Running a Tight Ship

To be competitive, pharma companies must learn to manage resources more effectively.
Feb 01, 2002

In a tight market, pharma companies are asking themselves: "How can we get more from scarce resources?" As a result, R&D and sales/marketing expenditures are under increased scrutiny-and they should be. Both areas consume significant resources (about 25 percent of revenues combined) have experienced rapid growth, and their results have been difficult to quantify. But to make the most of both human and non-human assets, management must first understand how those assets are currently allocated, how to make them more productive, and if there are better ways to deploy them. That substantial task will be further exacerbated as the industry begins tailoring medicines to smaller sub-populations, resulting in a greater number of marketed products competing for resources.

Executives struggle with resource management issues on two levels: determining the aggregate level of resources that will enable the company to achieve its goals and allocating resources for competing initiatives such as specific programs (compound A versus compound B) and functions (DTC versus detailing). Research shows that successful portfolio and resource management decisions must be

  • grounded in market-based strategies by therapeutic area
  • explicit and internally consistent
  • based on empirical relationships between resource consumption and results
  • tied to the company's goals and objectives
  • based on a probabilistic view of the pipeline and future resource requirements
  • transparent and readily available to other decision makers.

Resource Management Issues Vary by Group
All of that is easier said than done. This article identifies the processes and infrastructure that pharma companies need to manage portfolios and allocate resources more effectively.

Who, Where, and WhyThe industry is a victim of its own success. The rapid growth of the last few decades catapulted it to a point where traditional management methods have become obsolete. Those predominantly intuitive tactics worked well when the body of scientific knowledge was much smaller and most senior executives were not only well versed in it but also involved with most of the company's research and sales efforts. But with a proliferation of scientific breakthroughs in addition to an escalating volume of activity, pharma R&D labs and product teams have grown in size, scope, and complexity far beyond any executive's ability to maintain first-hand knowledge and involvement.

To effectively manage today's R&D organizations-comprising hundreds or thousands of researchers, working on hundreds of projects, in multiple locations across several continents-requires highly sophisticated processes and systems. Likewise, product team management, responsible for hundreds of millions or billions of dollars in revenues from a single product across multiple country-specific markets, requires a similarly high level of sophistication. Another complication is that many of today's Big Pharma companies are amalgamations of previously independent companies, and the executives who lead them come from one of the merged companies or from outside the industry. Thus they lack the hands-on knowledge of at least some of the compounds and marketed products about which they must make decisions. With more merger and acquisition activity on the horizon (see "Get Ready to Merge or Diverge," PE, August 2001) pharma companies that expect to participate in the M&A game need to enact processes that will enable them to effectively manage expanded portfolios and increased resource bases.

Portfolio and resource management issues in R&D on one hand, and sales and marketing on the other, share common characteristics but also differ in some important respects. (See "Resource Management Issues Vary by Group.") Managers need to take into account the differences when designing potential solutions, but both areas can benefit from a cross-fertilized approach. Portfolio and resource management decisions are intimately linked and must be dealt with in tandem. The activities take place at three inter-related levels in the company. (See "The Management Pyramid," page 60.)

Strategic. At this level, the focus is on direction-setting portfolio decisions and high-level directives about the types and level of resources that the company requires to achieve its goals.

Tactical. This management level deals with scheduling activities and resources, based on the strategic decisions made. It also involves program/project managers as well as department heads who control physical resources such as facilities, equipment, and personnel.

Critical Path
Operational. Decisions at this level concern the execution of plans and the collection and reporting of basic data, including the systems and coding schemas that make data capture and reporting possible.

Top-Level StrategyEffective management at the strategic level requires a three-pronged framework:

  • market-based therapeutic area (TA) strategies and a standardized methodology for evaluating compounds and marketed products
  • a "gating" process that prioritizes decisions according to projects, products, and resource allocation
  • a resource forecasting and balancing process that highlights potential bottlenecks and ensures that functional areas have resources commensurate with the projected pipeline.

Therapeutic area. These strategies must be grounded in fact-based, dynamic perspectives of TA markets and must provide direction and focus for R&D and sales/marketing organizations. TA leaders and senior managers formulate such strategies based on a data-driven approach that takes into account key market inputs, including:

  • key medical attributes such as met and unmet clinical needs, and product performance as identified by prescribing physicians and opinion leaders
  • epidemiological data and forecasts of expected future market size for the therapeutic area and specific product categories
  • the competitive landscape based on analysis of patent applications, product announcements, expected launch dates, and key product attributes
  • fact-based analysis of the competitiveness of the company's products, taking into account expected launch dates of competitors' products and their attributes
  • assessment of emerging technologies that may affect the competitive landscape, probabilities of success, key impact, and risks.

Companies also need a standard methodology for assigning an expected monetary value to pipeline and marketed products. Research shows that an options pricing framework adapted from financial options instruments is particularly useful because it can capture the multidimensionality and the inherent uncertainty of the variables and summarize them in a way that makes possible apples-to-apples comparison between compounds-at different points in the life cycle and in different therapeutic categories.

Gating. A well designed gating process provides managers with a predefined set of "toll gates" and "milestones" for reviewing compounds/products on a regular basis and determining if they meet the scientific and commercial criteria necessary to move forward. (See "Critical Path.")

The gating process begins with compound and therapeutic area teams making recommendations and ends with senior management decisions. The TA teams typically champion their own projects, and senior managers must temper that enthusiasm and ensure that there are solid scientific and commercial reasons to continue investing resources in the compound.