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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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August 10, 2009

Pharma's Return on Investment: Yikes

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Posted by Derek

There's a recent article in Nature Reviews Drug Discovery that has some alarming figures in it. This is yet another look at the industry from McKinsey, and we'll get to their McKinseyish solutions in a moment. But first, some numbers:

They calculate that the return on investment (ROI) from small-molecule drug research was nearly 12% during the late 1990s, but since 2001 it's been more like 7.5%. If true, that's not a very nice number at all, because their data indicate that most companies assume a capitalization rate of between 8.5 and 11% - in other words, internal industry estimates of what it costs to develop a drug over time now run higher, on average, than the actual returns from developing one.

Another alarming bit of news is their analysis of Phase III failures. From 1990 to 2007 there were 106 of those nasty, expensive events. But the McKinsey figures are that 45% of those failures were due to insufficient efficacy versus placebo - which, in theory, is the sort of thing you're supposed to be rather more sure about by that point, what with having run Phase II trials for efficacy and all. (I'd like to know how many Phase III trials succeeded over that time period as well - what's the overall percentage of failure at that point?) Another 24% of the failures were due to insufficient efficacy versus the standard of care, which is at least a bit more understandable. But together, nearly 70% of all Phase III failures aren't due to tox, they're because the drugs just didn't work as well as their developers thought.

Back to those ROI figures, though. Either those numbers are wrong, or we're in quite a fix. (Of course, since the authors are consultants, their viewpoint is likely that those numbers are the best available, that all of us are indeed in a fix, and that if we pay them money they'll help us out of it). The paper does have some recommendations, to wit:

1. Cut costs, but not the obvious stuff that companies have been doing. Instead, they suggest broader strategies such as considering whether a company's clinical trials are consistently over-powered, and to not do quite as much "planning for success", since most development programs fail. That is, don't automatically gear up for a full overlapping development workup for every compound in the pipeline, but consider staging things so you won't waste as much effort if (or when) they crash out. And naturally, they also suggest outsourcing whatever "non-core" functions there are available.

2. Work faster. I have to say, though, that if I got paid every time I heard this one, I wouldn't have to work. The authors point out, correctly, that delays in getting a compound to market are indeed hideously costly, but on-the-other-hand it by saying that "Of course, gains in speed cannot come from short cuts: the key to capturing value from programme acceleration is choosing the right programmes to accelerate". And that leads into their third category, which is. . .

3. Make better decisions. This isn't quite a much of an eye-roller as it might seem, because this is where they bring in those Phase III numbers above. Such failures suggest some deeper problems:

"In our experience, many organizations still advance compounds for the wrong reasons: because of momentum, 'numbers-focused' incentive systems or through waiting too long to have tough conversations about the required level of product differentiation."

And I have to say, they have a point. People who've been in the industry for some years will have seen all of those mistakes made. for sure. But figuring how to stop those things from happening is the tough part, and presumably that's one of the things that McKinsey is selling.

Comments (45) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Industry History


COMMENTS

1. Mark on August 10, 2009 8:41 AM writes...

"In our experience, many organizations still advance compounds for the wrong reasons: because of momentum...."

Add to that "because if we got rid of this program, we'd have nothing else to work on."

Mark

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2. Lucifer on August 10, 2009 8:49 AM writes...

Groupthink and committees can never produce innovative drugs (on innovations).

The first new drug of any class was never produced through consensus and careful planning. It was discovered through serendipity, 'crazy hunches' or accidents. Plan too much, control too much, stop almost all risk taking, stifle creative thinking, fire innovative minds and you have only yourselves to blame.

But try telling that to MBAs and their handmaidens.


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3. ipoflip on August 10, 2009 9:02 AM writes...

for years the only goal was a clinical trial, then an IPO, and the VC's made out like thieves. That ain't happening anymore.

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4. alig on August 10, 2009 9:34 AM writes...

#1 and #2 are contradictory. If you don't plan for success, you will be delayed. The question is always what's more expensive, the at risk activities that are performed on a compound that fails, or the delay on a compound that succeeds if you failed to do the at risk activities.

