[This post first appeared on Forbes.com on April 27, 2019.]
Given how long pharma firms have been in the R&D business, you might think that by now they’d figured out how to pick the most promising projects to pursue – but you’d be wrong.
In a new piece at Pharmaceutical Executive, my friend Greg Belogolovsky of Navigant and I address this quandary. To be fair, most drug R&D projects fail for understandable reasons – science is hard, biology is complicated, and we know a lot less than we think we do. Plus, even approvable data don't automatically yield commercial success. But looking across the whole portfolio, when a company pursues too many R&D projects that are far more expensive or risky to develop, or far less commercially promising, than average, that's a self-inflicted wound.
Drug companies try to manage their R&D portfolios through annual reviews – but this painful ritual is purely a budget allocation exercise, not a strategic one: rank the projects, count the available funds, draw a line, and ditch everything that you can't afford. That might work for balancing the books, but it’s a lousy way to define long-term R&D goals, track how you’re measuring up, and improve over the long haul.
In our PharmExec piece, Greg and I propose that the solution is to get regular, retrospective input from external experts about each project in the portfolio. This wouldn't be a replacement for the budget allocation process, but would run alongside it – sort of like an NIH grant review panel, but after the fact, decoupled from funding decisions. Using outsiders to rate R&D projects removes internal politics and delusional group-think from the analysis, yields quantitative metrics for whether the portfolio is moving closer to or further from its goal, and provides clear guidance on whether and how to change course.
I saw this approach in action first-hand by serving for the past three years on a review board run by Greg and his Navigant colleagues for a research-focused non-profit. Because neither I nor my fellow panelists had any ongoing relationship with the organization, we felt free to rank the projects dispassionately. The independent dose of objective truth we provided to the executive team – using the same criteria that they'd developed themselves, but looking at each project with fresh, unbiased eyes – shook up some of their preconceived ideas about the types of studies they should be funding, and over time it’s led to a notable shift in how the organization decides which types of projects to support.
I encourage you to read our PharmExec piece for more details (here) – we make a few more points, and also provide some nifty references. But the bottom line is pretty simple: Budget allocation is important in R&D, but it’s no substitute for strategy. If pharma companies really want to make better choices over the long haul about which sorts of projects to fund, they should stop drinking their own Kool-Aid about the balance of cost, risk and reward in each project, and bring in outside experts to provide unbiased, data-driven assessments of their R&D portfolios.