June 1998

Report of Research and Educational Activities

Mission Statement
The MIT Program on the Pharmaceutical Industry is a research and education program focused on understanding the structure and dynamics of the global pharmaceutical industry. Our research concentrates on the firms that make up that industry, as well as on their customers and government bodies providing oversight of the industry. POPI educates doctoral students to teach and conduct research in areas related to the industry. Through its research, POPI seeks to improve the management of the pharmaceutical industry in the discovery, development, and marketing of new drugs that add value to health and the delivery of medical care.

POPI Research

Productivity and Competitiveness in the Pharmaceutical Industry

Founded in 1991 with the support of the Alfred P. Sloan Foundation, the Program on the Pharmaceutical Industry has made a significant contribution to academic research into the workings of the pharmaceutical industry. Our multidisciplinary approach involves more than two dozen faculty from the MIT Schools of Engineering, Science, Humanities and Social Sciences, the MIT Sloan School of Management, and other institutions. Graduate students in the MIT departments of economics, chemical engineering, operations research, and management receive POPI support and play an important role on our research teams. In addition, pharmaceutical firms both help fund our research as corporate sponsors and provide data to POPI researchers. We also work cooperatively with numerous government agencies.

POPI research spans a wide spectrum of pharmaceutical industry activity to focus on the underlying determinants of global productivity, profitability, and competitiveness of firms in the industry. Several projects have applicability across national boundaries. Analysis of the role and impacts of regulation is central to many of our inquiries.

The pharmaceutical "pipeline" helps inform our understanding of the activities of firms in the industry. We use it as a tool for organizing our multidisciplinary research efforts, which correspond to the interrelated steps, or stages, of the pipeline. Our research falls into several research streams, each directly or indirectly related to the pipeline: drug discovery and development, innovation and technology transfer, manufacturing, the marketplace, and economic benefits and workplace productivity.

Whatever the research area, POPI researchers always seek a broader understanding of the industry's processes and products. Our overall objectives are to identify ways to enhance the pharmaceutical component of healthcare by increasing the productivity and competitiveness of pharmaceutical firms at a time of unprecedented changes in the science, in the products, and in the marketplace.

Much of our research today seeks to answer key questions about the industry identified as a result of our earlier work. POPI researchers frequently take findings from past work and apply them to test new hypotheses.

Research Stream

Drug Discovery and Development

Several factors have combined to create a radically new environment for the pharmaceutical industry - one of heightened uncertainty. Changes in how healthcare is financed, rapid industry consolidation, new regulatory requirements, as well as significant advances in medical science and technology all present the industry with major challenges and opportunities.

These broad changes have had a major impact on the way research and development is organized within and among firms in the pharmaceutical industry. There is even some evidence suggesting that increased competition and reduced prices may be on the horizon, which in turn could decrease both the incentives for pharmaceutical research and, ultimately, the number of drugs that come to market.

A number of specific projects - both new and ongoing - have comprised POPI research in this area. Our teams are exploring a broad range of questions related to these changes. What impact do they have on decisions about which drugs to develop? In which therapeutic classes? How do firms strike a balance between long- and short-term goals? How are firms addressing rising drug development costs? What about the growing role of biologics among pharmaceutical products? And what is the impact of the growing demands for more trials and greater confidence in data coming from regulators?

For instance, through in-depth, focused interviews with a wide array of industry participants, we are taking a specific look at the effectiveness and efficiency of the development process itself. This primary data source is supplemented with sales figures and patents data, scientific papers, and regulatory approvals, as well as internal firm data describing research portfolios.

Ongoing POPI work has been central to the industry's own financial understanding. Our researchers have built a financial simulation model which connects the tools of modern finance to a detailed description of the costs, risks, and returns of pharmaceutical R&D - a prototype for financial analysis of R&D investment and a way of understanding the financial structure and performance of the industry. It is POPI research that has identified the cost of developing a successful new drug to be in the vicinity of $450 million, considering actual expenditures on discovery, testing, and the cost of capital.

