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Project Management National Conference 2011 PMI India

Project Management Challenges in
pharmaceutical research -
balancing cost and innovation

P Subramanian, PMP
Project & Resource Management, Aurigene
Discovery Technologies Ltd., Hyderabad,
India

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Application of Select Tools of Psychology for Effective Project Management


Contents

1 ABSTRACT......................................................................................................................4
2 INTRODUCTION.............................................................................................................4
3 THE R&D PROCESS.......................................................................................................5
4 THE COST – INNOVATION CONUNDRUM...............................................................7
4.1 COSTS OF PHARMACEUTICAL R&D......................................................................7
4.2 TRENDS IN R&D COSTS AND KEY DRIVERS.......................................................8
4.3 THE INNOVATION PERSPECTIVE : R&D PERFORMANCE................................9
5 PROJECT MANAGEMENT CHALLENGES IN PHARMACEUTICAL R&D..........10
5.1 SCOPE MANAGEMENT............................................................................................11
5.2 TIME MANAGEMENT..............................................................................................11
5.3 RESOURCE MANAGEMENT...................................................................................12
5.4 PROJECT MANAGEMENT CULTURE OF THE ORGANIZATION.....................13
6 CONCLUSION...............................................................................................................13
7 ACKNOWLEDGMENTS...............................................................................................14
8 REFERENCES................................................................................................................14
9 AUTHOR’S PROFILE...................................................................................................15

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1 ABSTRACT

The inherent technical risk in the pursuit of new drugs in the pharmaceutical
industry is further compounded by additional challenges such as the regulated
environment, complexity and long gestation period of new drug discovery
projects. As the primary interface between science and business in this
environment, project management faces a unique challenge of being able to
balance cost and innovation, i.e enabling delivery of projects while ensuring that
the organization is able to grow and sustain its financial progress. This balance
can often make the difference between success and failure in a highly
competitive pharmaceutical industry. Adding to the challenge is managing the
number of iterations in a research project, incorporating these learnings and
enabling the project to focus and prioritize promising drug candidates for further
development. Moreover, since project durations are long, the project team
develops a strong emotional attachment for the project, and it becomes hard for
the team to detect and flag issues that warrant key decisions such as
termination. Above all, creation and sustenance of an enterprise project
management culture that is fully endorsed by top management and implemented
by senior managers in a cross functional manner is a key challenge that often
skews the balance between cost and innovation. The key objective of this paper
is to elaborate and connect these challenges with the aim of being able postulate
a robust framework to achieve this balance.

Keywords: Drug discovery, cost, innovation, project management

2 INTRODUCTION

The global pharmaceutical industry is complex in many respects – while the
primary objective of the industry is to satisfy unmet medical needs of the patient,
the economics of investment and profitability in basic R&D play a significant role
in influencing these objectives. While returns on R&D are on average attractive,
these vary considerably from one drug to another – one key driver for this being
that consumer demand for prescription drugs are often mediated by healthcare
practitioners and insurance companies in regulated markets. Although the cost of
manufacturing of a new drug is relatively low, the costs of discovering,
developing a drug, testing the drug through several phases of human clinical
trials and finally obtaining marketing approval are not trivial, and are
consequently loaded onto the price of the drug in the market. Intellectual property
protection needs of the private R&D sector preclude the publishing of
comparative information from clinical trials between competing drugs, thus
disabling practitioners and users from exercising the right choices which in turn
blocks improvement of the market signals guiding investment decisions in R&D.

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The primary objective of this paper is to present the author’s understanding of
how these factors interact with the industry’s R&D process, so that it may be
possible to position the equation between cost and innovation in the
pharmaceutical R&D environment. The paper also attempts to connect the
challenges at an execution level from a project management perspective, given
that the R&D environment faces the additional complexities of technical
uncertainties, longer gestation periods and number of scope changes during the
life cycle of a pharmaceutical R&D project. The scope of this paper is primarily
towards innovative drugs or NCEs (New Chemical Entities) rather than
incrementally modified drugs or generics.

3 THE R&D PROCESS

The pharmaceutical R&D business differs from other businesses in its complex
structure, criticality of intellectual property, the ever-increasing regulatory hurdles
and R&D intensiveness. The process of developing a new drug is more complex
than new product development in other industries because the development is
highly regulated, it takes an extremely long time to develop a product and a large
amount of monetary and intellectual resources are involved. As an illustration of
this point, the pharmaceutical industry has the highest ratio of R&D spending to
sales (estimated at 17.5% in 2006) of any industry in the USA.

