Presentation on theme: "Portfolio Management and R & D Productivity"— Presentation transcript:
1 Portfolio Management and R & D Productivity Anirban Bhattacharya, PhD8th Annual Project and Portfolio Management Forum
2 Pharma Industry has one of the most expensive R&D efforts Is Pharma “over-spending” in R&D ?Pharma Industry has one of the most expensive R&D efforts*Top 20 firms traded on US ExchangesOptimal R&D Spend calculated on the basis of RQ (Research Quotient)Article by A.M.Knott on Harvard Review (May 2012): “The trillion-dollar R&D Fix”
3 From Abundance to Scarcity (in quantity AND quality!) 73% drop in R&D productivity !From Abundance to Scarcity (in quantity AND quality!)Golden Period:NMEs approved per year (average) = 3Average 5th year sales per NME ($ MM) = 5155th year sales per year in total ($ Bn) = 18.3R&D spend per year ($Bn) = 655th year sales per 1$Bn R&D spend ($MM) = 275“Drought” Period:NMEs approved per year (average) = 22Average 5th year sales per NME ($ MM) = 4305th year sales per year in total ($ Bn) = 9.4R&D spend per year ($Bn) = 1255th year sales per 1$Bn R&D spend ($MM) = 75The 90s remained the most fruitful period in the history of PharmaPDUFA + “good” FDA behavior (e.g. HIV)Targeting chronic diseases with new MoAsDevelopment of many “fast-followers”Establishment of “surrogate markers”Creation of new diseases (OAB, RLS, etc.)Is this a “rebound effect” or an “R&D productivity crisis”?
4 Defining R&D Productivity What is R&D productivity?Defining R&D ProductivityRequired InvestmentCreated ValueDefinition of R&D productivity: the relationship between the value (both, medical and commercial) created by new medicines and the investments required to generate themR&D Productivity is an aggregate representation of:R&D efficiency: ability to translate inputs (ideas, resources, money, etc.) into defined outputs (usually approvals and launches), over a defined period of time; it is simply measured by a “cost per launch”R&D effectiveness: ability to produce outputs with certain intended and desired qualities/outcomes (value to patients, physicians and/or payers; and substantial commercial value); it is simply measured by a “value per launch”R&D Productivity is an aggregate representation of:R&D efficiency: ability to translate inputs (ideas, resources, money, etc.) into defined outputs (usually approvals and launches), over a defined period of time; it is simply measured by a “cost per launch”R&D effectiveness: ability to produce outputs with certain intended and desired qualities/outcomes (value to patients, physicians and/or payers; and substantial commercial value); it is simply measured by a “value per launch”S.M..Paul et al. “How to improve R&D productivity”Nature Reviews/Drug Discovery vol.9; March 2010; p
5 R&D Productivity Report Card The good ……The bad ……Annual number of NME/NBEs approved by the FDA stable over the last 60 years- The number of new drugs approved per US$ 1 Bn spent in R&D has halved every 9 years since 1950, falling around 80-fold- The cost of developing one NME raised 38-fold, from $50M in the 50s to $1.8 Bn in the 2000sThe ugly ……NPV for NME is -$65IRR is 7.5% (less than cost of capital at 10%)Negative trend: IRR was 12% inBetter financials for biologics: IRR at 13% and NPV at $1.26 billion
7 Increased Development Costs The first randomized controlled trial, published in 1948, recruited 109 patients and randomized 107 of themBetween 1987 and 2001, the number of patients per pivotal trial for anti-hypertensive agents rose from 200 to 450Between 1993 and 2006, the average number of patients across the pivotal trials in diabetes rose from 900 to over 4,000The first long-acting insulin analogue, glargine, was approved in 1999 following 3 pivotal trials; the newest long-acting insulin analogue , degludec, was filed in 2011 following 12 pivotal trialsThe first pivotal trial for Merck’s simvastatin, published in 1994, recruited 4,400 pts; a pivotal trial for Merck’s Anacetrapib is recruiting more than 30,000 ptsAccording to a study (E. David et al.), between 1997 and 2010, the cost of development increased by 8%
8 Declining R&D Success Rates (adapted from Bain drug economics model, 2003* and from KMR 2007-2011**) ******Preclinical: 7Phase I:Phase II: 3Phase III:Regulatory: 1.1Launch:Preclinical: 13Phase I:Phase II:Phase III:Regulatory: 1.1Launch:Preclinical: 24Phase I:Phase II:Phase III:Regulatory: 1.2Launch:Preclinical: 30Phase I:Phase II:Phase III:Regulatory: 1.2Launch:Cum. Success Rate: 14 %Cum. Success Rate: 8 %Cum. Success Rate: 4 %Cum. Success Rate: 3 %2% for Small molecules and 11% for BiologicsSmall Molecules (61%) (42%) (18%) (60%) (85%) 1Biologics (75%) (56%) (44%) (79%) (79%) 1PC Ph.I Ph.II Ph.III Reg LaunchThere are other reports with different numbers (e.g. according to E.David et al., between1997 and 2010, the cumulative PoS lost 5 points in %), however the negative trend remains a constant !