In another area of POPI research, we have explored how drug firms might be more efficient in their spending on drug development, and with respect to the time to market. Our ongoing research into R&D project management has yielded significant findings to date. We have shown the relationship between who makes decisions and the effectiveness of project management. We have contributed to the industry's own thinking about how best to organize project management. POPI researchers have demonstrated how firms can benefit from strengthening the position of project managers and where best to place these individuals in the organizational hierarchy.


Drug Development in the New Environment

Effectiveness and Efficiency in the Drug Development Process

Investment in R&D in the Pharmaceutical and Biotechnology Industries

Improving the Effectiveness of Pharmaceutical R&D Project Management

Research Stream

Innovation and Technology Transfer

How are ideas brought to fruition? How do ideas become products? Are there ways to make the process more efficient? Answers to these questions are central to the continuing growth and success of the pharmaceutical industry.

POPI researchers, building on the foundation set in our previous work, are today looking for those answers. Our teams begin with the idea that product success depend in some part to contributions made in various industrial, academic, and governmental settings. From there, we explore how the contributions from these different settings are integrated, and what leads to success or failure. This information is used in the development of a model of the innovation process, from which we can identify ways in which to improve performance of the contributing R&D organizations and thus enhance the entire process.

Several projects comprise this research stream. One team is looking specifically at technology transfer, seeking the answers to several questions: How are ideas brought to fruition? How do ideas become products? How does technological innovation developed in one place become part of the work in another? The goal is to identify how the efficiency of the process might be improved.

Another team has been exploring the role of publicly funded research; the findings thus far are of particular import in the public policy arena. One, there is a bi-directional nature to pharmaceutical research. Public-sector research has an impact on private-sector productivity. Further, the ways in which public research is conducted may be as important as the level of public funding, and efforts to realize a direct return on public investments in research may lead to a weakening of the culture and incentives of "open science" - and in turn cause the entire system of biomedical research to suffer.

In new collaboration among both POPI-supported and Rand Corporation economists and scientists, we are examining the consequences for pharmaceutical R&D of policies that permit the patenting of research tools and intermediate products such as gene fragments. These policies have implications for the openness of research and the diffusion of new knowledge, the costs associate with R&D, and the ultimate impact on innovation.


The Economic Impact of Patenting Research Tools

Technology Transfer and the Integration of Technological Innovation

The Role of Publicly Funded Research in Private-Sector Pharmaceutical Innovation

Research Stream

Pharmaceutical Manufacturing

Manufacturing is a significant component of the pharmaceutical picture, but one often overlooked as the industry explores cost-saving opportunities and strategic improvement. Further, there has been a "defensive" mindset toward manufacturing, where manufacturing choices are often made as a consequence of R&D and marketing choices, rather than in concert with those parts of the business.

Thanks in large part to POPI's ongoing efforts since our founding, more and more firms are recognizing the centrality of manufacturing to their overall business. POPI researchers are involved in a multiyear exploration of the role manufacturing can play in enhancing the competitiveness of firms in the industry; the degree to which firms successfully incorporate best practices into the manufacture of drugs; and what lessons from other industries might be appropriate to pharmaceutical manufacturing.

Thus far, our team has quantified cost-savings and efficiency improvements related to cycle-time reductions, reconfiguration of the supplier management process, and inventory management. In the area of cost-of-quality, POPI researchers have identified opportunities for firms to realize significant benefits if they shift from the present focus on inspection to a focus on prevention.

Process innovation is another major area of POPI research related to manufacturing. Our team is exploring ways, through process innovation, to move drugs more quickly through clinical trials, capture what is learned more effectively, and continue to learn and improve on manufacturing during the period of patent protection. This research has as its ultimate objective a reduction in the number of experiments firms will have to go through to determine the optimal manufacturing process. Early company data and simulated laboratory experiments suggest quite significant reductions are possible.