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5. MTK on August 10, 2009 9:38 AM writes...

alig,

I was about to say the same thing.

The reason why you work for success is to be faster.

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6. milkshake on August 10, 2009 10:16 AM writes...

I was with a company that advanced their compound into phase III while the people at the company running these trials were very skeptical and privately muttered that the trial is going to bomb - full year before it actually did. I suppose the management was aware of this as well but they could not afford to have their only compound in clinic to fail while they were negotiating the sale of the company.

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7. Anonymous on August 10, 2009 10:27 AM writes...

McKinsey is driving our industry into the ground.

http://www.thelouroe.com/2009/08/mckinsey-opines-on-drug-discovery.html

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8. The Pharmacoepidemiologist on August 10, 2009 10:29 AM writes...

It surely would help if all those marketing MBAs with less than a decade in the industry no longer had control over R&D decisions. The industry prospered mightily when there were physicians and other health care providers in those roles--they had an understanding of what bona fide unmet medical needs were out there--not new drugs to remove facial hair or the 47th anti-hypertensive or an oncology drug costing $100K a year which extends life (statistically significant, that is!) by 19.4 days. As best I can tell, the only big pharma with a doctor at its controls is Novartis, and it's not doing that badly.

On the other hand, the message from the society is that pharma companies are spending too much on marketing (they are), and not enough on R&D (unclear, but may actually be true). If society wants to increase the ROI for pharmas, all it has to do is change the rules: too much DTC; fine, remove DTC advertising as an allowable business expense. Too many pharma reps: remove them as allowable business expenses. I can guarantee that doing so will have the desired effects--the pharmaceutical business is very responsive to changes in regulations. On the other hand, unless the ROI is there, society shouldn't expect pharmas of any size to find the drugs needed for Alzheimer's, Parkinson's, osteoporosis, etc needed to control health care bills for the baby boomers as they enter Medicare coverage. And such drugs are the best hope for such control. Notice I didn't mention oncology. Cancer won't have nearly the cost of Alzheimer's or osteo or congestive heart failure.

Oh, and the other end of the equation: if Obamacare becomes law, don't expect the cream of the crop to continue going to medical school. Figure on FMGs (foreign medical graduates) taking over the health care system. Will FMGs be as willing to engage in pharma clinical research activities? Perhaps--or perhaps not. We don't really know. The speed with which a drug can be developed in the US is dependent on the speed with which trials enroll--and that will depend on the willingness of FMGs to participate. It may mean that the cost of doing studies in the US is going to go up, and that means ROI must be going down.

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9. Hap on August 10, 2009 10:31 AM writes...

I wonder what the performance of industries/companies that took their advice was before and after they did so? Telling companies "Fail fast, and succeed fast" isn't all that helpful.

Of course, if the incentives for companies to fleece their investors is to advance compounds regardless of likely activity and cash out before the results hit, well, consultants aren't going to help much. Maybe lawyers with branding irons?

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10. RB Woodweird on August 10, 2009 10:53 AM writes...

So really it is just the same old thing:

Chemist: I had to try it ten ways before getting it to work.

Management/Consultant/General Public: Hmmm. Well, next time try the last one first, then.

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11. Joe on August 10, 2009 11:05 AM writes...

A serious question for those of you more involved than me in ROI assessment and the decision to stop/move forward:

Why don't you go balls-to-the-wall in enrolling your trials to whatever point is necessary to conduct an analysis of the data?

I've seen so many Phase II and Phase III studies piddle around for months/years and act as if you have to wait for the patients to come to you....meanwhile, more competitive drugs are appearing and patent protection is dwindling.

Why don't sponsors get faster in succeeding/failing by pushing their studies to ENROLL faster?

More sites or aggressive external patient recruitment campaigns.