There are three major steps in the life cycle of a novel pharmaceutical product:
discovery, development and commercialization.

Figure 1 depicts the drug development process starting from discovery. It is
important to note that the phases are usually concurrent and the decision making
complexity is increased due to the existence of several projects in the portfolio.

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Figure 1.New Drug R&D Process

Source: PhRMA, 1995

The discovery stage is aimed at selecting the most promising chemical
compounds from the vast set of screened compounds. The selected compound
is the one that best modulates the biological target and has no obvious safety
concerns when tested in animals.

Preclinical testing focuses on postulating the effects and side effects of the
compound when it is given to humans. In addition, compounds are patented to
secure market exclusivity when the drug reaches markets. When authorities
grant the approval to treat first humans, clinical trials can begin, i.e. the drug can
be given to humans.

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In Phase I studies the drug is given to approximately 20 to 80 healthy volunteers
to test the drug’s safety at a number of predetermined dose levels to see how the
human body reacts to the drug. If unacceptable behavior is detected, the study
and the project itself may have to be terminated.

In Phase II the drug is given to few hundreds of patients with the targeted
disease. In these studies drug’s efficacy is established together with the
determination of effective dosage and administration frequency. Animal testing
continues with long-term toxicology studies. Pilot studies are conducted in
anticipation of production of the drug in larger quantities for further trials and
commercialization. If the drug does not effectively treat the disease or is inferior
to competing products the development may be discontinued, and the program
may be taken back to discovery for further refinement. If the drug proves to be
effective, authorization for starting Phase III studies is applied.

Phase III trials focus on getting statistical verification of efficacy already
established in Phase II studies. This is the most expensive part of drug
development requiring thousands of patients and extensive global co-ordination.
In addition to efficacy, drug-drug interactions are studied and comparison with
competing products is carried out. Further evidence about the side effects,
toxicity and general safety of the drug is sought and evaluated. Long-term toxicity
studies go on together with production process optimization, plant design and
manufacturing site assessment.

For the regulatory approval, all documentation is delivered to the authorities.
Marketing strategy is developed together with designing the promotional material
and training the sales force. The commercial production facilities are built and
price negotiations with suppliers and distributors are conducted. After the
marketing approval is received, the product is launched. When the product is on
the market, Phase IV studies are conducted to identify rare adverse events that
were left unnoticed in Phase II and III studies. Furthermore, changes in the
occurrence of known adverse events and new therapeutic indications are also
explored.

4 THE COST – INNOVATION CONUNDRUM

4.1 COSTS OF PHARMACEUTICAL R&D

Launching a new drug containing a previously unknown active ingredient can
take years to develop and test – the understanding that is needed of the
biological pathways that the drug needs to modulate, the creativity needed in the
design of molecules and the integration of these elements into a drug that
provides the correct balance of efficacy and safety is a task that requires both

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skill and patience. Additionally, the rate of failures in new drug discovery are
considerable – for every drug that survives the rigor of development and testing,
there are several other projects that do not pass the scrutiny of scientific testing
and regulatory approval – these costs also form part of the organization’s R&D
costs. The total cost of developing a new drug could well be much higher than
these direct costs – indeed, the opportunity costs of tying up investment capital
for research projects could be as high as the entire organization’s R&D spending.
While opportunity costs exist in all industries and specifically for innovative
products, these costs are much higher for pharmaceutical R&D primarily due to
the long gestation periods associated with moving a new drug to the market.

A frequently quoted study on pharmaceutical R&D cost estimates the average
cost of successfully developing and launching a new drug to be $800 mn in the
year 2000. Although this estimate suggests that pharma R&D is prohibitively
expensive, it is important to note that this is an average that takes into account
the cost of failures and certainly reflects the research strategies and choices that
companies exercise based on financial parameters such as projected revenues.
Additionally, R&D costs are highly variable between different therapeutic classes
and indications, and are also lower for incrementally modified drugs. Over the
past few years, several perspectives and arguments have been brought up on
this estimate – for instance, it has been argued that while this estimate may hold
good for ‘breakthrough’ drugs, the direct cost of developing an incrementally
modified drug would be far lower; the fully capitalized R&D costs would be
certainly less than $800 mn since the time taken to modify an existing drug would
be shorter than discovering a new one. One other perspective is that these costs
are representative only of big pharmaceutical firms who participated in thus
study, whose research strategies are typically aligned towards chronic diseases
requiring significantly more investment of time and effort. In addition, there have
also been debates around excluding the opportunity cost of capital from these
estimates, which would then lower the estimate to around $110 mn – however,
from an economist standpoint, opportunity costs are indeed very real and
perhaps should not be discounted.