Optimization of a Biotechnology Service Operation

Benchmarking the Manufacture of Pharmaceuticals

Capturing Competitive Advantage Through Pharmaceutical Manufacturing

Research Stream

The Pharmaceutical Marketplace

A pharmaceutical firm's ability to market effectively the output of its product pipeline is central to its competitive position. Today's marketplace for these products is changing rapidly.

We concentrate much of POPI's research efforts on the marketplace, bringing together several disciplines including economics, marketing, management science, and medicine. POPI teams have explored - and continue to explore - questions of pricing, the impact of generics, order of entry, and promotion strategies.

One important area of POPI research in this regard has been our ongoing search for ways to quantify quality differences among drugs. Because many of today's "breakthrough" drugs offer relatively little advantage in efficacy or effectiveness compared to those of the past - but instead have markedly reduced side-effect profiles, less frequent dosing, easier delivery, and so on - drug firms find themselves competing more and more on these quality differences and on costs. The quality differences, though, have proven difficult to quantify. POPI researchers have had important success in quantifying the quality attributes of cardiovascular, gastrointestinal, antidepressant, and antihypertensive drugs. The results of our work help inform the debate over drug prices.

Another team has been examining the behavior of physicians in the prescribing of pharmaceuticals - research that provides a framework for evaluating social returns to R&D that can inform the study of economic benefits of various treatments. The team has found that physicians have relatively concentrated prescribing portfolios, and are more likely to prescribe a particular drug for a patient once they've prescribed it to another patient. The most "concentrated" prescribers tend to prescribe the most highly promoted drugs and the established market leaders.

Other research is looking at the relationship between effective marketing and the quality of the science underlying new drugs. Researchers thus far have shown that marketing efforts are likely to be far less successful in cases where "good science" is not part of the mix. New related research will look at whether allowing scientists to do "good science" increases R&D productivity.


Price Indexes for Antidepressant Drugs

Quantifying Qualify Differences Among Drugs

List vs. Transaction Prices of Prescription Pharmaceuticals

The "Science Factor" and the Diffusion of New Pharmaceuticals

Determinants of Success in the Market for Gastrointestinal Remedies

Empirical Implications of Physician Authority in Pharmaceutical Decisionmaking

Research Stream

Economic Benefits and Workplace Productivity

POPI researchers were among the first in the nation to explore the specific economic benefits of pharmaceutical therapies. It is POPI's groundbreaking early work in this area that first quantified the tremendous adverse economic impact of untreated mental depression. The results, presented at a press conference with Tipper Gore and widely covered by the media throughout the United States, have become a component in the public policymaking process and are informing corporate decisionmaking about pharmaceutical benefits.

Building on that early work, the POPI team went on to focus on workplace performance as a health outcome measure. Researchers have been exploring whether pressures for enhanced industrial competitiveness might encourage better uses of pharmaceuticals, seeking to quantify the cost impact of improvements in worker productivity that could result from breakthrough drugs.

The POPI work has several policy implications. Findings can be used to encourage employers to invest resources in medical interventions that improve productivity at work. These interventions, in turn, can be measured in monetary terms and used in cost-effectiveness analyses.

Most recently, a team has been examining the impact on work performance of anxiety, depression, hypertension, migraine, carpal tunnel syndrome, and treatment of certain respiratory disorders with sedating or nonsedating antihistamines. Future work on this project will explore the changes in productivity for family members providing care for dependent children who are ill.

Another project with policymaking implications is POPI's research into AIDS treatments, among the most important of recent innovations emerging from pharmaceutical R&D. Researchers are estimating the economic benefits - in terms of quality of life and longevity - patients accrue from these new therapies, using data from government agencies and firms in the industry. The results will be integral to evaluating the impact of government subsidies for AIDS patients.

At the international level, and related to the issue of economic benefit, POPI has been involved in an evaluation of the World Health Organization's "Essential Drug List"- which serves as the minimum formulary of pharmaceutical therapies available in most of the developing world. In public forums, POPI researchers have presented the case for addressing, through the EDL, the problems of growing bacterial resistance and ineffective control of drug distribution.