I ask this because it would seem to be a key way to cut months off a normal decision-making process...and if you need to spend $2-10 million on it, that seems like a worthwhile investment to me. Especially since there is a direct-ROI on NOT having to run your study for months longer, including all the monitoring visits, vendor costs and vendor management, etc.

Joe

P.s. I'm an external patient recruitment vendor trying to gain insight into pharma-decision-making. If I'm brought in prospectively on almost any chronic, ambulatory indication, and with a modest budget, I can almost always cut 1/3rd of the trial enrollment time, or reduce the amount of sites needed by 1/3rd, etc.

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12. Anonymous on August 10, 2009 11:14 AM writes...

ah the MBA vs scientist argument. Things are clearly black and white enough to say that it is the MBAs' fault and if the scientists ran the company everything would be great. I've certainly been in the situation where management (some dweeb with an MBA and no science background) got to make a decision about a program I worked on based off of information relayed by middle mangement (typically they had some degree of science background) without ever talking to folks like me. Yes, the ones in the lab doing the work, discussing the science, who understand the real value (or lack thereof) of the project. Now I've also been in the situation where "management" has come from some dweeb with a great science background who has been around long enough to make his way into "management" but who has no idea how to "manage" a project or people. Companies really need to start focusing on developing the management skills of their scientists. Management is important! Oh and you lab grunts out there...don't complain that your company isn't giving you the development opportunities until you've gone and asked for them. If they say no...then feel free to whine...or better yet, find a better job.

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13. RB Woodweird on August 10, 2009 12:24 PM writes...

Anonymous sez: "Things are clearly black and white enough to say that it is the MBAs' fault and if the scientists ran the company everything would be great."

Okay, strawman and false dichotomy in the same breath. Nicely done.

If you have been following along, the general agreement is that scientists can make lousy managers. Or not. But managers always make lousy scientists.

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14. Sili on August 10, 2009 1:11 PM writes...

So return on investment has gone down after years of rapid, repeated changes of management and organisation. Hmmmm ... now what would that suggest to a rational person?

Does anyone know the ROI on advertising and management? Of course, I'd like to see them make a profit without any product to hawk.

Joe,
I'm sure I'm not the only one who thinks that your perspective could indeed be interesting to us labrats (my apologies for counting myself among your number), but could you perhaps try not to sound like a spam message? Start your own blog, perhaps?

Permalink to Comment

15. Joe on August 10, 2009 1:36 PM writes...

Hey Sili,

Sorry if I didn't come out clearly....and, just in case, I'm not in a vendor sales role.

My question though relates to the topic at hand (and is not a proposal):

McKinsey is saying "Work Faster" as one of their 3 core blanket recommendations.

One thing I always ask: why isn't there more focus on shortening trial length? Obviously we need to study primary/secondary endpoints for a certain amount of time.

But if you could achieve your N in 50% less time, would it not be worth it in saved time, saved trial operations direct costs, etc.?

When I, as an outsider, look at what it takes to reach a point where a go/no-go decision is made, I see alot of components that make up the project...

Study development, planning, launch, a live period, study closeout, and then a data review (forgoing an interim analysis, though you could apply that).

I don't know of any ways to drastically reduce the study development and planning phase, or shorten the data review period.

So, forgoing that, we know that you can throw some money at the enrollment period of make it move faster. Is that a viable way to work faster (per McKinsey), or is there some aspect I'm not aware of?

I'm not a lab rat...I'm a management type. And I want to understand this process better, so that I'm not just a management type saying "Work faster".

Joe

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16. Hap on August 10, 2009 1:37 PM writes...

I assume that lots of people could mismanage companies well (if that's the word) if you're paying them to do so. Incentives for short-term profits lead to lots of short-term profits, and probably long-term heartbreak (but the heartbreakers aren't around for those). The people running the businesses and their friends who designed the incentive system which pays them based on short-term increases in stock price (from which pushing drugs into trials and lots of other problematic behaviors follow) made the problems. The MBAs may profit from them (by helping their bosses to loot ther companies), but they didn't make the business model. The long-term investors either don't exist or have no say, so there probably isn't a counterweight to short-term incentives.

