Vision and Boldness Are Needed to Execute a Winning Strategy in the Near Future –

ImageThe U.S.-based pharmaceutical industry received a sliver of good news last year when first-of-a-kind drug approvals in the U.S. reached a three-year high. Twenty-four drugs were approved during 2008, compared to only 18 in 2007.

Most in the industry, however, would likely find little solace in this achievement. Drug approvals have been on a steady decline for the past decade, and there is a wide consensus that current R&D funding models have become unsustainable given recent economic realities. The need to reenergize pipelines has become even more pronounced with more than three dozen drugs totaling approximately $67 billion  in annual sales facing patent expiration within the next few years.

Ernst & Young’s recent report on the pharmaceutical industry, Progressions—Executing for Success: Powering New Business Models, revealed the results of a global survey of senior executives at 15 major pharmaceutical companies.

These findings further demonstrated the extreme pressure that executives are facing to increase their levels of R&D productivity. Almost three-quarters of executives interviewed cited the thinness of their product pipelines as their top concern. When asked about the most important initiative under way in their organizations, 66% of executives listed reinvigorating R&D.

Pharmaceutical companies have long recognized the need for new approaches to increase the quality and effectiveness of their portfolios given the confluence of challenges contributing to the dearth of robust pipelines, but there is little evidence that significant progress has been made.

Furthermore, few companies have adopted the types of organizational and functional changes needed to drive innovation and to better demonstrate the value of their products. The findings from Progressions, however, indicate that the industry is beginning to experiment with ways to optimize R&D engines more aggressively.

Restructuring R&D

For many years, the monolithic structure of most large pharmaceutical companies has been seen as the cause of the industry’s pipeline drought. To mirror the business models and underlying culture of their biotech counterparts, more and more pharmaceutical companies are restructuring R&D units as a means of fostering increased autonomy among research teams and to drive internal competition.

These experiments have resulted in new R&D units as small as 60–80 people in some organizations. Additionally, early returns have shown a positive impact on collaboration between and energy among team members.

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