9 Increased time for ClinDev While the time spent in Discovery has remained stable over time at 4.5 years, the time spent in development has increased significantlyAccording to E.David et al. , between 1997 and 2010, clinical development time has increased by 15 monthsAccording to KMR, between 1998 and 2011, clinical development time has increased by 2 years (from 11.5 to 13.7 years)The total time for development currently averages 8 years, with high variability by TA (adapted from KMR report)Phase I => 2 yearPhase II => 3 yearPhase III => 3 year
10 LO, Ph.II & Ph.III as main cost drivers Even though Phase III has by far the highest average cost per project ($150M), the higher number of projects and the capital cost over time make Phase II and Lead Optimization average costs higher!Early commercial involvement will help to make the right choices to optimize resource allocation in LO and Early Development !S.M.Paul et al. “How to improve R&D productivity”Nature Reviews/DrugDiscovery vol.9; March 2010; p
11 Decrease of PoS for Ph.II and Phase III are the two most important cost drivers: the critical role of VoIImpact on the average cost of drug discovery & development ($1,778M) of the ten most important cost driversS.M.Paul et al. “How to improve R&D productivity”Nature Reviews/DrugDiscovery vol.9; March 2010; p
12 Optimizing R&D Efficiency: the cost of an NME can be cut by 50% Reduce cost and time of developmentTrial size, sites/investigators, CRO management, low-cost countries, partnershipsReduction of ph.III from 2.5 to 2 years will reduce the cost by $100MAdaptive/seamless ph.II/III trial designs will save time and costTime/cost of development is “disease-specific” (e.g.CV worse than ID)Optimize PoSReduce attrition in ph.II/III with early PoC studies (reliable biomarkers)More validated/druggable targets & greater use of translational phenotypic assaysSufficient number of projects by phase to ensure 1 launch/year:If PoS in ph.III increases from 70% to 90% , the number of products entering ph.I can decrease from 9 to 7Redirecting resources from drugs with low PoS: e.g. 1 ph.III has same cost of 10 Ph.IMoving from FIPCo (Fully Integrated Pharma Co) to FIPNet (Fully Integrated Pharma Network)S.M.Paul et al. (Nature Reviews/Drug Discovery, vol 9; March 2010; p )
13 R&D Effectiveness Assessment Pharma needs to create new medicines able to surpass an ever-improving SoC, being the victim of its own success.No more low-hanging fruits!
14 Decreasing Sales for New Products Adapted from Accenture Research Report, based on data from various sources
15 Variable Return from New products New drugs launched in showed an average IRR of 7.5% ; they can be grouped in quartiles based on revenues generated:1st quartile: 2% of them with IRR of 28%2nd quartile: 4% of them with IRR of 12%3rd quartile: 40% of them with IRR of 8%4th quartile: 54% of them with IRR of 6%E.David article (NatureReviews/DrugDiscovery vol.8, Aug.2009 p )E David et.al., Nature Reviews / Drug Discovery vol.8, Aug.2009 p )
16 The questionable value of new medicines: BIC or me-toos? From its inception in 2004, Germany’s IQWIG has classified 70% of drugs reviewed as drugs with “unproven benefit”; from Jan.2011, Value Dossier required with NDAAccording to the French HTA system, in recent years, only 12% of new medicines are bringing significant clinical benefits over SoC; nearly 60% of new medicine had no additional valueBetween 1998 and 2008, the UK’s NICE granted restricted or no market access to almost 60% of the drugs launched by the top ten pharma companiesIn the US, only one third of the new medicines achieve a formulary listing that allows unrestricted use, with reimbursement
17 Optimizing R&D Effectiveness: Focused portfolio on Core TAs Several challenges (cheaper generics, more aggressive payors, more difficult science, etc.) have increased the competitive requirementsCompanies are realizing they cannot compete effectively in every TA70% of the BBs launched in were in TAs where the marketer had significant presenceCategory leaders completed 2 times more deals, 70% higher success rate in ClinDev and had 5 times more revenues as compared to other competing firmsMore attention to be paid to specialization of capabilities and integration of focus areas from research through to commercializationChanging mindset: from “playing everywhere” to “play to win”
18 Optimizing R&D Effectiveness: Darwinian approach to decision making Objective evaluation of projects and elimination of decision-making biases, allowing only the best program to surviveChanging mindset from “win with any innovation” to “raise the bar for innovation”From “targeting the broadest population in which the new drug has statistically significant (though often clinically marginal!) benefits” to “targeting patients with the greatest benefit”Recently launched Pfizer’s crizotinib targets only 5% of lung cancer patients with ALK oncogene, but has very high efficacy: with a target population WW of 50,000 this product will surpass $500MM by 2015Incentives need to give less weight to milestone accomplishments and more to measures of quality and strategic intensityAbility to re-allocate resources across different franchises to better invest R&D money
19 Optimizing R&D Effectiveness: Regain trust of all customers From PoC to PoC&EB (Proof of Concept and Economic Benefit): providing value to all customersInstead of searching for a gap in the market where to sell a product in development, design a product to fill a well-identified market gapGap defined by the needs of the patients, the physicians, the regulators, the HTAs and the payorsFrom artificial patients identification with surrogates to patient segmentation to maximize drug value (=>personalized medicine!)Identify and define, before starting clinical development, what outcomes matter to all customers, including what evidence is requiredFrom treating payors as a problem to solving their problems
20 Assessing the Balance between Efficiency and Effectiveness The Role of Portfolio Management
21 R&D Productivity - Implications R&D Productivity grows with:Number of projectsPoSValue of projectsR&D Productivity decreases with:Time to complete projectsCost of projectsBut these 5 elements are inter-connected and Portfolio Management, if started early, can help optimize them!