In summary, it appears that the average R&D costs for a new drug have a
considerable variation of estimates – ultimately, these costs may not be of much
help in making the decision on funding a project, since the investment decisions
are also based on expected returns.

4.2 TRENDS IN R&D COSTS AND KEY DRIVERS

An overview of surveys on R&D costs conducted between 1976 and 2000 seem
to suggest that costs have increased nearly six fold, from an estimated $137 mn
in 1976 to the current estimate of $802 mn in 2000.

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Some of the key drivers contributing to this growth are summarized below:

• An increased number of projects that fail in human clinical trials

• A trend towards lengthier clinical trials as well as a rise in the number and
size of trials that firms are required to conduct for regulatory approvals

• A strategic shift towards drugs intended to treat chronic illnesses

• The increase in time being spent on preclinical research, so that companies
are able to make more efficient decisions on spending for human trials

• An increased commercialization of basic research, with firms willing to pay
more for research findings that may have been freely available in earlier
times

4.3 THE INNOVATION PERSPECTIVE : R&D
PERFORMANCE

If innovative performance of the pharmaceutical industry can be measured by the
number of new drugs that make it to the market each year, then there is sufficient
evidence to show that the number of new drugs introduced each year has not
kept pace with the spending on R&D. From the 1970s to the 1990s, the gradual
upward trend in R&D costs appeared to match the trend in number of drugs
approved; however, from the mid-1990s, it was seen that the number of new
approvals fell sharply, whereas R&D costs continued to rise. Measurement of
performance based on number of patents granted or new drug applications also
showed a similar decline.

However, there are several shortcomings of such a performance measure:

• The conventional measure of innovative performance does not include
modifications to existing drugs which can significantly benefit consumers by
either having a better safety profile or an improved form that reduces dosing
to improve patient compliance. A growing share of the industry’s R&D is
towards these drugs – excluding these from performance measures could be
a significant omission

• Conventional measures of R&D performance also do not consider the drug
quality or the societal value of pioneering drugs. While it is understood that
quality would be extremely difficult to measure and quantify into performance,
it is important to make note of several examples of these breakthrough drugs

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– as an example, statins which reduce cholesterol levels did not exist a
generation ago, but today are by far the biggest therapeutic class in major
markets. There have also been several innovative drugs in the field of
oncology that have greatly added to the quality of life for a cancer patient. In
fact, there is data to show that although the annual approval of new drugs
has declined over the last twenty years or so, there has actually been a slight
increase in the number of pioneering treatments that have entered and
expanded the markets significantly

• One other shortcoming of a traditional ‘input vs output’ measurement is the
fact that the new drugs approved in a given year would not be strictly due to
the spending for that particular year – given the long gestation periods of
drug discovery, more often than not, the investments in the preceding years
bear fruit in the future years. Such a conventional measure, therefore, could
significantly understate or indeed overstate productivity in a given year, and
is likely to be accurate purely by chance.

In summary, inspite of all the empirical evidence that is available on both cost
and performance of pharmaceutical R&D, it appears that it would be difficult to
draw a direct correlation between these two variables. However, there is a need
to ensure that research projects are executed with a degree of rigor with the help
of established project management methodologies, such that productivity
improvements can be tangibly measured in an environment that is highly
complex, dynamic and has several aspects that are outside the direct control of
the pharmaceutical firm.

The next section of this paper positions the key challenges from a project
perspective, given that project management is now widely recognized as a
strategic competency.

