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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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March 3, 2014

A Bit More Realism in Consulting

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Posted by Derek

That McKinsey piece I mentioned the other day, the one saying that big drug mergers have pretty much worked out just fine, has been pretty thoroughly torn apart in the comments section. A reader has sent along another report from one of their competitors in the high-priced consulting game, this overview from Deloitte.

Most readers won't find much in there that's new. But at least you won't find so many things in there that make you wonder what's in their water supply. And there are some non-rosy parts, for sure:

While, the U.S. Food and Drug Administration (FDA)
approved 39 new molecular entities in 2012, up from 31 in 2011 and the highest number since 199644 (Figure 4), a Deloitte United Kingdom Centre for Health Solutions analysis of the late-stage pipelines of the leading 12 life sciences companies indicates that R&D returns have been declining since 2010. Life sciences innovators are feeling the impact of rising costs and a decline in forecasted sales revenues driven by an age of austerity and the patent expirations of many blockbuster drugs. The cost of developing an asset from discovery to commercialization has increased by 18 per cent, from $1,094 million in 2010 to $1,290 million in 2013. Over the same time period, the forecasted peak sales (highest-value sales in a single year) of an asset have declined by over 40 percent, down from $816 million in 2010 to $466 million in 2013. Total forecast sales over the lifetime of a product have also declined since 2010 and, in 2013 are estimated to be $4.6 billion.

I don't know how much those estimates jump around under normal conditions, but those are certainly not good trends. The overall picture, while not relentlessly gloomy, is certainly not relentlessly happy. You can extract some combinations out of the report that sound good, though, sort of like those Hollywood movie-deal pitches - you know, "Ocean's 11. . .in space!". In this case, I think the pitch would be "Biosimilars. . .in China!".

Comments (13) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. Anonymous on March 3, 2014 8:49 AM writes...

"The overall picture, while not relentlessly gloomy, ..."

Talk about understatement! This trend has been going on for 60 years, with no end in sight, except for the kind of "end" a slow train crash has...

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2. Anonymous on March 3, 2014 8:55 AM writes...

Regarding biosimilars in China, this is making matters worse by investing tons of money just to copy innovations that are already known and available. Where's the net value add in that???

Sure, patients will benefit as drug prices come down, but pharma spending money just to steal from its peers is net value-destroying overall.

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3. Anonymous on March 3, 2014 10:40 AM writes...

Not to quibble, but Deloitte is no more a competitor of McKinsey's than a single-A team is a competitor of the Red Sox (or Yankees). However, their

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4. a on March 3, 2014 6:14 PM writes...

#3 evidence apart from snobbery?

Delloite doesnt have the 'name' of mckinsey, but their client list is *every bit* as prestigious as mckinsey.....the old barriers between strategic consulting and technical services are fading fast.

Deloitte also dwarfs Mckinsey's income by half an order of magnitude, although how much of that is consulting and how much is accounting is a different matter.......

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5. Anonymous on March 3, 2014 6:43 PM writes...

McKinsey have lost the plot as well as their moral compass since their leader Rajat Gupta was done for insider trading. Glad I had the sense to leave when I did.

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6. Jose on March 3, 2014 6:43 PM writes...

And frankly, all the big-name consultants are charlatans and snake-oil salespeople who just recycle management fads and platitudes for obscene amounts of money, all polished over with a veneer of Ivy and almost-Ivy snobbery....

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7. SteveM on March 3, 2014 7:02 PM writes...

Re: #3 anonymous "Not to quibble, but Deloitte is no more a competitor of McKinsey"

McKinsey hired Chelsea Clinton out of graduate school with degrees in History and International Relations. Would you shovel out big bucks to McKinsey for her advice?

What gives consultants from McKinsey with academic pedigrees and little else special insights about business is beyond me.

Re: "Over the same time period, the forecasted peak sales (highest-value sales in a single year) of an asset have declined by over 40 percent, down from $816 million in 2010 to $466 million in 2013. Total forecast sales over the lifetime of a product have also declined since 2010 and, in 2013 are estimated to be $4.6 billion."

That's really not surprising if a bunch of products were me-too drugs that have asymptotic clinical benefit profiles versus generics or cheaper branded drugs. E.g., is AcipHex so much more superior to OTC Omeprazole for most patients to justify the expense? I imagine there's a lot less money in brand switching revenue from a me-too drug.

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8. Nick K on March 3, 2014 8:15 PM writes...

#6: Exactly so: utter charlatans, the lot of them. Management consultants are to CEO's today what astrologers were to Medieval kings, and about as much use.

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9. Brett on March 4, 2014 3:09 PM writes...

A few years back, I saw a forecast model from McKinsey (I do forecasting and financial modeling by profession). It was one of the worst models I'd ever seen with some very poor assumptions.

I've also seen McKinsey in action, including some of my MIT and Stanford classmates. Standard plan: send in the green MBAs from top schools, have them collect data and pester the client about things everyone who has worked in the industry already knows, then regurgitate said client's data with "insights" that are obvious to anyone with half a brain.

Example: back in the first managed care era, McKinsey came into our mid-sized pharma company. Some co-workers spent a lot of time educating the McKinsey people about the pharma business. Final recommendation: develop innovative products in therapeutic areas with less managed care influence. Like we didn't know that already. Easier said than done, but then consulting companies leave the execution to the client.

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10. Anonymous on March 5, 2014 3:29 AM writes...

Confession: I joined McKinsey as a post-grad many years ago and worked on a project to improve R&D productivity, but was a junior so didn't have much/any influence. After 6 months work costing a few $million, "we" recommended that the client needed to "improve success rates" and advised to set targets to pass more compounds through each stage of development, despite my protests that this would be detrimental to quality and overall ROI. And the rest is history. I left right then to set up my own biotech company.

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11. Chemist X on March 5, 2014 9:40 AM writes...

Echoing Brett's comments, I was working in an organization that hired a gang of strategy consultants to decide what research areas were worthy of increased investment. The consultants interviewed the researchers and produced a report to management that was more or less a regurgitation of what we communicated in the interviews, coupled with some inane "value analytics" that could have been perfomed by a high school student and a recommendation for further engagements to "sharpen" the focus of their recommendations, at a cost of several hundred thousand dollars. Ultimately our organization decided to not implement the strategic investment due to cost, which led to considerable numbers of folks jumping over the fence to greener pastures.

For making strategic decisions about R&D directions in technical organizations, your average management consultant is about as useful as a organ grinding monkey. However they are useful as a scapegoat for management to fall back on when poor decisions are made- the mass exodus of staff was blamed on the consultants!

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12. dichotomous on March 5, 2014 1:24 PM writes...

@ #11 / Chemist X - you're assuming that the exodus and blaming it on consultants wasn't the plan all along?

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13. Anonamousse on March 5, 2014 10:31 PM writes...

@11 wrote: "However they are useful as a scapegoat for management to fall back on when poor decisions are made- the mass exodus of staff was blamed on the consultants!"

Exactly. The only value they bring is worthless "independent validation" for unpleasant decisions that upper management favor but are wrong or stupid, thereby providing an expensive scapegoat for the management.

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