LARGE COMPANIES -- Pharmaceutical Industry -- Industry Perspective Currently, there exists a definite and a well-defined pressure on firms to incessantly revitalize and transform themselves so as to stay innovative and competitive (Leonard-Barton 1995) and even during good times, firms are aligned with vacillating activities and pursuits (Christiansen 2000). This is what is actually happening in the pharmaceutical industry, a sector well-known for its extreme reliance on applied research on diverse natural science disciplines (Koretz and Lee 1998). The industry in its present setting shows that competition has become increasingly cutthroat and exceedingly aggressive. Both large and small firms are confronted with huge demands to step up output but must stay creative and pioneering as they face mergers of immense scope, escalating health care costs, cost-control efforts, fast-changing population demographics and high-speed evolution of new technologies. Such development has pushed several major players in the pharmaceutical sector to persistently invigorate and maximize their R&D expenditures in order to enhance their pipelines and keep abreast with their competitors in the pursuit for high level, large scale operations. This is in harmony with the perception that for large companies to keep on satisfying its shareholders’ expectations, undoubtedly, it is not acceptable and tolerable for them to stick with the status quo. However, the cost of taking in a new active substance (NAS) into the market, projected at US$600 million (Kettler 1999) and the plummeting number of these substances launched lately (Van de Haak 2001) explicitly describe the scope and magnitude of this challenge. The US$600 million figure per NAS introduced consists of a considerable contribution from the expenses of all NASs that didn’t make the grade in the R&D process. So as to minimize and lower the high gnawing cost, a lot of firms have put portfolio management systems into operation. Since development projects eat up 10 times or more the capital needed for a research project, project selection and prioritization have been strongly emphasized, before entry into the development process. For specific corporations, the expenditure per NAS is greatly influenced by the firm’s character and distinctiveness -- its product profile, type of technology being used, and the kind of activities the firm opts to conduct in-house and those it decides to outsource (Findlay and Kirmani 2000). For so many years, large pharmaceutical companies had wished and anticipated that the greatly increased number of compounds in R&D would lead to bigger number of new products getting into the market. Unfortunately this great quantity of new products simply did not become visible.  According to Pharmaprojects’ latest analyses, the pharmaceutical pipeline has diminished in overall size for the first time in five years and that the total number of drugs in these pipelines was 7,255 as of December 2005, down 1.7% from last years figure of 7,383. Only a few more NASs were launched during 2005 (28 as of December) than in 2004 (23). Outlays and Productivity Evaluating the probability that a research project will lead to a promoted and sold commodity is one of the thorniest facets of portfolio management. Alongside market forecasts and other metrics, firms are inclined to employ fairly subjective attrition rates to their portfolio management models, as there is a scarcity of excellent international attrition data available. Thus, the latest facts on movements and progress in the drug development procedure are imperative to efficient strategic planning. Generally, there are three important aspects in a company’s pharmaceutical R&D pursuits -- international pharmaceutical R&D expenditure and sales; products in the clinical development pipeline; and submission, authorization and marketing activity (Oggs et al 2001). (See Figure 1) Standard for Cost-Effective Drug Development Evidently, a lot of firms have acknowledged the fact that the capacity and facility to invest significantly in R&D is vital to their future growth potential and a decisive factor to their survival. However, this will produce no competitive advantage unless it is infused with initiatives to that can augment and boost competence and efficacy in internal processes to make certain that this raised R&D expenditure yields fruit. This rationalizes why pharmaceutical firms are on the lookout for additional help in order to level themselves with their rivals. Benchmarking efforts intend aim to institute best practice guidelines for a specific firm and should provide for the organization a lucid and comprehensible motivation to permit it to give out excellent performance and attain better-quality results. A split, undeniably, has surfaced and has opened up over the past years between the “haves, such as Amgen, which obviously are growing well, and the “have-nots,” whose growth has festered. A few organizations though, such as AstraZeneca, are flourishing because of established products but have advanced pipelines that are looking precariously splintered. Essentially, companies have the benefit of huge earnings from some of their main products longer than expected because their commercial life can be taken cared of for much longer than traditional wisdom formerly taught. While the reality of a longer product life span for products was a welcome thought, that drift is running its course, since a lot of firms are now being