I don't think that scientists are immune to greed - but their main incentives are for the long-term success of the company and continued employment. Their bosses, however, and the MBAs they hire to help, have different incentives, ones that work at the scientists' expense (and probably their businesses) - unless stockholders pull their leashes, one has to assume that they approve of the short-term incentive system and wish it to continue.

If this is all uninformed and puerile opinion, then please explain (if you have the time or willingness).

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17. Hap on August 10, 2009 1:41 PM writes...

Oh, look, a fine example of Spamus bastardii in (soon-to-be-ex) post 15. Look at the fine sheen of grease on his coat, and experience the distinct smell of manure as he comes out to feed.

Now, that's spam.

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18. The Pharmacoepidemiologist on August 10, 2009 3:39 PM writes...

Joe

The reason companies don't up their recruitment budgets is that usually, the companies don't have sufficient resources to pay more than they do for a study. That's especially true in biotech. Of course, some managements don't understand that time is money, particularly on a patent, and they underspend and then wonder why it took so long to recruit the study.

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19. Anon1 on August 10, 2009 3:42 PM writes...

Let's not forget the bankers in both biotech and big pharma who run these companies without knowing anything about clinical development.

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20. Hap on August 10, 2009 4:20 PM writes...

ex-post 15 (not current).

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21. qetzal on August 10, 2009 4:20 PM writes...

I have to say that the McKinsey report's recommendations seem rather clueless. On the one hand, they claim that 70% of Phase III failures are due to insufficient efficacy. Then they turn around and suggest companies are consistently overpowering their clinical studies?

If their Phase II's were adequately powered (and designed), you wouldn't expect Phase III failures due to efficacy. The suggestion (to me) is that either Phase IIs are often underpowered, or improperly designed.

P.S. I agree that Joe's comments tend to sound like a veiled sales pitch, but I think he deserves a little slack. The lack of any links or contact info in his comments suggest he's not trying to spam. At least, not obviously.

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22. Jose on August 10, 2009 7:51 PM writes...

Many clinical trials (say oncology, or CF) have a difficult time finding patients because there are too few patients for too many trials! Take a look at clinicaltrials.gov and see how many rare cancer types are recruiting. Essentially, you need to wait until enough people get diagnosed and then fail first line therapies before you can enroll them- all the current patients are either getting better, or are already in your competitors' trials.

Re: development for "labrats;" companies have a metric box for that because BCG told all of them it was an important measure, but no-one actually cares, aside from maybe direct managers who are worried about everyone's careers at this point.

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23. Joe O on August 10, 2009 9:15 PM writes...

Hey Qetzel and others,

Let me be clear: I work for a pharma-services-vendor. Many people think that makes me inherently trying to pitch something.

I'm here because I want to read up on the industry and toss ideas and concepts against smart people who come from the opposite side of the pond. I have only an outside-looking-in knowledge of the decision-making behind the business that is granted to me.

At the same time, almost no sponsor truly comprehends my companies capabilities because my company is unique within the industry. In January of 2009, I personally closed a Phase III migraine study within 16 days after getting 514 patients into screening across 102 sites. The sponsor's critical timeline gave me 6 weeks to do that. I do this day in and out, and in the most transparent and obvious methods, but I'm still looked on in distrust.

So I'm hoping I can come on here, not mention my company directly, and learn from you and vice versa. Seems like a great blog that I can't believe I'm just stumbling on now.

Thanks

Joe

Permalink to Comment

24. Joe O on August 10, 2009 9:22 PM writes...

Jose - My experiences are identical in Alzheimer's. In ~May of 2008, a sponsor with a significant drug asked me to recruit for them. I told them it was damn near impossible due to 108 competing trials and their I/E criteria and # of patients needed of those trials quite literally exceeding the number of eligible patients in the U.S.

Further, that particular sponsor's protocol said no Namenda.....which something like 70-80% of the AD population is on.

The patients are out there....unless your protocol essentially promotes and unenrollable trial.

