Ways to Successful Strategies in Drug Research and Development

H. Harald Sedlacek Alice M. Sapienza Volker Eid

Ways to Successful Strategies in Drug Research and Development

0 VCH VerlagsgesellschaftmbH, D-69451 Weinheim (Federal Republic of Germany), 1996 Distribution: VCH, P.O. Box 10 11 61, D-69451 Weinheim, Federal Republic of Germany Switzerland: VCH, P.O. Box, CH-4020 Basel, Switzerland United Kingdom and Ireland: VCH, 8 Wellington Court, Cambridge CB1 lHZ, United Kingdom

USA and Canada: VCH, 220 East 23rd Street, New York, NY 10010-4606, USA Japan: VCH, Eikow Building, 10-9 Hongo 1-chome, Bunkyo-ku, Tokyo 113,Japan ISBN 3-527-29415-5

H. Harald Sedlacek Alice M. Sapienza Volker Eid

Ways to Successful Strategies in Drug Research and Development

9

VCH

Weinheim * New York Base1 Cambridge *Tokyo

Prof. Dr. H. Harald Sedlacek Behringwerke AG D-35001 Marburg Germany

Prof. Dr. Alice M. Sapienza Graduate School of Health Studies Simmons College Boston, MA 02115 USA

Prof. Dr. Volker Eid Faculty of Catholic Divinity Otto-Friedrich University D-96045 Bamberg Germany

This book was carefully produced. Nevertheless, author and publisher do not warrant the information contained therein to be free of errors. Readers are advised to keep in mind that statements, data, illustrations, procedural details or other items may inadvertently be inaccurate.

Published jointly by VCH VerlagsgesellschaftmbH, Weinheim (Federal Republic of Germany) VCH Publishers Inc., New York, NY (USA)

Editorial Director: Dr. Michael Bar Production Manager: Dip].-Wirt.-Ing. (FH) Bernd Riedel

Library of Congress Card No. applied for.

A catalogue record for this book is available from the British Library. Deutsche Bibliothek Cataloguing-in-Publication Data: Sedlacek, Hans Harald: Ways to successful strategies in drug research and development / H. Harald Sedlacek; Alice M. Sapienza; Volker Eid. Weinheim; New York; Basel; Cambridge; Tokyo: VCH, 1996 ISBN 3-527-29415-5 NE: Sapienza, Alice M.:; Eid, Volker:

0 VCH VerlagsgesellschaftmbH, D-69451 Weinheim (Federal Republic of Germany), 1996 Printed on acid-free and chlorine-free paper All rights reserved (including those of translation in other languages). N o part of this book may be reproduced in any form - by photoprinting, microfilm, or any other means - nor transmitted or translated into a machine language without written permission from the publishers. Registered names, trademarks, etc. used in this book, even when not specifically marked as such, are not to be considered unprotected by law. Composition: Graphik & Text Studio Zettlmeier, D-93164 Laaber-Waldetzenberg Printing: Strauss Offsetdruck GmbH, D-69509 Morlenbach Bookbinding: Wilh. Osswald & Co., D-67433 Neustadt

You shall know them by their fruits (Matth. 7.16)

Preface and Words of Thanks

Strategic planning is a critical subject, central to the success of any scientific and economic undertalung. The planning of realizable strateges in drug research and development needs not only the considerable scientific background of many persons, but also an intuitive feeling of what may occur in the future which approach may be competitive, and which option can be achieved. Finally, a prerequisite for planning realistic strategies is the knowledge of how to accomplish this planning. Several years ago, I became fully aware of this necessity when the task of strategic planning of the R&D activities of our company was delegated to me. At this time I had a scientific understanding of the stratepes for research work necessary to prove a hypothesis. But, how to develop an overall core strategy for our research activities was completely unknown to me. Reading several books, which in the view of business economists cover the topic "Strategc Planning in the Pharmaceutical Business," did not give me the specific help I needed. As good luck would have it, I had the advantage of help and advice from Helmut Weber. He was versed in all aspects of strategic planning in the pharmaceutical business. A chemist by training, his industrial career had led him from research via the medical department, marketing and product management to the development of strategies. Thus, in the pharmaceutical business, he was skilled in how to collect, analyze, and evaluate facts, data, conflicts and dilemmas; how to select appropriate components and assemble them into different options; and how to propose the best possible strategy. After a few years of learning by doing, we discussed the idea of summarizing our experiences as scientists in strategic planning. The objective was to give other scientifically trained people employed in the health care system the opportunity to understand the methods of strategic planning in drug research and development. In addition, we aimed to point out the internal and external parameters and forces which have to be taken into consideration to g v e a formulated strategy a chance of success.

VIII I proposed this idea to Alice Sapienza, a well-known and exceptionally outstanding expert in the field of organizational behavior. She has unique experience in having repeatedly analyzed all major pharmaceutical companies to correlate their organizational structure and behavior with the outcome of their activities. Part of her work has been documented in her well-known "case reports." She lectures extensively in management courses for members of pharmaceutical and consulting companies and serves as a consultant for pharmaceutical and diagnostic companies worldwide. Moreover, I asked Volker Eid, a distinguished teacher in ethics. He is a member of a considerable number of committees on ethics, a frequently soughtafter consultant for all partners in the health care system and an advisor to the German Government as well as the European Commission. Both agreed without hesitation and enthusiastically participated by contributing their excellent knowledge in their subjects and by inspiring and reviewing each other's contribution. Accordingly, this book emerged as a truly interdisciplinary and integrated joint work. We have been delighted with help from the following people as well: Petra Netter, a medical doctor as well as a prominent psychologist, contributed her knowledge and advised us on all aspects of psychology. Many suggestions arose from numerous discussions with many of our colleagues, especially in various pharmaceutical companies. In particular, Jiirgen Reden (Dr. rer. nat., Head of Research, Hoechst Pharmaceutical Division), Ulrich Delvos (Dr. med., Head of Research and Development, Behringwerke AG) and Hans Dohmen (teacher in ethics, Marburg) contributed with their proposals for designing the outline of this book. Hans Moser (Dr. rer. nat., Behringwerke AG) gave a lot of his time in reading our manuscript. With his critical mind he was able to point out gaps in our arguments and unclear conclusions. All parts of the manuscript, all figures were compiled, typed and retyped by Manuela Rogala, who with her extraordinary skill significantly contributed to the successful outcome. All in all, this book is the result of the work and contribution of many persons with different activities and occupations. This fact illustrates the fact that neither the whole book nor any part of it is the expressed opinion of organizations, institutions or companies the authors and advisors have been cooperating with or are employed in. The book describes the needs of the pharmaceutical market (chapter I), and considers the various ethical obligations to patients, animals and the environment (chapter I1 and X), and how R&Dprojects can be evaluated and compared with each other. Moreover, it outlines the main R&D areas, goals, and strategies

rx in view of the strengths and weaknesses of a company, the threats it is subjected to as well as the opportunities it is offered (chapter 111). It points out what measures can be taken to reduce risks (chapter IV); how projects can be managed (chapter V); and how the company can keep pace with the progress in technology (chapter VI). The essential conditions for successful management for innovation and of projects are described, - talung leadership (chapter VII), motivation, culture, and organizational systems into account (chapter VIII); and last but not least, the social and political influences on innovation are discussed (chapter IX). It is our hope that this book can be of help to scientists who come into contact with strategc planning in drug research and development; that it can inform them of the methods needed to elaborate strategies; and that through it they will become aware of the numerous managerial, organizational, social, and political parameters and forces, which must be considered in order to successfully implement a formulated strategy. H.-Harald Sedlacek Marburg, October 1995

