Raising research targets to give financial success

Increased expenditure allied to reduced productivity mean drug r&d strategies will have to change, as Catriona Kelly explains

Companies in the pharmaceutical industry will have to increase performance sharply and embrace new methodologies of operating, delegates at an industry event heard recently.

Speaking at the eyeforpharma conference in Basel, Switzerland, Simon Hughes of consultancy PricewaterhouseCoopers said that r&d would remain a difficult task for UK companies. The industry, he said, has reduced productivity in the past 10 years, while expenditure has been increasing. 'This is a very clear trend,' he said.

In addition, the industry has relied on blockbusters for income, amid intense competition. When drugs come to market for the first time, there is often only a few months' marketing slot before generic versions are also available, Hughes pointed out.

There has been a decline in market growth, and increased competition in therapeutic areas. 'We are not seeing the growth that the industry had in recent years. This has always been a difficult market, as demonstrated by a number of high profile withdrawals in recent years', he added.

'However, shareholders have high expectations of firms,' Hughes said. He claims that the returns to shareholders from this industry is around 3-4 times that of other industries; for the top tier of companies, return to shareholder is between 20-40%. For the top three firms, it is 35% or more.

In order to increase return, 'We need a model to increase shareholder return through r&d,' he said.

He claimed that returns may be increased by making amendments to the timing of bringing drugs to market, the cost of the drug development cycle, the number of compounds in a company's pipeline, and by monitoring the marketplace in order to take advantage of developments as they occur.

According to Hughes' calculations, most companies' approach using base case assumptions leads to around 6% total shareholder return (TSR). This assumes that sales growth each year increases by 8%, spend on r&d is increased by 11% each year, and for each product on the market, an average of some US$420m sales is generated. It also assumes that three NCEs are launched each year. On top of these annual targets, one blockbuster is launched on average every five years, the period from preclinical trials through development to launch is nine years, and costs approximately US$500m per drug. All these changes are presumed to take place in an industry average attrition profile.

In order to compete with the top league performers, Hughes claims that with the current industry model, three NCEs will not be enough to maximise the return to shareholders. To reach 25% total shareholder return, he said, would require three NCEs each year, including one blockbuster with sales of US$1bn pa. To bring TSR to 35% would require three NCEs and one blockbuster with US$2bn sales annually.

doubling sales value

For a fast track to increasing TSR, Hughes has calculated that doubling the peak sales value will increase TSR by 25%. Halving the development time of compounds will increase it by 17%, assuming a zero attrition rate at the post-Phase II trials stage will increase TSR by 17%.

Also, said Hughes, doubling the number of drug leads will lead to improved quality of candidates into development phase.

So all in all, companies can aim for double success rate in development with near zero attrition, add three years in peak sales to the market life of a product, and increase sales per drug by 20%. This, he said, will lead to an explosion of data and information now and in future. 'The challenge is to address those sort of targets by leveraging the information available today and as we move forward.'

Bill James of Procter and Gamble followed Hughes by pointing out that 'r&d productivity trends in the last 20 years have been business-unit centric, but these are focused much more directly now. We have reached a climate, James said, where among global pharmaceutical and biotech firms, r&d spend is around US$80-100m p.a. 'The growth in industry consolidation has led to an environment where there are around 4 NCEs per large firm each year, more than US$15bn'. James suggests that the fall-out rate of compounds during the development process should be addressed.

In discovery projects that lead to launched NCEs, the fall out rate is around 80-90%, he said. 'Improved r&d processes and project management is required. The development period needs to go from around 12 years to six to eight years.'

In order to speed this process of discovery, preclinical and clinical trials, and regulatory authorisation, he said, some productivity advances must be made. Targeted research can be performed with use of genomics, proteomics, lead development, and combinatorial chemistry and high throughput screening. However, he added, hindrances to the acceleration of this path include the complexity and bureaucracy within large organisations, and poor use of researchers' time — organisational demands such as travel and administration and so on can get in the way and make for a poor procurement processes, he said.

So, said James, organisational improvement can be achieved in four areas: strategy, organisation, front line, and IT systems. In terms of strategy, it is important that the right compounds are chosen, overlaps are avoided. The real risk, he said, is to have it done outside.

Pharmaceuticals is becoming the biggest spending industry in terms of r&d, second only the electronics, James said. 'However, if within an organisation the spend per person is greater than US$10k, it is generally less effective.'