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25. Anonymous on August 10, 2009 9:35 PM writes...

I'm sorry, but I think McKinsey is a sham. They hire good looking kids from ivy league schools to come out and tell you how to run a company when they themselves don't have a clue. All they sell is image. And maybe some follow on product.

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26. jonahmavesin on August 10, 2009 9:57 PM writes...

qetzal --

Those conclusions are not at odds in most situations.

Pharmas do overpower their Phase 3 studies because by the time they are pulling the trigger on the Phase 3 investment, they have so much sunk cost at risk that to miss an endpoint narrowly would be the worst possible outcome, and padding the trial stats is an easy choice to make. Yet, making that decision over and over becomes expensive because it's irrelevant when the drugs don't work, and unnecessary when they work really well.

For the other point, drugs that fail because they don't beat placebo or SOC has nothing to do with power -- that just means that meaningful efficacy is proving elusive. This probably somewhat falls into the category of "the low hanging fruit are gone" either in terms of chemistry or targets; that would be bad news. But it could also be, as you point out, because of inadequately-controlled Phase 2 exploration to establish POC... a common issue in oncology, for instance, where single-arm Phase 2s remain the norm -- also a common issue for biotechs, where cash is scarce. So I agree that Phase 2 underpowering is a common malady. But I think their point on cost containment is likely more about Phase 3 power.

Also, these two points lead to a third problematic trend in the industry: Overpowering trials for marginal efficacy drugs leads to approvals of drugs with worthless clinical benefits (+4 weeks PFS in oncology, for instance) which create problems for the industry in terms of its standing with reimbursement, public, patient, and medical communities.

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27. Development Guy on August 10, 2009 10:26 PM writes...

A subtlety here: "lack of efficacy" can mean "not enough efficacy to justify the safety stuff we saw", and you always see safety stuff -- whether it's a real signal or not. With heightened scrutiny on adverse events we'll see more drugs fail in Phase 3, and the attribution of cause is tricky.

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28. anonymous on August 10, 2009 10:29 PM writes...

Ha,Ha,Ha....McKinsey....A bunch of trust fund brats who have no clue what working in the real world is like, pontificating as if they actually rule the world.

Permalink to Comment

29. Cellbio on August 10, 2009 10:46 PM writes...

Hap, I think mcKinsey, aka the MBAs, did contribute mightily to the rules, and also profit from them. I think their "war for talent" was used across all industries, including pharma/biotech, to pour ridiculous rewards on top performers, who all fit the McKinsey mold. These rewards have to be constructed for "performance", so the system is gamed with short term numbers that can meet the mark. Long term numbers share too much resemblance to reality, unless you pull a full Enron.

These types also permeate the VC community. One ex McK (nice person btw), in a role to find assets and fund a company, asked me to review a technology. After commenting on many facets, I added a comment about the likely covalent nature of binding and the manner in which this could compromise binding numbers, in vivo efficacy, tox and limit the number of potential interested parties. The wiz kid was silent for a minute, then asked, "what is covalent?" Yes, failure rates are rising.

But are success rates dropping only because MBAs follow money and think they can game anything, even challenges as tough as drug discovery? Or is it also true that the multitude of previous drug discovery campaigns, even the old stuff without cloned targets, was fairly good at finding drugable targets, particularly those with pockets made for small molecules? With a finite genome, isn't it possible that traditional pharma approaches will have a lower success rate? Seems to make simple sense to me, and if true, it is the cost of business today, with nothing to gain from sharp insights from McK and crew.

But without them, who would of thought of working faster!

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30. Anonymous on August 11, 2009 12:09 AM writes...

It's known that often the only reason that a CEO brings on McKinsey is to implement changes that they want, but are afraid to attach their names to in case it crashes and burns.

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31. Mckinsey Sucks on August 11, 2009 12:33 AM writes...

Relax, everything is fine. Also, the comment someone made about Mckinsey IS SPOT ON. never ever hire those guys! GTHEY ONLY HIRE IVY GRADS (LIKE MOST WALL STREET MBAs). Talent is optional.