Authors H. Harald Sedlacek Dr. med. vet. Behringwerke AG Professor of Tumor Biology, Medical Faculty Philipps University Marburg, Germany Alice M. Sapienza MBA, DBA Professor, Graduate School of Health Studies, Simmons College Lecturer, Harvard School of Public Health Boston, USA Volker Eid Dr. theol. Professor of Theological Ethics, Faculty of Catholic Divinity, 0tto-Friedrich-University Bamberg, Germany

Advisors Petra Netter Dr. med. Dr. Phil. Professor of Psychology Department of Psychology and Medical Faculty Justus-Liebig-University GieiJen, Germany Helmut Weber Dr. rer. nat. Head Strategic Planning (retired), Hoechst Pharmaceutical Division Frankfurt, Germany

Contents

1 1

I A B C D E

Introduction Characterization of the pharmaceutical market Driving forces for the future Controls on pricing Control on utilization Perspectives

7 10 14

I1 A

The ethical background Definition of ethics 1 Moral responsibility 2 Moral values and rules Changes in moral values 1 Social changes in understanding 2 Social discourse, public opinion and pressures 3 The role of science Ethical goals 1 Health care 2 Research for new drugs Selection of the R&D project Human rights 3 Setting of priorities 4 Responsibility of social partners

25 25 25 27 29 29 30 33 35 35 38 39 40 42 44

The research and development project The process of research and development The innovation process The evaluation of a project 1 Pharmacological profile 2 Medical needs 3 Market and turnover potential 4 Risk factors 5 Activities and expenses up till launch and post-launch

49 49 51 57 60 60 60 67 68

B

C

I11 A B C

4

XI1 Contents 6 Estimated success of marketing 7 Variability and accuracy of project evaluation The comparison of the company’s own projects 1 Innovation and expertise 2 Turnover potential, costs and overall risks 3 Development time and market position The selection of main R&D areas, goals and strategies 1 SWOT analysis 2 Selection of main R&D area 3 Definition of goals 4 Formulation of strategies

74 76 76 77 79 80 81 81 83 84 87

IV A B C

Measures to reduce risks Choice of technology Reinforced selection of research projects Designation of multiple goals and partnerships

91 91

V A B

Project management Historical context Organizational theories 1 Organization structure 2 Life cycle models and growth 3 Technology transfer and communication 4 Creative group problem solving

D

E

96 98 103 103 104 104 107 109 113

VI Corporate and technology strategy A Technology strategy B Technology strategy vectors 1 Magnitude 2 Direction C Technology strategy archetypes

115 115 117 119 119 123

VII Leadership and management A Leadership theories B What is leadership and management in R&D? C Leadership and structure D The matrix challenges 1 Coexistence of vertical and lateral structures 2 Performance evaluation The project manager Individual team members The team

127 127 134 135 135 137 137 138 139 140

Contents XI11

E

Functional and discipline heads The head of project management Characteristics of the good leader

140 140 141

VIll Managing for innovation A Motivation 1 Motivation theories 2 Basic conditions for motivation in R&D 3 Matching motivational needs to the job Three work-related needs Expression of motivational needs 4 The motivated and creative R&D organization B Culture 1 The outer level: manifestations 2 Below the surface: justdication 3 At the heart of culture: core ideology 4 Culture and creativity C Organizational system 1 Recruitment 2 Performance appraisal and reward systems 3 Decision-malung and approval systems 4 Information systems D Organizational structures and activities

145 145 146 150 151 152 153 154 156 156 156 158 160 162 162 163 164 165 166

IX A B C D

The social and political bearings on innovation Background Constraining pressures Economic constraints The role of the industry

177 177 179 185 191

X A B C D E

Ethical obligations Autonomy of patients Experiments on and protection of animals Clinical trials Technologies Health care and information activities

195 195 199 210 224 236

References

241

Index

253

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER I

Introduction

A Characterization of the pharmaceutical market

T

HE FOCUS of all strategc planning and management of pharmaceutical

R&D projects is the pharmaceutical market. Its definition and knowledge of the main driving forces for its future development form the context of the planning effort. Figure 111. The world market for drugs is very heterogeneous and influenced by extremely different driving forces.

*

hopes and fears, collectively perceived plausibilities

I

/’

formulalions

[

1

market

//

social pressures, economic pressures, medical schools, information policy

, ’-homeopathic

\

\

\‘

innovations, creativity, economic strengths, charity, ambition

,,

- me too plus

- new indications

\

market

‘

scientific market

1

/

’

ethical market

)

druaswith proven efficacy vaccines

\

‘

,J’

/

’

M -’

*educationiinformation. rationality

2 Introduction The most important characteristic of the pharmaceutical market is the extreme heterogeneity of its components (Figure Ul). Partly because of this heterogeneity, its real size is unknown. Attempts to estimate the size by commercial sale audits are mostly based on sampling, which is not identical with actual sales figures. Sales figures are also significantly influenced by the local characteristics and conditions found in the various countries, with respect to the kind of products, the various types of outlets, distribution organizations, coverage of health insurance, prices, and discounts. Such characterists can only be estimated. Figure 1/2. Rough estimation of the pharmaceutical world market and its classes of products turnover (billion DM) in 1994 natural products _ _

class of products

~

synthetic cornpounds

all products

245

375*)

isolates

chemical derivatives

recombinant proteins

30

88

12

plasma proteins

4



6

vaccines

3


1

4

37

89

14

drugs

total

245

385

~~

*) Schneider 1994, Scnp 2026,1995

The size of the current (1995) ethical pharmaceutical world market is in the order of about 260 billion US $ (or 385 billion DM, Figure U2), but this figure could be as much as 10-2076 below actual sales. Most sales in this market occur in pharmacies (Campbell and Mahan 1992), with about 30% occurring in hospitals and other institutions (e.g., home health agencies, physicians’ offices, out-patient care centers). The main territories are North America, Europe and Japan. This triad seems to cover more than 80% of the known and recorded world market. More importantly, more than 95% of all major global drugs had their origin in those countries in the period from 1970 to 1992. During the past 30 years, the size of the pharmaceutical market has increased in waves but nevertheless continuously. The yearly overall growth rate, as far as can be estimated, has been between kO% and 15%.