22 DOP – Disease Opportunity Profile Available to R&D at Target IdentificationDefines the “opportunity” and the “challenges” in the marketplace, clarifying KSFs (Key Success Factors)The DOP is continuously updated and shared with the critical players in R&DThe Assessment of the disease focuses on:Definition of Target PopulationEvaluation of the Level unmet medical needIdentification of key differentiators from a ‘gold standard”Assessment of the Competitive landscape (incl. LOEs)Understanding of key P&R requirementsSWOT analysisDOP scoring and thresholdTarget Population instead of Disease
23 Disease Target Assessment quantifies the opportunity in each of the key attributes of medical need Level Achieved by Gold StandardSafety /TolerabilityEfficacyConvenienceMortalityMorbidityCost
24 Measuring Unmet need using published objective clinical trial data Efficacy:symptom relief, slowing of progression, restoring lost function, pharmacokineticsSide effects:frequency and severity of eachConvenience:mode and frequency of dosingMortality:age-adjusted excess risk of mortalityMorbidity:pain, disability, hospitalization, quality of life, complicationsCosts:direct (drug and non-drug) and indirectImpact of Efficacy:Impact of efficacy on mortality, morbidity, and costAssign a score to each component of unmet need:12345No unmet needSubstantial unmet need
25 TCP – Target Candidate Profile Available to R&D at Lead OptimizationIt states the minimal attributes for the new product to be commercially viableIt identifies, among all product attributes, the key “value drivers”It focuses on the key differentiators from SoCIt helps the performance of a more effective “Lead Optimization” phase while offering guidance for GnG decisionsIt includes a “bucket” forecast with possible upsidesIt is always complemented by the relevant DOPTCP scoring and prioritization (facilitating the “early kill”)Directionally right or precisely wrong
26 Profile Alpha is highly innovative vs. current gold standard Sources of Difference in Unmet Need between Alpha and Current Gold Standard2.50Current GoldStandard2.48Efficacy5.5%2.45Unmet Need Score2.402.35Side Effects-0.8%Convenience2.5%2.30Mortality0.6%Morbidity1.2%2.25Direct Cost0.1%Indirect Cost0.4%Alpha18.104.22.168.10Unmet need scores range from 0 (no unmet need) to 5 (substantial unmet need)Sum of % differences equals overall relative improvement in unmet need: 9.6%Note: Bars may not sum to overall % due to rounding
27 The greater the reduction in medical need, the larger the peak share achieved 100%Viagra90%80%Aricept70%60%Peak Patient ShareLipitor50%Vfend40%Advair30%Singulair20%BonivaLescol0%-15%-10%-5%0%5%10%15%20%25%30%Percent Reduction in Unmet NeedConfidential Equinox Group Information
28 Strategic intentDOP & TCP to support Go / No-go decisions while achieving efficient ROIUnmet NeedPayer PressureCompetitiveLandscapeMarketOverviewDisease Opportunity Profile# Killer Experiments# Go / No-goDecision CriteriaCommercial ViabilityIdentification of Non-negotiable AttributesAdditional value drivers for potential economic upsideTarget Candidate ProfileRegionalContribution
29 VOI (Value of Information) to Assess early experiments PositiveResult70%Revenue$500MyesPositiveResultClin.TrialCost$100M30%NegativeResult30%$ 0yesCost ?$75M70%NegativeResultClin.TrialRevenue$ 0noTest$50Mno$ 0Revenue$500MnoClin.TrialPositiveResult30%yes$100MRevenue$ 070%NegativeResultAdapted from N.Rosati, Expert Rev.Pharmacoeconomics Outcomes Res. 2(2), 2002
30 Prioritizing the Portfolio Strategic FitCore competencies (clinical and commercial)Technical feasibility and complexityCriticality of launch timingPoS (including tractability, target validation, etc.)Clinical cost to launchCommercial opportunity:Level and prevalence of unmet medical needsCompetitive pressureProduct Differentiation and Value propositionPayors’ pressure and P&R risksExpected Peak salesFinancials (eNPV, ROI, IRR, payback period, etc.)Different weights by Phase and BIC vs FIC
31 George W. Merck, 1950“ We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been.”