5 PROJECT MANAGEMENT CHALLENGES IN
PHARMACEUTICAL R&D

From the above discussion, it has become vital to reduce routine activities and
speed up processes by optimizing resources. A drug discovery endeavor
comprises of a number of sub-projects with cross-functional contributions from
several skill areas including chemistry, biology, clinical development, process
development, and marketing planning - a typical project is therefore, time, cost
and resource intensive in nature. The principles of progressive elaboration are
essential in this process, and planning requires a coordinated and determined
team effort.

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Even though project management cannot guarantee the successful launch of
new products, it is widely recognized as an integrating function between science
and business, and thus an essential skill to facilitate the successful delivery of
these projects. The primary expectations from project management in such an
environment are to deliver cost-effective planning, execution and monitoring of
projects; optimized business processes and resources; fewer routine activities;
and faster project procedures. In order to do this, project management in R&D
must be efficient and effective.

In this section, the author has organized perspectives on the key project
management challenges in R&D around some of the critical knowledge areas;
additionally, elements of organizational project management maturity from a
culture perspective are also discussed.

5.1 SCOPE MANAGEMENT

In an R&D project, the project scope is usually outlined in the form of a target
product profile (TPP) at the time of initiation – this involves ‘back-translating’ the
commercial expectations into deliverables for defined stages of the project.
However, defining this scope for an innovative drug is particularly challenging
where there is lack of scientific precedence and translation between animal and
human testing. The product profile is also continuously influenced by external
factors such as changes in the competitive landscape or policies of regulatory
agencies – it is, therefore, inevitable that scope changes will occur during the
lifecycle of such a project.

Managing these scope changes through a robust change control process is one
of the key challenges from a project management perspective – articulating the
envisioned scope into deliverables is difficult by itself, and assessing the impact
of any scope changes on other aspects of the project such as cost and time is
complex, variable and highly dynamic. There are also several stakeholders at
various stages of the project, and the lack of differentiation between ‘needs’ and
‘wants’ often results in project scopes that are poorly articulated, and more
importantly, result in a gap in establishing a change control mechanism

5.2 TIME MANAGEMENT

The dependency on the scientific approach to the project, and the uncertainties
associated with testing the drug in a living system make the process of time
management in an R&D environment particularly complex – some of the key
challenges are elaborated below:

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• In the early stages of a discovery project, designing and modifying chemical
compounds and testing them in biological systems for effectiveness and
conformance to safety requirements is paramount – this requires significant
co-ordination between multidisciplinary teams. Learnings from these
experiments are channeled back into the chemistry efforts, and the process
of iteration continues until a suitable drug candidate is identified for further
development. The presence of multiple iterative loops in this process creates
challenges in terms of planning and execution

• Ascertaining the granularity at which a plan needs to be baselined is another
challenge – in the early stages of discovery, there are several assumptions
made that get validated further downstream – incorporating all these
assumptions into a project plan creates a multivariate baseline that is difficult
to monitor

• There are also several scenarios where additional experiments are carried
out in order to generate additional data for decision making, or experiments
are repeated to ensure reproducibility – these scenarios are difficult to plan
and baseline

5.3 RESOURCE MANAGEMENT

The process of ensuring that resources are adequately available and deployed
for an R&D project with all the incumbent risks requires careful prioritization and
monitoring – the key challenges faced by project management in doing this are
summarized below:

• From a human resource standpoint, the constitution of a project team
requires a clear understanding of the fact that R&D projects are skillset driven
rather than purely number driven. In an environment where such resources
are rare, putting together such a team requires multiple levels of agreement
to ensure commitment of the team. Also, retaining this team for projects
which extend to several years is a unique challenge – ensuring that
knowledge acquired during the course of the project is retained and
transferred appropriately is a challenge that project management needs to
grapple with constantly

• From a material standpoint, rigorous planning to ensure that material and
equipment are prioritized and made available to the team is critical – unless a
robust portfolio prioritization process is available in the organization, this
prioritization becomes ad-hoc and myopic, thereby resulting in project
management playing a firefighting role rather than being able to align project
goals with the organization’s strategic objectives

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5.4 PROJECT MANAGEMENT CULTURE OF THE
ORGANIZATION

Organizations that are eager to jump onto the project management bandwagon
need to realize that mere implementation of project management systems and a
PMO is unlikely to deliver the expected results of a project based approach– the
creation of a project management culture and its buy-in across the functional
hierarchy is paramount to the sustenance of project management within the
organization.