Got a 4.0 gpa- F-U!
Great experience- F-U!
Great Skills -F-U!

Did you graduate from Yale? Hired!!!!

"Pipline suddenly healthier"

http://www.dailyfinance.com/2009/08/10/pharma-drug-pipeline-suddenly-looking-a-lot-healthier/

Permalink to Comment

32. A.S. on August 11, 2009 12:58 AM writes...

McKinsey is what it is. They charge exorbitant rates to send a reasonably bright, well-groomed kid with a fresh Ivy League B.S. to spend a few weeks nosing around a business. And it works, because most businesses are horribly run. If you've got problems that Ivy Kid can diagnose in minutes, and are somehow still not bankrupt, imagine how much better off you'll be once they are fixed.

I have some good friends who did time at McK et al. All of them have stories of epic corporate stupidity that could curl your hair. Stuff that makes "don't advance your failed compounds" look like rocket science. So yes, they sell common sense, but there's a need.

Now, problems that are actually hard? Um.

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33. Joe on August 11, 2009 8:45 AM writes...

Since the general mood is to bash McKinsey, I'll add one different (but not opposing) point of view about work-speed. To be fair, I've never worked directly with McK or other large consulting group, so they might deserve it all :)

Let me pose a question:

1. Have you ever worked at a small company, where your ability to employ yourself and your colleagues is on the line, and based upon your speed and quality of work deliverable?

2. Have you only worked in an environment whereby speed and quality are not really critical to your job and pleasing your stakeholders?

My one large organization experience was working in academic research at Hopkins. My experience there was one where coming in early was expected, working quickly was appreciated but not necessary, and the appearance of working steadily was more important than achieving a deliverable of time.

My experiences partnering with top-20 pharma companies, large CROs like Quintiles, and others leads me to believe that individuals who have been immersed in a slow moving bureaucracy are prone to forget what "work faster" means.

I mean no disrespect by this posting, it's just my viewpoint that a simple statement can lose it's meaning when put on a culture who doesn't operate under the statement's concept.

Joe

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34. Sili on August 11, 2009 10:52 AM writes...

Joe,

I'm sorry for (sounding like I was) accusing you of spamming. I didn't mean that you did any such thing.

My apologies.

It's not your fault that your tone rubbed(/s) me the wrong way. I'm sure it comes with the territory in your line of business.

I do mean it when I say that I think your honest input might well be helpful for us (I'm taking a course in project management these weeks and so far all I've learnt is that I'm not cut out for it).

I don't know what the blogosphere looks like for consultancy like yours, but if it's not overloaded, then I'll repeat my suggestion that you try blogging a bit, yourself.

Permalink to Comment

35. Joe on August 11, 2009 11:22 AM writes...

Hi Sili,

Not a problem, and, again, I only wish to represent myself accurately.

The blogosphere is terrible for people like me. For the most part, it's competitors PR firms pumping out fluff or, worse, wrong information. I come here to get away from the fluff and learn the industry-perspective.

I'm not actually a consultant, I'm a service provider. In this case, a modest difference. The difference lies in a consultant's job is to look at what you are doing and try to tell you how to do it better. As a service provider, I'm hired to actually MAKE it better (i.e. I receive a mandate to make the changes/resolve the problems I was hired to fix).

I hope I can help, and learn, from this place.

FYI, in an irony to you figuring out project management isn't for you (if the course was through PMI, I don't blame you!), I spent 5 months at Hopkins doing academic research before I figured out that I'm better suited to the business side of things :)

Lastly, if you have a moment...let me know what part of what I wrote rubbed you the wrong way. I'll try to improve there.

Joe

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36. Matt on August 11, 2009 11:53 AM writes...

It's clear there's a lot of bitterness saved up in some parts against McKinsey. As an outsider, for this particular report, I don't see the justification.

If you ask a consulting company to help you save money, and they point out common-sense money-wasters you haven't dealt with, whose fault is that?

