Strategies to Reduce Costs and Improve the Efficiency of Pharmaceutical R&D

Strategies to Reduce Costs and Improve the Efficiency of Pharmaceutical R&D

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The pharmaceutical industry has come a long way since the first drugstore reportedly opened in Baghdad in the 8th century. The relatively recent development of antibiotics and a plethora of drugs capable of treating diseases from cancer to AIDS has had a dramatic impact on the lives of billions of people worldwide.

According to figures from the European Federation of Pharmaceutical Industry, the pharmaceutical industry itself grew from relatively humble origins to one estimated to represent more than €614 billion worldwide in 2011.But there’s trouble in the industry that brought us Valium, Prozac & Viagra.

For years, the pharmaceutical industry has been able to sit back and relax as blockbuster drugs have raked at high profit margins. These drugs, protected by patents, accounted for an enormous percentage of revenue for large pharmaceutical companies. When patents expire, there is often a huge loss of revenue for the original manufacturer, estimating that generic drugs account for up to 90% of sales, according to the Healthcare Global report.

The industry is now seeking to reduce operating costs and improve the timeframe of the research and development cycle. Here are 5 strategies that pharmaceutical companies can use to improve efficiency and streamline R&D processes:

1: Outsourcing:

Over the last decade, pharmaceutical companies have been outsourcing at least part of their R&D processes to emerging markets and low cost centers. As in other industries, significant savings can be made by moving certain operations to areas where labor costs are cheaper. According to AMR Research, the majority of pharmaceutical and biotech companies today outsource at least a proportion of their clinical trial management processes. However, some experts warn that outsourcing the process as critical to the future success of the company as R&D carries considerable risks. A report by PA Consulting recommends that companies consider moving only parts of research and development to lower cost centers. Innovation, says the consulting firm, is still centered at home.

2: Business Process Management (BPM)

Business Process Management can help pharmaceutical companies achieve efficiency through the combination of process improvement, standardization and technology automation. Insta-intelligence, a consulting group, identified a number of areas where BPM can help pharmaceutical organizations reduce their time to market and allow regulatory compliance in the research and development phase of a new drug, including: automation and simplification of clinical trial processes, minimizing errors and risks, improving communication and facilitating collaborative research environment.

3: Lean process improvement

Lean process improvement, a methodology based on eliminating ‘non-value-added’ activities, has been used in manufacturing for years. However, increasingly, industries such as healthcare, banking and, indeed, pharmaceuticals have jumped onto the lean belt, as the method has proved effective in increasing operating efficiency and reducing costs. Simple lean techniques such as 5S (which has been described as ‘organizational housekeeping’) and 5-why can help improve the efficiency of the workplace within laboratories, while the focus on eliminating unnecessary steps can help speed up certain processes to reduce cycle times.

4: Big data:

The much-vaunted arrival of “big data” – i.e. a larger volume of data than we have ever been able to analyze – holds great potential for pharmaceutical companies looking for insights that could give rise to the new blockbuster drugs that the industry needs. In a recent article published on, strategy consultancy McKinsey noted that big data could help pharmaceutical companies drive down costs and increase patient safety by extracting “real world data” from healthcare providers.

5: Strategic industry partnerships & cross company standardization

While not strictly a process excellence technique, the strategic involvement of pharmaceutical companies in external industry partnerships can help to streamline and improve operations that cannot be undertaken in isolation by one company.

That is the principle behind the recently announced initiative that a group of 10 major pharmaceutical companies – GlaxoSmithKline, Pfizer, Johnson & Johnson, Bristol-Myers Squibb, Eli Lilly, Abbott Laboratories, AstraZeneca, Sanofi, Boehringer Ingelheim, and Genentech, a Roche Group unit – have signed an initiative aimed at improving the way clinical trials are conducted.

“There is widespread alignment among the heads of R&D at major pharmaceutical companies that there is a critical need to substantially increase the number of innovative new medicines, while eliminating inefficiencies that drive up R&D costs,” said Garry Neil, CEO of TransCelerate BioPharma, which is leading the effort.

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