Clzaracterizatioiz of the pharmaceutical market 3 Figure 113. Success of pharmaceutical R&D investment (1970 - 1992) (number of major global drugs)*

~

worldwide

_

_

_

_

~

~

~

~

~

USA

~

Japan

European Union

other

~

UK

D

113 (43%)

24 (9%)

24 (9%) c

other

I

14 9 (5%) (3%)

11 (4%)

CH

S

East ________~

20 11 5 (8%) (4%) (2%)

~

29 (1 1%)

5 (2%)

I

V

82 (30%)

L

Restof World

~

F

~

265 (100%)

~

Europe

J

v 118 (44%)

*) of the 453 internationally accepted drugs (registered in at least 4 of the world's 7 leading markets USA, J, D, F, I , UK, SP) 265 drugs were defined as "major global drugs" because of their postclinical stage in at least 6 of these markets (Redwood 1993)

Figure V4. Nearly 70% of the globalized drugs are innovations no. of new druas 1975-1992

globalized drugs

.-

...................................... innovative drugs

269 (29%)

192 (21%)

.............

noninnovative drugs

661 (71%)

total

930 (100%)

626 (67,3%)

,

Barral 1992, Redwood 1993

nonglobalized drugs

............................................................. 112 (12%) (of which 77 are innovations)

818 (88%)

4 lntroduction

Most of this growth can be attributed to innovations, be they only slight or be they considerable therapeutic or technical improvements of products, or new and unique therapeutics for untreatable or insufficiently treatable diseases (Figure V3).These innovations accounted for about 70% of all drugs that could be globalized between 1970 and 1992 (Figure V4). The tools used to develop these innovations were new achievements in organic chemistry, in protein chemistry, in recombinant DNA technology, in cell culture techniques. In addition, new insights into the complex mechanisms of organ function-as a result of improved diagnostic approaches to evaluate the interactions among mediators, receptors, transmitters and recipient molecules inside and outside of cells-also catalyzed innovation. Today, pharmaceuticals consist of natural products, chemical derivatives of natural substances, new synthetic compounds, and recombinant proteins (Figure V2).

B Driving forces for the future In spite of the considerable success of new drugs, only some of the diseases affecting populations can be cured by treatment. A considerable number of diseases remain which are not only insufficiently treatable, but also a tremendous financial burden on the health care and social security systems of nations. Such hitherto untreatable or insufficiently treatable diseases represent a huge potential global market for present and future therapeutic innovations (Figure

V5). Thus, it is understandable that the number of compounds developed in such top therapeutic categories is extremely high (Figure V6). Only a minority will succeed in showing therapeutic advantages over the respective standard treatments. However, the underlying reason of the therapeutic advantages will be, without exception, a high degree of innovation. In recent years new technologies, excess capacity in hospitals and an increasing number of medical doctors, as well as excess demands due to intensification, broadening and socialization of treatment have led to an explosion in health care expenditure, which in turn provoked drastic cost containment measures, affecting pharmaceuticals as well. (Drug budgets, however large, still represent only a small proportion, between about 8% and 2076, of total health care spending (Watts 1994). Nevertheless, they are a prominent target for cutting back on expenses). Reimbursement lists, fixed prices, regulation of margins, fast track registration of generics, and restricted registration of "me too plus" preparations are examples of responses to curtail expenditure on drugs. The pharmaceutical industry reacted with price cuts, generic competition, and improved drug formulations. Moreover, health care providers, such as health

Driving forces for t h c f u t u w 5 Figure 115. Potential targets for R&D of drugs for treatment of most frequent diseases ~~

~~

~

L

disease

0

cardiovascular myocard infarction * thrombosis * hypertonia arteriosclerosis

*

0

oncological gastrointestinal, breast, lung, head + neck, ovary, melanoma *leukemia, skin, prostate

*

0

neurological *dementia *depression *stroke

0

infectious * HIV, Hantan V., Dengue V., EBV, CMV, Cocksackie V., VZV, RSV, HSV, HCV, HDV, Rota V. * E. coli, borrelia, pseudomonas chlamydia, Helicobacter, tuberculosis, shigella, meningococci, malaria

0

immune autoimmunelrheumatoid arthritis * immunodeficiency * systemic immune reactive shock syndrome

*

0

metabolic * diabetes osteoporosis + pancreatitislhepatitis * gastrointestinal

*

0

respiratory

0

urogenital

0 dermatological

Wj<

low

>rx+,++++,/ I high

-I-++++

+++4 /+++_+ --

++++it

++++ +++++

. ..

,

Scrip 11199547

antiinflammatory

(other 282)

(antiasthmatic 251)

(antiarthritic 142)

(immunosuppressant 178)

853

-

733

cardiovascular

[other 254)

antihrombotic 171)

antihyper. ensive 154)

1%)

(antiartheroslcerotic

-

anticancer

'chemoherapy 374)

(immunotherapy 251)

626

antiviral

(anti HIV 255)

other 184)

(vaccines 182)

621

antidementia

(neuroprotective 21 1)

memory mhancer 193)

404

Figure 116. Number of R&D compounds in the top therapeutic categories (1211994)

antibodies

clonal

(monoclonal

314

binant proteins

other recom-

metabolic

alimentary/

00

Controls on pricing 7

maintenance organizations, hospital chains and state government institutions, have adopted a strategy of “managed care.” These groups with great purchasing power are now demanding the most cost-effective medical therapies and have provoked intense price competition among pharmaceutical companies. This development has been promoted by the fact that, during this decade, more patents of prescription pharmaceuticals have expired or will expire than at any other time, opening the door for companies to market less expensive generic drugs (Watts 1994). Consequently, in addition to therapeutic innovations leading to new or improved products, price reduction of pharmaceuticals is already and will remain the second strongest global driving force influencing the pharmaceutical market. As a result, new strateges and measures to reduce costs by new methods of synthesis and by more efficient production and distribution systems will be of increasing importance for pharmaceutical companies in order to gain a competitive edge in the global market. In addition to these global forces, every region is subject to different political influences and social pressures. Each region has different medical schools; registration and prescription laws; methods, degree, and policies of providing information through the media; as well as the hopes, fears, and feelings of patients and the prescribing attitudes of physicians. Obviously, such local driving forces represent a mosaic of parameters. Companies that can adapt to local characteristics and conditions and simultaneously ensure that the resulting regionally scattered activities add up to a global strategy are in the possession of a strong competitive edge.

