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