Building a project management culture in an organization entails a new set of
behaviors and the key to this is the acceptance of project management as a
strategic competency rather than just a tactical one. The role of senior
management is crucial to the success of this culture; factors such as alignment to
existing organizational structures, readiness of leadership to embrace and
implement this change in a consistent manner, and a vision of how the project
based organization will function and deliver often make the difference between
success and failure of project management initiatives. Once there is in-principle
agreement on the long term benefits of a project management culture,
implementation of this process involves detailed planning, sufficient resource
commitment and a robust reward system. An organization that intends to develop
a project management culture must not only measure the effectiveness of its
systems and processes regularly ; but also ensure continuous stakeholder
consensus to ensure that the project management environment can grow ,
flourish and thereby evolve into a truly project based organization.

6 CONCLUSION

From the above discussion and analyses, it would appear that drawing a
straightforward correlation between cost and innovation in pharmaceutical R&D
is difficult, if not impossible – this would need a structured approach
incorporating all the possible variables into an equation that can be understood
at the operational level. Having said that, the balance between these two
elements can largely determine the success of the organization in a complex
environment.

It is also beyond reasonable doubt that managing an R&D project is challenging
– this problem is amplified in organizations that have multiple projects, each with
their own stakeholders, resource and communication requirements, budgets and
risks. The project management discipline has evolved to address these key
challenges, and continues to evolve to deliver value to project based
organizations. Organizations that have recognized project management as a
strategic competency and integrated this discipline within their core processes
have successfully acquired a competitive edge.
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Identifying critical success factors that lead organizations to superior levels of
performance and maturity is the starting point; building these into a well-
established and often, politically driven organization is the next step.
Unfortunately, there is no universal path to maturity – there are no right or wrong
answers to the question that organizations face when they attempt to achieve
project management maturity. The answer is primarily driven by organizational
priority in terms of whether it is important to drive this top down, which may work
better for organizations that need to immediately prioritize their portfolio to align
with strategic objectives, or use a bottom up approach, where the need of the
hour is to ensure that project management practices and methodologies are in
place to improve the probability of successful project execution.

7 ACKNOWLEDGMENTS

The author would like to thank his current and past employers for providing the
opportunity and experience to understand the challenges in implementing project
management in their organizations. The author would also like to acknowledge
all the inputs received from various groups of stakeholders in putting together
this paper.

8 REFERENCES

1. Joseph A. DiMasi, Ronald W. Hansen, and Henry G. Grabowski,“The Price of
Innovation: New Estimates of Drug DevelopmentCosts,” Journal of Health
Economics, vol. 22, no. 2 (March 2003),pp. 151-185.

2. Public Citizen Congress Watch 2001. Rx R&D Myths: The Case Against the
Drug Industry’s R&D ‘Scare Card’. Public Citizen, Washington, DC, 2001.

3. Congressional Budget Office based on R.W. Hansen, “ThePharmaceutical
Development Process: Estimates of CurrentDevelopment Costs and Times
and the Effects of RegulatoryChanges,” in R.I. Chien, ed., Issues in
PharmaceuticalEconomics (Lexington, Mass.: Lexington Books,1979)

4. Cooke-Davies, T.J. and Arzymanow, A. 2003. The Maturity of Project
Management in Different Industries: An Investigation into Variations between
Project Management Models. International Journal of Project Management,
Vol. 21, No. 6. pp. 471-478.

5. Larsen, Eldon R. 2005. Apply Project Management Concepts to R&D.
Retrieved on July 12, 2008 from
http://findarticles.com/p/articles/mi_qa5350/is_200501/ai_n21365554/print?
tag=artBody;col1
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6. E.Verzuh, the Fast Forward MBA in Project Management, Wiley, New York,
1999.

7. R.J Graham and R.J Englund, Creating an Environment for Successful
Projects, Jossey-Bass, USA, 1997.

9 AUTHOR’S PROFILE

The author is the Head of Project and Resource Management at
Aurigene Discovery Technologies (a wholly owned subsidiary of
Dr.Reddy’s Laboratories Ltd). The author has around 14 years of
experience in the pharmaceutical industry, and has played roles of
increasing responsibility in areas such as strategic sourcing, clinical
operations and project/program management with organizations such as
GlaxoSmithKline and Dr.Reddy’s Laboratories.

Subramanian_p@aurigene.com

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