confronted with a significant shortage of fresh and novel commodities. Scale and Extent of the Problem R&D engineers, studies reveal, spend very little of their time on innovative endeavors, ingenious breakthroughs and work. Most of their time is allocated to organizational and managerial concerns, communications and unproductive waiting (Findlay and Kirmani 2000). Pathetic as this illustration may seem, real-life situation is even worse. In some organizations experimented upon and analyzed by consultants, a big segment, amounting to as much as 80% of the creative/discovery work actually done by R&D engineers is the same as or similar to work done previously. Earlier studies and results simply had not been saved in a manner and detail that was accessible and usable. Usually, it was “in the heads” of researchers, who may or may not still be with the organization. (See Figure 2) Figure 1 In the year 2000, projected investment reached US$43.8 billion in R&D, an increase of over 7% from 1999 Figure 2 Problem Extensively Experienced Lately, organization managers in advanced technology sectors have grown to be intensely conscious and responsive of the existing R&D productivity crisis and the cost in lost growth and competitive effectiveness. Internationally, these industries spent US$527Bn on R&D in 2000, up from $435Bn in 1998. Early in 2001, GlaxoSmithKline CEO, JP Garnier intimated that their “R&D productivity crisis” is among the top two challenges confronting the company, the other being the matter on patent expirations. Basically, the issue is enormously huge. In 1999, the chemical industry alone spent US$20.2Bn on R&D. Half of this was allocated on salaries (US$10.1Bn). The prospective worth from enhanced productivity is massive and colossal. Twofold Character of the Problem To comprehend more fully the nature of this productivity challenge, it is vital to identify two major aspects of the research & development process: (1) leadership/management challenges faced by R&D management and (2) technical/knowledge challenges confronting researchers. R&D management should decide wisely which of the many technologies to invest in, and then how best to organize and position their scarce resources to capitalize and take advantage on the return of their investments. As it is, tactical management and operational efficacy, in terms of capacity to lock on schedule and cost objectives, necessitates incessant supervision to exploit this return. However, a question arises -- are the right problems being addressed so as to take advantage of the return at minimum cost and risk? Researchers must generate solutions to the technology ‘problems’ set for them, in the timeliest and cost effective manner. Any distraction of the researchers’ time from the main task has great bearing on the health of the research & development pipeline. Inherent in the whole procedure is knowledge of the technology, its workings and its applications. The creation of fresh knowledge, novel technologies and new core competencies surfaces from distinct technology development undertakings. Efficient management of both process and the knowledge created is exceedingly essential. Nevertheless, the vital query would be, how can existing knowledge and new knowledge/technologies be controlled and channeled as a corporate resource and have an effect throughout the organization, instead of being zipped up in the heads of individual researchers? GSK and ASTRA-ZENECA For the last five years, alliances, mergers, acquisitions, and innovative methods have facilitated the consolidation and survival of big pharmaceutical entities in the midst of formidable and threatening challenges. Among the major players in the industry who have to “buckle up” and think of ways to reassure their shareholders are GlaxoSmithKline (GSK) and AstraZeneca. According to a top executive of Astra, “the challenge is to identify the golden nuggets and discard the rest.” To accelerate clinical trials, the firm saw Web-based data capture (WBDC) as the way to go forward. By spending a little more time devising and charting clinical trials, it should be probable electronically to save much more time in the phases of execution, analysis, and reporting.. Designing and planning would definitely entail the conceptualization and preparation of the study and the sites, involving online recruitment and collaborative mechanisms for document exchange. The company set out significant tactical approaches to speeding up drug development by: managing the flow of information within the organization including internal and external partners; put together an optimal platform specifically for launches and commercialization; develop processes and nurture organization to promote swift data capture; foster alliances and manage communication infrastructure; and create an organization and devise tools that can rapidly globalize solutions and gracefully and effectively cope with change On the other hand, GSK, also experiencing a decline in R&D productivity, has tackled the crunch by radically redesigning its R&D organization. The new structure based on the Seven Centers of Excellence for Drug Discovery is working very well and producing more high-quality compounds than ever before. Through this innovation, the company was able to exhibit the advancements that have been made in constructing a remarkably powerful product pipeline that will definitely stimulate the company’s future growth. REFLECTIONS AND APPRAISAL The way these pharmaceutical