C Controls on pricing As already outlined, regulations and strategies to reduce the price of drugs are significant driving forces in the pharmaceutical market. Wherever governments pay for drugs they exert some form of control on drug pricing (Figure V7).In Japan, the Ministry of Health and Welfare publishes a table listing the official prices at which drugs will be reimbursed. Since the early 1980s, when pharmaceuticals accounted for nearly 40% of national health care expenditures, these prices have been continuously and selectively reduced. Germany legislates a reference price system. This sets the prices of drugs which are charged to the health insurance companies. This system is intended to stimulate price competition among drug manufacturers. France, on the other hand, regulates the margins of wholesalers and retailers, as a means of controlling drug prices. The UK links manufacturer profit to the size of the firm’s investment in Great Britain. Prices of individual drugs are not regulated, but the government has instituted across-the-board price reductions as well as a price freeze.

8 lntroduction Figure 117. Controls on pricing of drugs

I)limitation of reimbursement

’

I

* reimbursement list for official prices

1 Japan

I

* depot prices (Department of Veteran Affairs), refunds (Medicaid)

i USA ~~

~~

~

I)setting of prices * reference price system (at which insurances will pay for drugs) price freeze

I)regulation of margins

Germany Netherlands Denmark

IOreece-i ~

for whole salers and retailers * linkage of profit to size of investment

rLl

IFrance

I

I

I)discounts expected by large providing systems

* managed care system

[USA

~-

I)global budget for prescribing physicians

JGermany

I

Despite being in force for a number of years, such pricing schemes have met with mixed success. A recent comparison of prescription drug price controls in Germany, France, Sweden, and the United Kmgdom concluded that control effectively kept individual drug price increases below overall inflation. However, such price controls ”have not completely contained the rise in drug spending” (USA General Accounting Office, 1994). One response, in Germany, has been to set fixed budgets for prescribing physicians. If total drug spending exceeds the fixed budget, the physician is financially responsible for the surplus. In the United States, the government exerts control over drug prices only for those purchased by the Department of Veterans Affairs (VA); those reimbursed by the federaystate system of Medicaid, which pays for the health care of the indigent; and those reimbursed by Medicare, which pays for the health care of those over 65 years (and currently pays for inpatient drugs, but only for outpatient drugs used in end-stage renal disease, such as erythropoietin). The VA requires manufacturers to sell at a sizable discount, called the “depot price.”

Controls 0 7 1 pyicing 9

Medicaid requires manufacturers to return an amount of money equal to the difference between the drug price as of October 1990 and the current average wholesaler’s price, if the latter rose faster than inflation. Medicare, on the other hand, examines both the cost and effectiveness of drugs, diagnostics, and medical devices. The price of erythropoietin, for example, was set by Medicare after the government had completed an analysis of the internal cost data from the drug’s manufacturer and determined a ”fair” price. Even more control over prices is exerted by so-called managed care plans in the United States. These are organizations that provide both health care and health insurance, gving them an incentive to manage expenditure by carefully managng care. Because these plans are now so widespread and such powerful buyers, it is important to understand what pressure they have exerted on drug prices. Although manufacturers publish an average wholesalers price, the actual price (that is, the revenue the company actually receives) depends on the distribution channel. As an April 1993 study by the Boston Consulting Group showed, managed care channels accounted for nearly half the US prescription drug volume and extracted sizable discounts for that volume (Figure V8). In addition to managed hospital and retail pharmacies, managed care plans also make use of mail order pharmacy, especially for drugs used in the case of chronic illness. The volumes of drugs distributed through managed care channels-and the size of the discounts-are expected to increase.

Figure 118. Cost controls expected by new managed care channels ~~

% US market accounted for-

distribution channel

by channel -

~

average discount by

I

I

~

I

5%

mail order pharmacy

I

30 %

~-

~

15 %

managed hospital pharmacy

30 % -

~

~

-

35 %

managed retail pharmacy

25 %

5%

traditional hospital pharmacy

5% ~

~

~-

15 %

I

nursing homes, other ~

traditional pharmacy Boston Consulting Group 1993

I

5% -

-

-

25 %

-

0

10 Introduction Managed care plans are watching the development of biotechnology drugs, such as erythropoietin, very carefully, because of the enormous price tag such drugs carry. For example, tissue plasminogen activator ( P A ) is priced at about $2,000 per administration; Factor VIll at $25,000 per year; growth hormone at $8,000 to $30,000 per year; and treatment for Gaucher’s disease at $100,000 per year. In one managed care organization, six to ten biotechnology drugs accounted for nearly one-third of the total formulary budget (the formulary itself listed several hundred drugs).When a biotechnology drug is a therapeutic innovation, e.g. the only agent available to treat a condition, it is likely to be included in a managed care formulary. However, ”system savings” must be clear in managed care plans (in other words, the drug must also, for example, reduce hospitalization associated with the disease), in order that the drug be kept on the formulary.

D Control on utilization Various methods have been developed to control the utilization of drugs (Figure I/9). They include limited lists, common in Italy, Germany (known as ”negative lists”), the UK, and Scandinavia, among others. Mandated generic substitution and strict formulary management are common utilization controls in the United States. In managed care plans, the ”formulary” (like the limited list in Europe) has come to mean those drugs that will be paid for by the plan. If a physician writes a prescription for a drug not on the formulary, the patient pays for all or a portion of the cost out of his own pocket. Restrictive formularies are likely to become even more restrictive. In many managed care organizations, a formulary committee comprising a group of physicians and pharmacists, regularly reviews each therapeutic class of drugs, examining both the clinical outcome data and expenditure on the major prescription drugs. For equivalent clinical quality among drugs, the decision of which to include in the formulary is made by the committee in favor of lower cost. If a drug is removed from the list, or taken off the formulary as a consequence of that review, physician prescribing patterns can change almost completely within as short a period as 3 months. Such formulary committees will even tolerate some patient inconvenience and minor side effects if the overall cost of care is reduced. Thus, for a company to promote a drug because of its advantages (in galenic formulation, application frequency and/or reduced minor intolerability) may not be sufficient for the formulary committee to vote in its favor, unless the company offers the drug at a price that allows it to be chosen for the formulary. Under these conditions, compensation for drug research, development, and marketing costs becomes difficult.

Control on utilization 11 Figure 119. Controls on utilization of drugs

I)

limited lists (= "negative lists" or "managed care plans")

