ViewPoints: Can Big Pharma cut R&D spending but improve productivity? – Poll Results

According to the results of a poll conducted by FirstWord, Big Pharma will struggle to improve its internal R&D productivity while it continues to cut back research expenditure. Sixty seven percent of respondents took this view, including John LaMattina – former head of R&D at Pfizer. He told FirstWord "R&D is the engine that drives a company, period. A big budget certainly does not guarantee success but it can help."

Insight, Analysis & Opinion

Novartis demonstrated the underlying value of innovation and R&D productivity when it announced its second-quarter results on July 19. Pharmaceutical sales may have fallen by 1 percent year-on-year, but analysts were impressed with revenue growth from products launched since 2007, which effectively offset generic erosion to Novartis’ flagship hypertension franchise Diovan. CEO Joe Jimenez says the company has benefited from being focused on research more than marketing.

Novartis is a poster boy for LaMattina’s school of thought when it comes to R&D spending levels; in a recent column written for Forbes, he noted "Novartis has been heavily investing in R&D for a number of years with an $8 billion investment in 2010, $9 billion in 2011, and $10.1 billion projected in 2018. Clearly, simply investing money doesn’t guarantee success, but Novartis’ bold spending heightens its odds."

Others suggest, however, that there is room for cutting; Sanford C. Bernstein analyst Tim Anderson told FirstWord “it depends on how you define ‘pipeline productivity.’ I’m not sure a company can get more out of the pipeline by spending less, but they may be able to get the same by spending less, and if you define pipeline productivity as the amount of spending it takes to achieve a certain output, then under this scenario productivity would increase."

In essence, Anderson says that output is not necessarily linked to spending. He suggests that a number of R&D executives have cited the "wrong assumption made by the industry that R&D spending was scalable," i.e. if you spend twice the amount, your output will double. "In fact, what this did was clutter and overwhelm the system," says Anderson. Reducing this clutter has been at least partially used to justify the R&D cuts that have swept across the Big Pharma peer set in recent years, alongside restructuring initiatives designed to improve efficiency.

Pipelines may become more focused, however, necessary investment at the product level may expand, with pricing and reimbursement considerations playing an expanding role. "An increasingly prominent feature of bringing a new product to market is satisfying the interests of not only regulators but also payers," says LaMattina. As a result, the cost of running the necessary Phase II and Phase III programmes are potentially huge, he adds, "as this often requires long-term outcome studies as well as head-to-head trials against the current leading treatment."

At this juncture, the impact of R&D cuts remains something of an unknown. It will only become apparent when output is measured over the necessary period of time, Anderson tells FirstWord, "but that slowly seems to be the direction Big Pharma is headed."

See also:

ViewPoints: AstraZeneca sets development targets against backdrop of R&D cuts.

ViewPoints: Sanofi job cuts – less is more?

ViewPoints: Why job cuts at Roche won’t slow R&D progress.

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