Just as medical fees have long surpassed the pace of inflation, the costs of pharmaceutical research and development are growing at an exponential rate. In the last 15 years, the cost of developing a single medication has more than tripled, from roughly $300 million to more than $1 billion. With today’s exacerbated cost pressures, this unrestrained growth of R&D expenditures is clearly not sustainable.
While the science behind pharma R&D remains world-class, the workflows surrounding it tend to be sub-par, contributing significantly to the cost of bringing new products to market. In addition, the average time to market for a new drug ranges from eight to 12 years, which not only increases expense but also delays much-needed improvements for patients.
Because the process has become so phenomenally expensive, some pharma companies may choose to get out of the research and development altogether, instead acquiring boutique firms with promising compounds, or contracting with outsourcing providers. But companies will achieve minimal benefits merely by outsourcing existing inefficient processes to an outside organization.
By improving process efficiency and increasing speed, hundreds of millions of dollars are at stake through cost reduction and by extending the marketing time that could be gained under patent protections. Driving down R&D costs while continuing to improve people’s health is a prescription for achieving high performance.
The Roots of Lean Six Sigma
Lean and Six Sigma are workflow methodologies that began in manufacturing and have expanded to many other industries. Some key terms, including kaizen and black belts, have their roots in Asian culture and the martial arts.
Lean strategies had a strong initial pull in pharmaceutical manufacturing because benefits could be achieved in brief time periods. The Six Sigma strategy, however, has been gaining more traction due to its focus on reducing variations (defects) in manufacturing, transactional, and documentation processes, thereby reducing the amount of work that must be repeated. Tools from both disciplines are needed to refine processes and outputs to the highest possible levels of speed and quality.
Applying Lean Six Sigma to R&D
Integrating these two proven methodologies—Lean (speed) and Six Sigma (quality)— Lean Six Sigma draws on a wide range of tools and techniques from both methodologies. Pharmaceutical firms that use this management discipline are seeing results in terms of increased operational speed, improved quality, reduced costs, and enhanced customer satisfaction. By automating manual activities, driving out non–value-added activities, and streamlining complex process flows, Lean Six Sigma projects can free scientists from routine administrative and compliance tasks, allowing them to focus on innovation. That could be a potent prescription for R&D.
An estimated two-thirds of top pharmaceutical companies have already implemented Lean Six Sigma programs, with Eli Lilly and Johnson & Johnson having launched some of the industry’s earliest projects. Other branded companies followed in recent years with programs on the technical operations side, and some on the commercial side, with a much lower percentage of projects in R&D.
To understand some of the potential gains in R&D, consider the following questions:
Anticipating Obstacles Within R&D
Historically, R&D operations have resisted attempts to reexamine their processes. There were many reasons, including that healthy profit margins did not make cost reduction and streamlining a priority. R&D produced blockbuster drugs, so business leaders tended to be “hands off” with the associated processes.
As the blockbuster pipeline flow diminished, however, R&D costs have come under greater scrutiny. Still, Accenture has found that many scientists and researchers remain reluctant to look at process improvement, perhaps fearing that creativity could be stifled, or perhaps because the financial side of the business is alien to them.
One way to get scientists “on board” is to speak their language, framing the issues in what they value. Lean Six Sigma can control runaway costs (important for financial management, but not of great relevance to innovators) and streamline bureaucratic processes to free up more time for research (a key “win” for scientists).
One pharmaceutical company requested Accenture’s help because a specifications process in development required about 100 scientists worldwide to complete. A large volume of documents was issued annually, and the process was inefficient and highly variable, taking anywhere between six weeks and 12 months.
A weeklong kaizen (Japanese for “improvement”) event focused on more efficient ways of generating documents without compromising regulatory or scientific integrity. The team identified more than 40 opportunities to improve the specifications process. Team members developed checklists and job aids to assist scientists in writing the documents quickly, to mistake-proof output, and eliminate tasks that added no value. The kaizen team also streamlined review and approval processes.
The project reduced cycle time for specifications by 70 percent, achieving a savings of about $2.4 million annually. In addition, scientists were relieved of unnecessary paperwork. Scientist productivity rose an estimated 20 percent.
Estimating Potential Returns
Return on investment (ROI) may not be of primary importance to researchers, but the returns possible through successful Lean Six Sigma projects are indeed impressive. Return on investment in Lean Six Sigma projects is often recovered before the end of the first year after implementation.