1

Italy Germany UK Switzerland Scandinavia USA ~

~~

~

~~~

I)

mandated or recommended generic substitution

I)

restrictive formularies (selection of lower cost alternatives by managed care)

I)

profiling and examining of physicians prescriptions

I)

drug utilization reviews (education of physicians about prescribing)

I)

capitation (drug company provides drugs, education and counseling at a per patient rate, negotiated by a plan for defined disease with managed care organization)

Netherlands

1 ~

1

~

USA

Germany USA

~~

~

USA

I ~

One of the largest managed care organizations in the US is planning other utilization controls, such as conducting physician profiling-examining, in other words, how each physician prescribes in comparison with other physicians-and ensuring that physicians do not prescribe non-formulary drugs excessively. The organization is planning drug utilization reviews, with concomitant education of physicians about prescribing for certain indications. The savings in drug spending from utilization reviews are expected to far outweigh the savings this plan has already achieved from aggressive discounting (see above). A control on both price and utilization that is expected to become widespread is capitation, in which the drug manufacturer bears much of the financial risk of treating a particular disease. Managed care plans wil1"carve out" one or more

Lilly

Scrip 2028 (1995)

-.

Lilly

I -

I

l -

I

1

MSD

MSD

-___

Lilly

l -

1

cooperation with pharmacy benefits manager

-

Pfizer -

-

Pfizer

-

Zeneca

Pfizer SKB -

Zeneca

-

PCSl Medco Value DPS SDMS Salick IDM Health

multiple sclerosis ' CNS injuries i -

tumor gastric ulcers renal disease

3etes

Alzheimer asthma

AlDSlHlV

care program

I

~

Figure 1/10. Disease management initiatives in the USA

_ _ ~ _ _

W.-Lambefl

Boehringer Mh. Upjohn Bayer

W.-Larnbert Schering-PI. Glaxo W.-Lambert

_______

pharmac. company

-

Caremark Caremark Caremark

Caremark

Caremark

pharmacy benefits manager

_ -

__US-Healthcare United Healthcare

US-Healthcare

US-Healthcare

US-Healthcare

US-Healthcare

-

US-Healthcare

~

US-Healthcare

health management organization

-

Paradigm

QDM

-

________-__.____-___~

-

Axion

Chronirned

Nat.-CV-NW

QDM

-

Chronimed QDM

specialty provider

stand alone activities

Coiztrol on utilization 13

diseases and contract with a manufacturer to provide drugs, education, counseling, and so forth, at a per patient ("capitated) rate that has been negotiated by the plan. If the manufacturer takes care of these patients for less money than the negotiated rate, the difference can be kept as extra profit. But if the cost of care exceeds the negotiated rate, the drug manufacturer bears total financial responsibility. Such company-led disease management programs offer considerable potential benefits to pharmaceutical companies as well as to health maintenance Figure 1111. The main driving forces for the future pharmaceutical market

I)I innovations I

~~

I I

- therapeutic success * new effective treatment for untreatable disease conditions - new drugs - new indications for existing drugs * significantly improved drugs - higher cure rate - overall cost savings

-technical success

* improved galenic formulations

- overall treatment cost savings * improved production systems - production cost savings - increased safety

I)I price reductions

I

- efficiency of production and manufacturing - efficiency of distribution systems * lean marketing and sales organizations * cooperation - control of prices and utilization

I)I fit to regional conditions of the market - adjustment to medical schools - access to medical care systems - adaption to legislation/regulation

I

14 Introduction organizations. Cooperation between the two may complement the necessary data, organizations and resources. Such cooperation can even cope with the problem arising from the management of co-morbidities. Because pharmaceutical spending in the US accounts for only 7% of the total health care market, company-led disease management programs offer an attractive opportunity for pharmaceutical companies to tap the other 93% of the market (Figure VlO).

E Perspectives In conclusion, innovations, price cuts and local pharmapolitical conditions are and will be the most important driving forces influencing the pharmaceutical market (Figure V l l ) . To survive, a pharmaceutical company must create opportunities from these three driving forces. Whether and to what degree companies can benefit from such opportunities, in a global scope or locally, alone and independent or in cooperation with a partner, will depend on the company’s financial capacity. Moreover, the time needed to take advantage of an opportunity is decisive for success within a competitive field. Basically, the first in the market has the competitive edge and the chance to become the winner (Wood 1994; Gerson 1994).Experience up till now suggests, that in the case of innovations, only about the first three products in a new class of compound will earn money. All subsequent products can only be marketed at discounts. In the case of low price drugs, the first generic in a class can be sold with the smallest price reduction and will be the strongest competitor for branded products (Figure Yl2). To be first within the market requires competence, efficiency and financial capacity. Expenditure for the capacity needed is higher in big global market segments than in niche markets. In consequence, multinational companies have, thanks to their larger capacity, a realistic opportunity of getting into the global market, whereas medium-sized companies may prefer niche markets and may have Figure 1/12. Opportunities for future pharmaceuticals

b

New products must have significant clinical or cost advantage over competitors.

b

Only the first products in a new class of compounds will earn money: all subsequent products can only be marketed with price reductions.

The first generic in a class of compounds will be the strongest competitor for the originator product and the branded products.

Pcvspectiues 15 Figure 1/13. Basic goals and strategies for differently sized companies

I

I)goal: * be one

of the first

3 global players in the big markets

.)strategy: concentrate R&D to remain - innovative - competitive

* license in - ideas - technology - early stage drugs

medium-sized company

I

I)goal: * be strong in niche markets

I)strategy: * concentrate R&D on projects for niche markets * license in attractive later stage drugs * be the first with generics

I)goat: be dominant in technology

I)strategy: * focus on discovery * license out and/or cooperate for development and marketing

their strength in fitting in with local or regional charateristics and conditions. Small companies may have a chance to get a competitive edge, not through their capacity, but by innovations and/or by their expertise in dealing with the conditions in the local or regional markets (Figure V13). Any variation in that basic position defined by the capacity of a company may bring it into a life-threatening situation. On the other hand, cooperation and strategic alliances can improve initially weak positions. A considerable number of the 25 top-selling pharmaceuticals are sold by strategic alliances of small companies with multinational ones (Figure V14). The need for strategic alliances of small innovative companies is very evident in the case of drugs made by recombinant DNA techniques (Figure V15). Experience with such drugs very clearly demonstrates that drugs, initially developed for niche markets, can be made into top-selling pharmaceuticals by strategic alliances. Innovation is the one opportunity available to all companies, independent of their size and financial power. Therapeutic or technical innovations as a result of which unbeatable diseases become treatable and/or overall treatment costs are reduced will succeed in the pharmaceutical market irrespective of or even with support of the increasing country-specific price and utilization control systems. Consequently, the main efforts of pharmaceutical companies should concentrate on their activities to produce and/or to acquire innovations (Figure V26).

~

Scrip No.: 1962, 1994; supplemented

554

1,6

Lilly/Genentech/Pharmacia

growth hormone

1,7

1,7

~~

1,7

Nycomed/Daiichi/Sterling/Schering

-~ -

~

1,7 1,1

2,4 1,8

lsohexol (contrast aaent)

-

~~

~~~

_-

23 280 ._ - - _ _ _ _ _ _ _ - - . . ~ ~ _ ~

1,7

~~~

-~

23

5,3

Ciba-Geigy

~

_

Glaxo/S.-Plough

~

.

.

13 . _ _ . _ _ _1,8 _____~_ -

~

Diclofenac _

-

Lilly

-

__ ~-... _ _ ~ _ _ _ _ _ _ _ _ -

Fluoxetine

.

Wellcome SKB, MSD

Acyclovir a Hepatitis B vaccine

~-

Amgen/J+J/others S -Plough/Sumitomo/others AmqenlRoche

~~~

~

~

Erythropoietin Interferon G-CSF

--

SKB Lilly/Shionogi

Amoxicillin Cefaclor

_~

Lilly/Nordisk/others Novo NordisWLilly

Insulin (nat.) Insulin (rec.)