It looked like they identified specific, tangible targets. Derek says "figuring how to stop those things from happening is the tough part, and presumably that's one of the things that McKinsey is selling." I think that's beyond the ability or job description of any consultant. You don't hire these guys to force you to make good decisions. Their job is to identify which choice is the better one. Somebody inside the company still has to make the hard decision.

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37. Mark S on August 11, 2009 1:11 PM writes...

Only a few people have commented on the reasons for this identified insufficient efficacy. This is really a question of biology, and points to the key weakness of all pharma development, our incomplete understanding of the body as a system (or system of systems). Presuming that most small molecules that reach the clinic do something correct chemically in an in vitro assay (cells or purified enzymes), then failure of efficacy must relate to either: poor bioavailability of the target, safety considerations(as mentioned by Development Guy), or poor choice of the target. These are not all independent of course, there may be correlations between them in some cases. But inadequate biology linking the target to the disease state seems to me likely to be the most relevant. I and others have argued that targets defined by human genetics are as good as it gets for target validation (when you can get it). In context, of the 3000 or so classically druggable genes in the human genome (exact number up for discussion, but clearly only a fraction of the 20,000 or so annotated protein-coding genes), only a relative handful, about 10%, have known associated genetic conditions. Many of these are in fact relevant to drugs already on the market (LDL receptor, sulfonylurea receptor, clotting factors etc). Basic research to identify the genetic consequences of mutation in each of the remaining 90% of druggable genes seems like a good thing to do, but I have found it surprisingly difficult to fund through academic routes, it being too much of a fishing expedition for conservative review panels, even though the payoffs are high for a legitimate hit.

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38. Mutatis Mutandis on August 11, 2009 5:26 PM writes...

Never worked with McKinsey, but I see more and more that managers who are not scientists break the basic rules of effective R&D because they can never resist the seductive "efficiency" of a bureaucratic approach with strict central control.

The fundamentals have never changed: Small, stable, independent teams work best and work fastest. Because in larger groups or more complicated structures, most of the overhead and much of the delay is in (mis)communication. Ideal team size is 5 to 8, and a larger R&D unit is usually best organized in a set of loosely coordinated, dedicated task-forces, with a good manager at the top to delegate and keep oversight.

But poor managers -- and it doesn't matter whether they are scientists or MBA's -- don't feel comfortable with "empowering" a team and let them move ahead as fast as they can; they are afraid of losing control. They are also worried that independent teams will "waste" effort by replicating similar activities, and usually think it is more efficient to break up the teams and pigeon-hole the specialists in "centres of excellence". That way, all decision have to pass through their office -- and usually that generates an unmanageable stream of requests.

Bottom line: The archetypical large US pharma company ends up being run as a centralized plan economy, Soviet-style, apparently with the full blessing of McKinsey.

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39. Grace on August 11, 2009 7:56 PM writes...

Interesting. A current phase III trial (meeting milestones, no safety changes, no signs of efficacy issues)seems to stop enrolling. Possible factors: 1) Sponsor is excited - compound is already fast tracked, must increase enrollment - Bring in the 20 something MBA's -push the sites, badger the PIs and SCs, weekly teleconferences, 'booster visits', juvenile gimmiks. Push Data Review, too many queries - change the definition of what is collected 2)Another Sponsor has initiated a different phase III, same indication, different compound, budget is higher, less complex study.
Guess who is enrolling now? Greed seems to win every time, sadly, on both sides of the equation.

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40. S SIlverstein on August 13, 2009 12:30 AM writes...

Recently had a lengthy debate on the "non scientist vs. scientist leading pharma" question. See comments section of this post (at bottom).


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41. Jose on August 13, 2009 12:48 AM writes...

From S Silverstien's link above,

"Thanks for correcting me, but I still disagree quite seriously with the notion that only persons with science backgrounds are qualified to judge the evidence base."

Flying monkeys from Pluto-if this truly nonsensical notion has wide-ranging adherents, kiss your biotech/pharma employment future goodbye.

