The number of new medicines has steadily dropped, while the cost of bringing each one to market has risen sharply to more than $1bn (£605m, c700m). The debate has never been more urgent. Pharmaceutical companies face the disappearance of billions of dollars in revenues in the next few years as patents expire on their existing medicines, undermining the sales that have kept them in business. Meanwhile, state and private healthcare systems alike are seeking ways to cut costs and are balking at the rising price of new medicines.

A first tactic companies are adopting to deal with their troubled drug ‘pipelines’ is to overhaul internal processes. Stephan Danner of Roland Berger, a consultancy, says drug development has begun to receive the cost-cutting scrutiny previously given to operations such as sales forces. At the centre of this approach is speeding up the clinical trials that are required to test experimental drugs on patients. The more quickly that promising new medicines are launched, the greater the revenues generated before their patents expire. By the same token, the more swiftly drugs with problems are identified, and abandoned before expensive late-stage testing begins, the lower the wasted development costs.

Greater computerisation of the results of drug tests in patients is a start, says Patrice Matchaba, head of drug safety at Novartis, another big producer. Much data is still collected on paper, which takes longer to process. He also sees a sharp rise in trials taking place in developing countries such as China, where costs are lower and it is quicker to find patients. Companies are also seeking to create structures that foster innovation. Chris Viehbacher, who has been overhauling Sanofi-Aventis since he became chief executive late last year, says: ‘We had 11 management levels in research and development and you had to dig down quite a few before you found anyone doing research. We need to reconfigure. We’ve just been tweaking things. We have to change how people think and interact.’

Many other industry leaders have tried to do the same, although no clear winning model has emerged. When he took charge of GlaxoSmithKline at the start of the decade, Jean-Pierre Garnier introduced a series of smaller ‘centres for excellence in drug discovery’ focussed on types of therapy. Andrew Witty, who replaced him last year, says these groups now need to be sub-divided further to deliver better results. A second approach to boosting innovation involves intensified collaboration between companies. Eli Lilly has signed cost- and revenue-sharing deals with operators including Covance and Quintiles. AstraZeneca has agreed development projects with Bristol-Myers Squibb on a diabetes drug and with Merck for a cancer treatment.

QUESTIONS

1. This case describes a number of approaches to organisational structure in pharmaceutical companies. What could be the advantages and disadvantages of each approach?

2. To what extent might those approaches be relevant in other industries?

3. How might organisational or national culture impact on the effectiveness of the various approaches?