~

~~

__

32 3,1 2,7 23 13 13

Salbutamol

~

BMS/Sankyo Merck

~~~

- ~ _ _ _ _ _ ~ - _ _ _ _ ~ ~ - ~ ~ _ -

Pravastatin Lovastatin

-

Glaxo AstralMerck Merckh'amanouchi SKB

~_ - _ _ _ _ _ _ _ _ _ _ ~ - ~ ~ ~ - ~

Ranitidine Omeprazole Famotidine Cimetidine

.~ --

-

Pfizer/Bayer Merck & Co. BMS/Sankyo MMDnanabe Searle/Knoll/Lederle/others ZenecalMercWShionogi

~

Nifedipine Enalapril Captopril Diltiazem Verapamil Lisinopril

~

company

drug

turnover (billion DM 1993/94)

~

+ +

+

+

~~~~

~

~.

__

virus infections

anemia tumor diseases,virus infections leukopenia

_ ~ _ _ __

bacterial infections

diabetes

cholesterolemia

gastric ulcer

~~~~~~

cardiovascular diseases

disease treated

+

. -

growth retardation

in vivo diagnostic

broncho constriction

inflammations

depressions

+ _ ~ _ ~ _ _ _ _ _ _ ~

~~~~

biotech product

~

Figure 1114. The top selling pharmaceuticals are not only sold by multinational companies but also by strategic alliances. 15% of the world pharrna market are covered by 25 drugs.

3

i-6' 5

R

0

$

Genentech, Lilly Pharmacia Baxter MileslBayer Berlex, Schering, Chiron, Daichi Immunex, Sandoz Genentech Pharmacia

growth hormone

Synergen Genzyme

ciliary neurotrophic factor

glucocerebrosidase

at the prelaunching stage

GM-CSF Deoxyribonuclease Insulin-like growth factor I

Interferon p

Factor VI I I

Genentech, Roche Lilly, Novo Nordisk Genentech

Amgen, Ortho, Boehringer Mannheim SKB, MSD Amgen, Roche, Sankyo Schering-Plough Sumitomo, Roche, Takeda

company

Interferon y Insulin tPA

Hepatitis B vaccine G-CSF Interferon a

Erythropoietin

on the market

drug

12.000

150 50 20

leukopenia cystic fibrosis growth disorders caused by growth hormone insensitivity amyotrophic lateral sclerosis Gaucher's disease

250

180

1.600

1.800 450

multiple sclerosis

hemophilia A

diabetes acute myocardial infarction pulmonary embolism deficiencylgrowth retardation

1.100 900 2.200

~

vaccination neutropenia genital warts Kaposi sarcoma hepatitis A, B

-~

~~

turnover 1994 (Mi0 DM)