Thereafter, returns can far outstrip the initial investment. For example, consider the costs for training and employing black belts and green belts in Lean Six Sigma methodologies. If 1 percent of an organization of 4,000 people is trained as black belts, that equals 40 black belts, with an estimated $5 million in labor costs each year to support their improvement projects. Considering an average of four projects per year per black belt at a savings of $400,000 per project, the result could be $60 million in savings, which, in this example, would be more than 12 times the $5 million investment.
Another way to view the kinds of gains possible: If a pharmaceutical company can reduce total development time by one year (from 10 years to nine years, for example), substantial savings are likely. Hundreds of millions of dollars are at stake in getting a product to market faster. Consider savings of $2 million per day (i.e., for a drug with $1 billion to $2 billion in annual sales) for each additional day the drug can be marketed before patent protection expires. And dramatic gains are important not only for financial reasons, but also to further the continuing mission of pharmaceutical companies in developing new medications that improve people’s lives.
Targeting the Right Projects
To strive for high performance, Accenture advises taking a holistic view the major stages—Phase I, II, and III studies—which form the bulk of the development cycle. Initial assessment of improvement opportunities needs to include a financial analysis incorporating the views of external customers and internal process partners, and generates understanding of the key factors that generate value.
Companies also need to target the right projects—the ones capable of producing major cost savings. Often, companies have fallen short of their objectives by thinking small. Unexciting projects are selected, scope is limited, and the most capable people are not called on to direct the projects. It’s no surprise that in these organizations, Lean Six Sigma is probably not highly regarded.
In addition to choosing the right projects, here are additional factors to guide successful programs:
Recruit the right people to lead. In R&D, recruiting the right people often means finding scientists who have an interest in process improvement, rather than wanting to remain in “pure science.” A chemist might have aspirations to a leadership position in R&D, and leading a kaizen event of a black-belt project could provide experience for growing into such a supervisory position.
Provide high-level support. The champion for Lean Six Sigma doesn’t have to be the CEO—though that might be an ideal scenario if the intended gains are expected to reach hundreds of millions of dollars. The champion for such initiatives needs to be—at least—an executive overseeing the functions where the projects are being deployed. Leaders need to be more than figureheads in the process, remaining highly involved, asking hard questions on complex process flows, and rewarding people for good ideas that result in measurable improvements.
Plan for a strong start. Everyone knows a story of a “big bang” implementation that swallowed up millions of dollars, took forever to execute, and lost sight of its original goals. Anticipating pushback from groups skeptical about Lean Six Sigma, one approach is to start with a weeklong kaizen project. A quick success can win over key people, by giving them the flavor of Lean Six Sigma and creating enthusiasm for larger projects. Another method is to contract with experienced master black belts to launch initial improvement projects as you train your own people to take on future projects.
Supply sufficient training and provide rewards. Training is needed for project sponsors as well as for black belts, green belts and kaizen leaders. Leaders need to hold people accountable and provide recognition for measurable gains. The right combination of people, training, rewards, and leadership can enable companies to sustain the gains long after launching the original program.
The methodologies of Lean Six Sigma are rigorous. Strong leadership is required and results emerge through careful project management.
R&D: The Springboard for Performance
Due to revenue shortfalls and intensifying cost pressures, operational excellence initiatives are on the rise. The Accenture High Performance Business research initiative has found that the pursuit of high performance is not only a worthy enterprise, but practical and necessary. Lean Six Sigma is an effective way to help pharmaceutical companies improve performance in this vital area.
In healthcare, the demand for new treatments is increasing because aging populations are eager for new life-saving and life-enhancing pharmaceuticals. The more closely Lean Six Sigma projects are tied to improving health and reducing bureaucratic tasks for scientists, the more likely it is that R&D personnel will become receptive to process improvement.
Economic pressures prompt budget cutbacks, but cutting R&D without careful attention to the underlying processes can result in falling behind competitors that are more proficient at innovation. Severe R&D cuts are risky because almost all markets continue to be competitive, even in downturns.
A thorough assessment of the costs and value drivers of R&D is the beginning of the quest to improve research workflows and use innovation as the springboard for high performance. Being first to market is extremely valuable, and decreasing cycle times can effectively lengthen the time new drugs are patent protected. Cost control contributes to improved financial health of pharmaceutical companies, which can then afford to invest in additional research and development of pharmaceutical breakthroughs. Lean Six Sigma can help companies achieve those breakthroughs.