Changing Pharmaceutical Industry Must Leverage Manufacturing IT

As development costs skyrocket, IT will be the glue that holds tomorrow's distributed business models together

Long protected by generous margins and double-digit profit growth, today's drug industry is under mounting pressure to change its ways--and information technology is poised to help with many aspects of the transition.

Over the past several years, fewer new drugs have been approved, while development costs continue to skyrocket. Indeed, a recent report by the Boston-based consultancy Bain & Co. (www.bain.com) calculates that the cost of launching a new drug has climbed 55% over the past five years and now tops $1.7 billion when full launch costs are included.

"Based on recent investment levels, success rates and forecasts of commercial performance, we expect the blockbuster drug model to deliver just 5% return on investment "significantly lower than the industrys risk-adjusted cost of capital," write Jim Gilbert, Preston Henske and Ashish Singh, authors of the Bain report "Has the Blockbuster Pharmaceutical Model Gone Bust?" The study authors also note that today there is only a one-in-six chance of a new compound achieving a return on investment of 12% or more--a decidedly unattractive prospect for investors.

To become more efficient, the report contends, the drug industry must shift from monolithic, integrated corporate structures and broad, opportunistic development strategies to looser confederations of more specialized corporate entities designed to better bear the risks--and share the rewards--of a business environment with increasingly little room for error.

Bain's analysis rings true. Large companies producing a variety of products often are less efficient on a unit-cost basis due to larger facilities and resultant higher capital costs, potentially lower capacity utilization, diluted personnel experience and lack of management focus. The contribution of specialization to overall industry efficiency is confirmed by the higher degree of new launch success chalked up by pharmaceutical companies with a past history of success with similar drugs or with therapies targeted to similar patient groups.

But if specialization and focus are the means to greater efficiency for the industry as a whole, it's equally clear that information technology will be a key enabler of these newly distributed business models, allowing different corporate entities with disparate specializations to bring new drugs to market rapidly and cost-effectively while satisfying the FDA's regulatory requirements.

The important role of information technology in automating and streamlining the new drug discovery and development process is well established, especially in the nascent realms of genomic and proteomic research. Even the successful execution of clinical trials--from data capture through analysis--clearly stands to benefit from the latest advances in mobile computing and telecommunications technologies.

But recovering to its previous levels of profitability will take far more than just new business models. The manufacturing process itself must be made more efficient as well. Yet back at today's typical pharmaceutical manufacturing site, some 70 different systems--many of them paper-based--are used to track and manage information, much of it required to satisfy the FDA's regulatory demands. And while meeting the FDA's expectations remains a cost of doing business, information technology can help to streamline this task, more efficiently managing data starting at the earliest stages of process and facility design and carrying throughout a production facility's lifecycle.

New, more efficient business models may dictate the shape of tomorrow's pharmaceutical industry, but information technology will be the glue that holds them together.

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