3.300

~~~

anemia

indications

Figure 1/15. Multinational, medium-sized as well as small companies participate in the newmarket segment for drugs made by recombinant DNA techniques.

18 Introduction Figure 1/16. The pharmacoeconomic pressures should convince pharmaceutical industries to move into innovations

-

no innovation - me too's - nothing extra to offer

low innovation - no increase in efficacy - increased patient acceptability

unjustifiable

questionable

medium innovation - increased efficacy - increased costs

- new treatments - medical treatment problems solved

1 undeniable

1

I

Figure 1/17. Japan's response to rising health care costs

i

1

European/American response i

~

Japanese response

I)promotion of old technology - fast track generic approvals - low prices of new drugs (NCE) - restricted market exclusivity

I)promotion of new technology

I ,restriction of market access

*facilitation of market access open formularies expanded lists expedited approval

-tough formularies - limited lists - slow approval

I)enforcement of large discounts

- once a year listing of generics - high prices for new drugs (NCE) - extended market exclusivity for some products

-

minimizing discounts, stabilization of prices (but imposition of regular price cuts)

I)weakening of patent position

I)strengthening of patent position

I)increase of bureaucratic review in new technology

I)streamline regulatory approval procedures

*

reduction of basic research budget

Maurer 1994

I)expansion of grants for research

Pempectives 19 Figure 1/18. The success of pharmaceutical R&D investment starts to decline in the European Union but increases in the USA and in Japan % of major global drugs originating from Japan

European Union

USA

other countries

47% 42% -

33%

1

21%

r

19%

19701989

-

0

19701989

19901992

1990-

1970-

16% 13%

1970-

19901992

1990-

Redwood 1993

Figure 1/19. New chemical entities (NCE's) introduced in 1994

country of first launch

7

00-

3 1 1 3 1 n ~1 ~ n* n n n

originator < country Z

3

1

UK

D

F

2

1

1

3

0 I 0 ~ 0 0 0 I

European Union Scrip 1/199542

NL

S CH other European Japan USA Canada China countries

20 lntroduction Figure 1/20.

Management motivation

culture

I

scientific expertise sense for unmet needs ethical obligations association of thoughts stimulation of and tolerance of contradiction economic feelings consciousness of feasibility

valuation

n

guidance

1

1

xojects

I

medical schools patient needs social pressure

innovation

capacity

Figure 1/21. Public acceptance of biotechnology for the development of new drugs (% of interviewed subjects)

Europe ~~~

knowledge of BT

Japan

USA

-~

~

25

32

38

- from N

(88)

(76)

(911

- from newspapers - from books

(64)

(79)

(80)

(17)

(?I - -

(50)

29

?

43

58

59

15

- ethical/religious

32

26-73

a3

- general

48-73

-

~

~~

risk benefit estimation

- benefit > risk - risk > benefit acceptance

- -~ ~~

___

66 -

42-70 ~~~

~~

mean results of polls (7 in USA, 1 in Canada, 3 in Japan, 8 in different countries of Europe, 4 in the European union) compiled by Zechendorf 1994

Perspectives Figure 1/22. The costs until launching for R&D of drugs have increased considerably mean R&D costs per approved drug (multifirm project level data) evaluation period (year)

mean costs (Mi0 US $)

(capitalized)

reference

1963 - 1975

54

(8%, 1976)

Hansen (1979)

1970 - 1985

125

(8%, 1986)

Wiggins (1987)

1970 - 1982

231 (197-287)

(9%, 1987)

Di Masi et at. (1991)

1970 - 1987

140-194

after tax (+ fully capitalized)

Office of Technology Assessment (1993)

This goal should be supported by governmental regulations, to secure further innovations in and development of the therapeutic possibilities for hitherto unbeatable or insufficiently treatable diseases. Remarkable in this respect is the new policy of the Japanese government to direct their pharmaceutical industry into a competitive position by directly and indirectly favoring all activities leading to innovations (Figure V17). Such policy may have already borne fruits. The percentage share of major global drugs which orignated in Japan increased from 11 % (mean value 1970 to 1992) to 21 % (value 1990 to 1992), whereas the percentage share of such drugs with their origin in the USA showed a slight increase, only. The percentage share of major global drugs which orignated in the European Union considerably decreased, from 31 % to 19% (Figure VlS). Japan was the leading orignator country for new drugs (new chemical entities) launched in 1994 (Figure V19). It remains to be seen, however, how many of these new chemical entities will grow into major global drugs. Innovations are born out of the realization of new ideas. Generation of new ideas and their realization needs the creativity of single persons or teams. Creativity requires scientific knowledge, associations, contradictions and a perception of unmet needs. Stimulation of creativity is possible, and its adequate management seems to be necessary for the achievement of success. Managng for innovation requires, on the one hand, an atmosphere within which a vision can be conceived, ideas generated and projects determined (Figure V20). On the other hand, this

21

22 lntroduction Figure 1/23. Worldwide experience and results in research for and development of drugs

I)R&D expenditures nearly quadrupled between 1981 and 1990. * spending (worldwide 1990): 20,000 million US $ * capital investment (worldwide 1990): 4,000 million US $

I)Up to 9 out of 10 new compounds entering clinical trials failed to reach the market.

* USA: success rate of 23% * worldwide: success rate of 11%

I)About 800 companies had over 5000 novel compounds under development in 1992.

I)Only 14 so-called "blockbuster" drugs had been introduced by only 10 companies in the twenty years from 1969 to 1988.

I)Since about 1985 research activities have shifted massively towards therapeutic innovations in therapeutically unmet disease areas.

70% of globally marketed new drugs were innovative 5% of noninnovative new drugs were globally marketed Present R&D activities are overlapping and highly competitive between pharmaceutical companies.

I)Between 1975 and 1992 a close correlation seemed to exist between the quality of innovation and extent of global marketing DiMasi et al. 1991, Halliday et al. 1992, Redwood 1993

creativity should include the definition of goals, the formulation of strategc plans, and the continuous adaptation to the changng competitive environment. Managng innovation also requires the assessment of new ideas and new projects, not only in relation to each other and to competitive approaches, but also to ethical claims and obligations, urgent medical needs, pharmacoeconomic constraints and public acceptance. Indeed acceptance of new technologies by the public seems to be a considerable problem (Figure V21). Finally, management must ensure that all efforts to reach the goal (i.e., to be the first in the market) are consistent with the strategy and are achieved in the shortest possible time with the lowest possible costs. In view of the increasing mean R&D costs per approved drug (Figure VZZ),reduction of costs is essential.

Pcrspectiues 23 Figure 1/24. Prerequisite for becoming andlor staying with the leader in the niche or global market

Gain technological leadership by 0 accumulation of best possible expertise and know-how 0 broad cooperationtexchange of information 0 continuous stream of patents

e

Best use of human resources and scarce assets, budgets and time by realizable visions and strategies skilled management for innovation effective project management accumulation of dominating production know-how 0 innovative strategic and operative marketing

0 0 0 0

Adjust to customers' expectations by 0 trustworthiness 0 image, culture, and products 0 innovative information policy

e

Avoid incumbent's inertia by 0 continuous perception of shifts in technology or customer need 0 continuous evaluation of one's own position in comparison to competitors

based on Lieberman and Montgomery 1988, modified

This type of management needs different qualifications and experience, to guide and to motivate co-workers, to assess projects, to perceive opportunities and threats, to recognize strengths and weaknesses, to select the R&D area, to define goals, to develop and to formulate strategies, and to form organizational structures with the least conflicting potential. To summarize, the experience and results in research and development of drugs over the last 20 years (Fibwre V23)very clearly illustrate the risks and the opportunities in the pharmaceutical market. Its attraction for drug research is ensured by the large number of patients with diseases and conditions that still

24 Introduction

cannot be sufficiently treated or are untreatable. Innovations have been the main driving force, and their importance will dramatically increase in the future. Companies with competitive innovations will have a good chance of becoming and/or remaining the leader in the niche or in the global market. Technological leadership is a necessary but insufficient prerequisite for the creation of such innovations and their successful development and marketing. The best possible allocation of scarce budgets and assets, an optimal use of human resources and time, trustworthiness, and an innovative and reliable information policy and all measures to avoid any incumbent inertia are also essential (Figure V24). This book aims to inform and to discuss the essential aspects of planning and implementation of strategies in drug research and development from various points of view, so that help and advice can be offered.

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER II

The ethical background

A 1

Definition of ethics Moral responsibility

W

HATEVER people believe to be the aims and objectives in their lives, a disease, especially a serious one, can endanger if not destroy their chance of fulfilling them. At a fundamental level, avoiding health risks and worlung to cure or at least to alleviate the symptoms of disease are essential to the realization of human potential. An indispensable part of the work on human diseases is the improvement of the existing, and the invention of new drugs. The responsibility for health care and restoration has a moral quality (Engelhardt 1986).Morality is the comprehensive responsibility of humans-and we have a responsibility for ourselves as well as for each other-to reduce suffering, to avoid hazards to life, and to cure disease. Responsibility, especially moral responsibility, is a phenomenon specific to humans (Eser et al. 1989).Animals develop and act according to the biological plans and behavioral pattern (instincts) of each species. They do not know the existential and individual problem of how to organize their life and how they can or should make it successful. In a natural manner, animals are free from responsibility. Although humans are also subjected to specific biologcal plans and natural laws, independence from instincts and from determining behavioral patterns ("Offenheit") leaves the precise determination and formation of our lives undecided, but at the same time makes these our responsibility and duty. We can perceive ourselves (Berger, Luckmann 1966). We can consciously experience happiness, inclination, desire, as well as frustration, hurt, pain,

