Success in Pharmaceutical R&D: The Different Strategies of Western and Japanese Companies

Effective strategies and management techniques, especially those relating to investment, are essential for success in research and development (R&D) yet have seldom been studied in the global research-based pharmaceutical industry. For this reason, 50 of the world's leading pharmaceutical companies were investigated to determine their approach to R&D during the 1980s and early 1990s. Pharmaceutical revenue R&D expenditure in 11 countries showed continuous growth between 1981 and 1991 with an average increase of 15% per annum. Global R&D to sales ratios during this period rose steeply from 10% in 1981 to 14% in 1986, levelling off around this value. Expenditure was greatest in the United States, with United States companies producing the most leading new chemical entities (NCEs), but United Kingdom companies obtained both the highest average sales per leading NCE (>$770 million) and sales per company (>$2750 million) in 1992. United States, United Kingdom, and Japanese companies originated over 63'% of the leading NCEs of 1992. Japanese companies differed from Western companies. They had fewer R&D staff. They appeared to bring a higher proportion of synthesized products to market (2300:1 compared with a mean for Western companies of 5000:1). Japanese companies also allocated a lower proportion of their R&D budget to clinical studies (23% compared with 31%) but more to discovery (41 % compared with 30%) and to safety testing (13% compared with 8%) with a strong preference for a research strategy concentrating on product modification. The proportion of investment by Japanese companies outside their home base did not match that of Western companies. These differences may be a consequence of the reliance of Japanese companies on their domestic market and because products of Japanese origin are often developed by Western companies for Western markets. In 1992, licensed-in products represented about one-fifth of products in development but varied by region, being 14% in Europe, 29% in Japan, and 23% in the United States. Licensed-in products also represented 20% of those brought to market from 1988–1992 but proportions differed by region, being around 15% for Western companies but 35% for Japanese companies. It is concluded that marked strategic changes have taken place in the industry; companies are attempting to balance portfolios by the opportunistic licensing-in of NCEs. They are making use of contract organizations as they downsize and alter the focus of R&D