Passion, designed by Philippe Starck, from the Cassina I Contemporanei CollectionResearch and development (R&D) is the ultimate source of the economic value that the pharmaceutical industry creates. It is therefore not surprising that the evidence of a major decline in R&D productivity has led to a sense of crisis. Indeed, from 2000 to 2010 the market value of the top 20 pharmaceutical companies declined by more than 30% -a loss of US$720 billion. This loss was not as a result of a decline in sales; in fact, the net income of these companies grew by 140%. Rather, it was due to the dramatic drop in industry price-to-earnings multiples -a sign that investors have substantially reduced their expectations for the industry's future prospects.The market and institutional forces that underlie the decline in R&D productivity, and the consequent decrease in returns on investment, are familiar: more complex science, higher hurdles on unmet need, tougher competition, pricing and access pressures, and tighter regulation. Various solutions have been proposed, ranging from calls to re-engineer the R&D process to the radical suggestion that large pharmaceutical companies abandon internal R&D altogether 1,2 . However, although decades of improvements to the R&D process and the introduction of new technologies such as high-throughput screening have substantially improved the efficiency of discrete steps in the R&D process, they have not been able to counteract the forces above. And although many companies have increased the in-licensing of new compounds, abandoning R&D altogether would mean dismantling the in-house expertise that is crucial for determining the most promising drug candidates, what they are worth and how to develop them most effectively.We have therefore focused on potential alternative solutions, driven by our observation that although the average ability of pharmaceutical R&D to create value has declined, there is in fact a large variation in R&D performance across the industry. In this article, we present an analysis identifying companies -which we term 'outliers' -that seem to have been more successful in counteracting the overall industry trend of declining R&D productivity, and provide our initial assessment of possible characteristics differentiating them from their less successful peers. Analysis and findingsTo identify possible R&D outliers, we carried out a quantitative analysis of R&D productivity and value creation for a cross-section of major companies. This research combined a historical assessment of recent R&D performance and a forward-looking analysis of estimated future performance based on how investors value companies in the public equity markets (for a detailed description of the methodology, see Supplementary information S1 (box)).First, as a rough historical measure of R&D productivity, we analysed the R&D expenditures of the 25 leading companies from 1998 to 2004 and then compared these with the number of successful new molecular entities (NMEs) that these companies generated 4 years later. ...
While the pharmaceutical industry overall has faced huge challenges in drug R&D in recent years, some major companies have consistently been much more productive than average. Here, we highlight 'organizational effectiveness' as a key factor underlying this superior performance and explain how it can be enhanced.
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