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42. S Silverstein on August 13, 2009 8:37 AM writes...

Jose wrote:

"if this truly nonsensical notion [that Joe Sixpack can judge profoundly complex scientific issues as well as, say, Derek] has wide-ranging adherents, kiss your biotech/pharma employment future goodbye."

Unfortunately, in today's postmodern B-school, everyone's an expert. All it takes is a business degree, committee meetings and a little help from the nerds to lead a biomedical R&D organization.

Hamburger or chicken, anyone? Pfizer should be real good at making those these days.

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43. Hap on August 13, 2009 10:02 AM writes...

Don't people without technical backgrounds have to make decisions over people with them? For example, politicians have to decide what to do with lots of issues (climate change, waste disposal, chemical safety and transport regulations, for example) over which they have little direct professional knowledge, and while they get input from lots of people who have important technical information, they have to make the information fit with the other constraints they have and adjust for the bias of the knowledge providers (who are usually consulted because they have a direct and concentrated stake). They also usually rely on the opinion of voters (on who they rely on for continued employment) who may have little technical knowledge as well. In the best case, all politicians really have is the ability to deal logically with the information they have and vote accordingly (though, in practice, they may end up doing what their party, voters, or campaign contributors want, which requires less logic and thought.) So there are lots of important situations where we expect people with little direct technical knowledge to make effective decisions - where there isn't really a good alternative.

I think the problem here is that the consultants can't change the incentives that cause management to fail to produce drugs (and, if above messages are correct, helped to create those incentives). You can show people the flaws in their processes, but if those flaws make the responsible individuals rich, then expecting them to change them at their expense is a combination of the Prisoner's Dilemma (if they cared about the company) and stupidity (if they don't). The result is that the companies pay consultants for information they know they won't use, which doesn't benefit anyone but the consultants.

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44. srp on August 16, 2009 3:27 AM writes...

On the long-run vs. short-run incentives issue: As has been mentioned repeatedly, the way the stock market works causes even short-sighted managers to worry about the long term because stocks reflect investors' perceptions of future profit streams. Hence we see higher P/E ratios for biotechs and pharmas than we do for steel companies in general. Nor is there much evidence of reductions in R&D spending at pharmas in general.

On the McKinsey-ites: They have always prioritized hiring IQ and insecurity (for motivation purposes). Former students who worked there used to call me up to find out who my top strategy students were so they could interview them off-campus (circumventing all the wannabees who would otherwise clog an open-interview schedule). MBAs are convenient, but they've happily pressed physics Ph.Ds and the like into service when the labor market tightens up. They would put the natural scientists through a boot camp where they would try to teach them all of econ in a couple of weeks (a former colleague used to teach that class).

The traditional McKinsey method was to identify managers' assumptions about their business (e.g. "We make more money on large orders") and then test them empirically. When these were false, they could make big improvements with simple recommendations. On the other hand, for difficult problems with no pat solution, all they can offer is frameworks for analysis rather than algorithmic solutions. That said, some of their alumni (e.g. Lou Gerstner) have done okay as managers; others, not so well.

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45. main-gauche on August 16, 2009 7:53 PM writes...

"Oh, and the other end of the equation: if Obamacare becomes law, don't expect the cream of the crop to continue going to medical school. Figure on FMGs (foreign medical graduates) taking over the health care system"

I agree with the other part of your statement (about healthcare background managers being superior), but this statement is idiotic in so many ways I'm not sure where to start. As far as I know, there's currently no proposal to change how hospitals are compensated, to socialize medical centers or employment of doctors/etc. And I'm pretty sure ANY hope of a "single-payer" canada-like system is politically dead. So any changes in that scenario would presumably be second-order effects that result from changes in the insurance industry, which would probably take many years.

Aside from that, are you a chemist or drug development scientist? Can you honestly tell me that people enter jobs solely because of the potential for massive profits? I know that I could've made a lot more money by going into financial services instead of R&D at a drug company...

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