Patient Benefits from AIDS Treatment

Illness, Medical Treatment, and Work Performance

Workplace Performance as a Health Outcome Measure

The WHO Essential Drug List Versus Alternative Therapies

Measuring Prices and Quantities for the Treatment of Depression

Evaluating Patient Welfare Gains from Pharmaceutical Innovation

POPI Educational Program

POPI's research is complemented by our active involvement in educating MIT students at both the graduate and undergraduate levels. Since our founding, we have offered a number of subjects as part of MIT's regular academic catalogue, and have participated in, and thus strengthened, courses that predate POPI. We also offer a successful on-campus summer executive program.

Our academic offerings include:

"Principles and Practice of Drug Development" - our newest offering will be presented for the second time in the fall of 1998. Its multidisciplinary faculty includes five MIT researchers and industry guests who present ideas from pharmacokinetics and pharmacodynamics, engineering, management systems, and economics as they relate to drug discovery and development.

Seminar on Pharmaceutical and Biotechnology Industry Management" - offered each fall semester since 1991, and each week bringing together some 40 to 45 people: graduate and undergraduate students in management, chemical engineering, and biology; leading academics from MIT and other universities; and invited guests from industry. Students in this course have prepared more than 100 papers addressing industry issues.

"Health Technology" - a long-time MIT course restructured in 1991 to focus on the pharmaceutical industry. Typical enrollment has been 10 to 15 doctoral or master's degree students in management science or engineering, most of whom have already attended the seminar described above.

"Comparative Health Systems" - the core of the Sloan School's offerings in the healthcare area, developed by three POPI researchers and offered for the last four years.

"Industrial Economics for Strategic Decisions" - since 1992, one-third of each semester has been devoted to addressing, in economic terms, strategic issues facing the pharmaceutical industry.

"Management for Physicians, Scientists, and Engineers in the Pharmaceutical and Biotechnology Industry" - our summer executive program, offered on campus each June since 1992. Typically, 30 individuals from firms and governments worldwide participate.

For the last seven years, we have hosted or lead conferences and symposia bringing together industry, government, and academic participants to discuss essential pharmaceutical industry issues. At these conferences, which have taken place at MIT, in Florida, and in Spain, we feature the presentation of findings from POPI research. Among other topics, we have explored:

Redesigning Drug Development

The Future of the Pharmaceutical Industry

The Competitive Advantage of a Healthy Workforce

Economics of Pharmaceuticals: A Global Prospective

Managing Research and Manufacturing in the Pharmaceutical Industry

POPI in the Business and Policy Domains

POPI's contacts with pharmaceutical firms is not limited to our summer seminar. Since our inception, a number of our faculty and several students have had the opportunity to make invited presentations to seminars or meetings organized by pharmaceutical firms, trade associations, and professional associations. Firms, on a regular basis, also make data available for our research projects. Several of our teams make on-site "fact-finding" visits to firms as part of their research.

Our December 1997 symposium in Cambridge, "The Future of the Pharmaceutical Industry," attracted some 240 attendees. Most represented senior management from more than 100 pharmaceutical firms in the United States and abroad.

POPI is also active in the policy domain-part of our ongoing effort to reach decisionmakers beyond the industry itself. Over the years, POPI faculty have become regular participants on policy panels related to the pharmaceutical industry and healthcare. Our researchers have played a role on panels organized by several Cabinet departments, and have testified before the U.S. Congress.

Among POPI's many efforts in the business and policy arenas, here are some examples. A POPI faculty member participates in the FDA's collaboration on drug development improvement. Another POPI researcher co-chairs the outcomes panel for US Pharmacopoeia's Division of Drug Information. We presented key POPI findings to congressional staff and the media at a forum sponsored by the Economic Strategy Institute, a "think tank" which focuses on industry competitiveness. And POPI faculty have presented key POPI projects-including new paradigms for clinical drug evaluation, economic evaluation of drugs, and R&D project management-to senior FDA officials.