companies are transforming the way they conduct drug discovery and development is notable. Through these daring but very progressive methods, they have taken great advantage of the advances made in understanding the causes of disease. As they harness the power of their size to secure new knowledge about how diseases develop and progress, they are likewise attracting the force, the drive and the agility of small groups of scientists to make the discoveries and breakthroughs that will pave the way for the development of new, safe and effective medicines. In the case of GSK’s CEDDs which are strongly focused on the areas of -- Cardiovascular and urogenital diseases; Metabolic and viral diseases; Microbial, musculoskeletal and proliferative diseases; Neurological and gastrointestinal diseases; Psychiatric diseases; Respiratory and inflammatory diseases; and Biopharmaceuticals safety -- encourage scientists to track down potential cures and treatments for within these centres, scientists assume responsibility on they should go about their research direction, experimenting and investigating disease mechanisms aimed for treatment, spotting and identifying drug candidates and explicating functional effects of the most promising and potentially-explosive compounds. Further, as scientists from each unit cooperate, discuss and team up with colleagues across the company to ascertain that all efforts and initiatives are directed toward transforming the compounds exhibiting the greatest promise into becoming medicines. Another aspect, though not directly related with R&D but at the same time can be considered still an approach the company took in order to enhance productivity is its commitment connecting business decisions to ethical, social and environmental concerns. Rock-solid financial performance is closely associated with ethical business practices. Definitely for this large entity, it isn’t just how much earnings it gets that matters. Seemingly, people also want to know how that profit is made. Because of this commitment, GSK fully reports on corporate responsibility matters and how they have been properly managed. To pave the way for employees on the standards to which the company has directed itself to embrace, in 2003 it developed a set of corporate responsibility principles for the company to implement which were in turn published in a Report.. The principles laid out were allocated in ten areas -- standards of ethical conduct; leadership and advocacy; research and innovation; products and customers; access to medicines; employment practices; human rights; community investment; caring for the environment; and engagement with stakeholders. Evidently, the firm continues to work towards developing simple but effective ways to measure the progress they have been making in these areas. A good example of AstraZeneca’s commitment not just to enhance R&D productivity but likewise serve humanity, is its opening of a multi-million dollar research facility in Bangalore, India, which focused primarily on discovering new treatments for tuberculosis (TB), a disease which is diagnosed in about 2M people every year in India and in more than 8M people around the world, mostly in the developing countries. In this undertaking, alongside with researchers across the 11,000- scientist strong R&D organization, AstraZeneca Discovery Bangalore established and set the task of searching the worlds first new TB drug since 1964. As it is, AstraZeneca will make any TB medicines discovered in these laboratories accessible for clinical study and development and give out supplies to the world’s poverty-stricken countries at very low prices, in partnership with governments and alliances with healthcare systems, and international agencies. The company believes that all nations must a role in the treatment of TB which is considered a devastating disease. With AstraZeneca investment programme for the drug discovery unit in Bangalore, that also consisted of $10 million to create the new research laboratories. Now that the centre has been created and is operational, AstraZeneca is again shelling out another investment to the amount of up to $30 million over the next five years for laboratory equipment and operations costs. The discovery unit in Bangalore, India with more than one hundred scientists, operates closely with AstraZenecas international network of research and development (R&D) centers, specifically the genomics and infection research centers in Boston, USA, and in Cheshire, UK. SOURCES Leonard-Barton. Wellspring of Knowledge: Building and Sustaining the Sources of Innovation. Boston: Harvard Business School Press, 1995 Christiansen, JA. Building the Innovative Organization. London: Macmillan, 2000 Koretz, S. & Lee, G. 1998. “Knowledge Management and Drug Development.”Journal of Knowledge Management. 2 (1998): 53-58 Kettler H.E. “Updating the Cost of a New Chemical Entity.” The Office of Health Economics, 1999 Van den Haak, M. “Fewer New Launches in 2000.” CMR International News. 19 (2001) Findlay G and Kermani F (Eds). “The Pharmaceutical R&D Compendium 2000.” CMR International/Scrips Complete Guide to Trends in R&D Ogg MS, Platts LAM, Van den Haak MA, Ellis CE, Lumley CE and McAuslane JAN, Activities of the International Pharmaceutical Industry in 2000: Pharmaceutical Investment and Output, CMR International Report 2001 Ogg MS, Challenging issues for the future of the pharmaceutical industry, CMR International News, 18 (2), 2000 Read More