Who's Who - POPI Participants

POPI Co-Directors

Thomas J. Allen
Howard W. Johnson Prof. of Management
Sloan School of Management

Charles L. Cooney
Prof. of Chemical & Biochemical Engineering

Stan N. Finkelstein, M.D.
Sr. Research Scientist
Sloan School of Management

POPI Advisory Committee

Barry B. Bloom, Ph.D.
Pfizer, Inc. (retired)

Stephen C. Chappell, Esq.
CEO, Trimark Research Inc.

Robert Levy, M.D.
Pres., Wyeth-Ayerst

Judy C. Lewent
Sr. VP and CFO, Merck and Company, Inc.

Daniel Roos, Ph.D.
Japan Steel Industry Prof. of Engineering, MIT

Phillip A. Sharp, Ph.D.
Salvador E. Luria Prof. of Biology, MIT

Frederick W. Telling, Ph.D.
VP, Corp. Planning & Policy, Pfizer, Inc.

Henri Termeer
Chairman, CEO, Pres., Genzyme Corp.

W. Leigh Thomspon, M.D., Ph.D.
Clinical Pharmacologist

Kathryn Zoon
U.S. Food & Drug Administration

MIT Sloan School of Management Faculty

Arnold I. Barnett
Prof. of Operations Management & Research

Ernst R. Berndt
Louis B. Seley Prof. of Applied Economics

Rebecca M. Henderson
Assoc. Prof. of Strategic Management

Ralph Katz
Principal Research Associate

Stewart C. Myers
Gordon Y Billard Prof. of Finance

Scott Stern
Asst. Prof. of Management

Glen L. Urban
Dai-Ichi Kangyo Bank Prof. of Management

Lawrence M. Wein
Prof. of Management Science

Other MIT Faculty

Philip Lessard
Instructor in Microbial Genetics

Chokyn Rha
Prof., Biomaterials Science & Engineering Lab

Robert H. Rubin, M.D.
Harvard MIT Div. Health Sciences & Technology

Anthony J. Sinskey
Prof. of Microbiology

Peter Temin
Elisha Gray II Prof. of Economics

Daniel I.C. Wang
Institute Prof.

Richard J. Wurtman
Cecil H. Green Disting. Prof. of Neurosciences

Faculty of Other Institutions

Howard L. Bailit, D.M.D.
Prof., Health Center, Univ. of Connecticut

Stephen R. Byrn
Jordan Prof. of Medicinal Chem., Purdue Univ.

Iain Cockburn
Asst. Prof. of Econ., Univ. of British Columbia

Steven Garber
Sr. Economist, Rand Corporation

Susan Gates
Sr. Economist, Rand Corporation

Zvi Griliches
Paul M. Warburg Prof. of Econ., Harvard Univ.

Mark Moore
Asst. Prof., Univ. of California, Irvine

Alvin Silk
Prof. of Marketing, Harvard Business School

Manuel Trajtenberg
Prof. of Economics, Tel Aviv Univ.

Albert Williams
Sr. Economist, Rand Corporation

Industry Colleagues

Ashoke Bhattacharjya
Janssen Pharmaceutica

Cathy Carroll
Hoechst Marion Roussel

Douglas Cocks
Eli Lilly

Michael Doodson

Morris Friedman

Paul E. Greenberg
Analysis Group Economics, Inc.

Keith Heithoff
Schering Plough

Timothy Hunt
Pharmacia and Upjohn

Alison Keith

Martin B. Keller, D.M.D.
Brown Univ.

Thomas Kroghan
Eli Lilly

Robert Miceli

James M. Russell, M.D.
Univ. of Texas Medical Branch

Program on the Pharmaceutical Industry
MIT Sloan School of Management
38 Memorial Drive, E56-390
Cambridge, MA 02139-4307
telephone: 617-253-5194; fax: 617-253-3033


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