26 The ethical background failure, limitation, and disease. We can consciously perceive, analyze, and reflect on our needs as well as on dying and death. This independence from instincts and from determining behavioral patterns enables us, but also forces us to perceive and to consider individual and social conditions. We must choose a precise design for our individual lives and social roles. We cannot remain passive or neutral. On the contrary, spurred by our basic needs, we must organize our lives. This challenge to design and organize life is an essential, fundamental part of "Offenheit." In a broader sense, this "Offenheit" can be called freedom. But our human freedom is inseparably linked with the responsibility to design and to organize life as well as we possibly can. This is the core element of morality, as we understand it (Figure IYl). Figure 1111. Morality The core element of morality is the responsibility of each person for the good design and organization of human life Each person is able to and should work out his or her personal outline of morality, which is one important dimension of identity. Morality has also a social, a public, and even a political character that requires the personal commitment of each individual. r

Guiding that commitment should be a common understanding of moral values and rules. The quality and reliability of moral values and rules exercise an important influence on the social conditions and opportunities within which each person can realize his or her individual potential. Moral values and rules have weight especially for the organization of the health care system and for the development and improvement of drugs.

Morality is particularly related to some crucial conditions of human life: 0 Human life is not without its life-threatening risks. We do not know, by nature, what we should do to make our lives successful, both individually as well as socially. We are susceptible to selfishness, recklessness, to self-interest. We use force and exploit. Because of the above, related conditions, it is essential to recognize the design and organization of life and the protection of the quality of life as an obligation that claims the full attention of each of us. This existential claim is expressed in a special way by the words "moral" or "ethical." It is our duty to explore, to

Definition ofctlzics 27

reflect, and to formulate the conditions necessary for a high quality of human life and to realize the potential of individual lives in the social environment. Each person is able to and should work out his or her personal outline of morality, which is one important dimension of identity. Morality, however, also has a social, a public, and in a broader sense, a political character that requires the personal commitment of each individual. Ideally, in every social entity there should be a common understanding of moral values and rules. The quality and reliability of such moral values and rules exercise an important influence on the social conditions and opportunities within which each person can realize his or her potential. This is especially true for the organization of the health care system, not least for the development and improvement of drugs. 2

Moral values and rules

Moral values are differentfrom moral rules, although they share many common structures with respect to origin, validity, and acceptance. Generally, values are defined as principles of intrinsic worth which, from the individual as well as social point of view, are considered important for the successful design, organization, and fulfillment of life. Values exist for all spheres of life (i.e., economic, aesthetic, religous, artistic, political values). Moral values, as such, do not exist. Moral responsibility is always related to and caused by precise interest in life, situations, modes of behavior, and attitudes. Moral responsibility emerges from the challenge to scrutinize, in all spheres of life, whether a principle (which is deemed important, necessary, or valuable) also proves to be so in actual fact. Principles that seem to be good at a first glance can be found to be of questionable value or even detrimental after closer scrutiny. Consequently, moral values in their real sense can be defined as those principles that predicate a way of thinlung and acting that promotes the highest qtlnlity of life. These include justice, fairness, honesty, loyalty and reliability, conscientiousness, and responsibility. Other values usually come to mind when we speak of moral values: physical and psychical integrity, human dignity, freedom, peace, solidarity, tolerance, love, partnership, and the matrimonial bond, friendship, economic security, and, not least, health, but the latter are not moral values per se but ”values or goods with a particular moral significance.” l h e y define a quality of life and provoke moral responsibility to secure and to improve that quality. Other principles that may have or may gain importance in influencing that quality should similarly provoke moral responsibility. However, it is an essential part of moral responsibility to recognize the emergence of new principles, to pass careful judgment upon them, and to react in such a way that is to the advantage of the individual person and the social environment.

28 The ethical background

Based on that fundamental experience and understanding, all civilizations and cultures have developed general rules that give precise instructions on how to react (as well as possible) to identical or similar recurrent situations, tasks, and problems. Such rules have been developed for all human activities, including medical and scientific work. They belong to the large learning program by means of which humans are introduced into a given society (socialization). They are important for social understanding and for safeguarding and improving quality in all fields of human life, including health care, scientific work, and entrepreneurial activities (Figure W2). Figure 1112. Moral values and rules

Moral values are defined as principles of intrinsic worth which, from the individual as well as social point of view, predicate a nature of thinking and acting that promotes the highest quality of human life. Moral values as such do not exist. All moral values are products of cultures; i.e., the results of a collective evaluation and definition of experiences. Each moral value is a formulation that cannot be understood without the permanent, reflexive regard of experiences of the precise situations from which it has been created. Which ethical value is more urgent or of higher priority than the other always depends on the given problem and situation. All civilizations and cultures have developed generalizing rules that give precise instructions on how to react adequately to identical or similar recurrent situations, tasks, and problems.

Although morality has been divided into absolute and relative moral values, such a division is not justified. Absolute ethical values (i.e., moral values which are fixed in human nature or which exist in abstract terms and only have to be recognized or felt) do not exist. All moral values which are agreed on by any society result from a collective evaluation of experiences and a collective definition. They are the products of cultures. Each moral value represents a social point of conviction for which each individual must take responsibility. Each moral value is, essentially, a formulation that cannot be understood without permanently reflecting experiences of the precise situations from which it has been created. And, simultaneously, each moral value serves as a criterion for the interpretation and the management of the respective task or problem. Distinguishing between absolute and relative moral values makes sense only to stress the point that some moral values and principles are defined to be of

Changes iii moral values 29

"absolute" general validity, because their consideration is essential for the success of each individual life.Nevertheless, which ethical value is more urgent or of higher priority than the other, and, consequently, which ethical value is absolutely or only relatively binding with regard to a defined goal, always depends on the given problem and situation.

B

Changes in moral values

1 Social changes in understanding When we talk about changes in ethical or moral values and principles, we do not mean a change in the idea or concept of this value but in its understanding. As has already been pointed out, moral values are comparatively abstract. They can only be made clear, reflected, and discussed in a p e n precise situation. They must always be interpreted in the context of the p e n social and cultural conditions that shape our philosophy and view of life. They are also based on the knowledge available. The latter is continually changing. And, an increase in knowledge is likely to correct old self-evident truths, offer new opportunities, lead to new tasks and problems, and can be a driving force for social and cultural change. Thus, it is understandable that, as social and cultural conditions change and knowledge increases, the interpretation of ethical values (i.e., their contents) must change as well (Figure IV3). Figure 1113. Changes in moral values Moral values are abstract ideas and concepts and must always be interpreted in the context of a precise situation.

I) This interpretation is dependent on the given social and cultural conditions, which are continuously changing.

I) Driving forces for the change of social and cultural conditions are the increase in knowledge and social and communicative actions.

I ,A given society is significantly shaped by collective trends of view, evaluations, public opinions, foregone conclusions, and cornprehensibilities.

I) All groups in society participate in that process. Thus, it is of the utmost importance to establish and preserve the value and the rules of a democratic social order, to prevent the imposition of egoistic and reckless interests and to defend the possibility for discussion, disputation, and criticism.

Examples of such changes include the significant prolongation of life by new achievements in intensive care medicine and the question of whether and to

30 The ethical background

what extent an instrumental prolongation is justified. Similarly, gene technology offers new opportunities in food supply or in the treatment of hitherto untreatable conditions. An issue of ethical relevance concerns the protection of the environment and nature. 2

Social discourse, public opinion, and pressures

As already discussed, our human reality is determined not only by nature but also, and to a much greater extent, by social processes (social and communicative actions.) Such social and communicative actions of a society (in which we permanently participate in some manner) form a dense, very puzzling network in which reciprocal actions take place and within which moral values and rules are formulated. In this process, economic needs, entrepreneurial interests, medical goals, artistic ideas, political views and goals play a role, as well as religious or ideological convictions, or strictly personal needs for happiness. Local communication in neighborhoods, in parishes, in political parties, in municipalities participate in the formation ethical values. So, too, to a greater degree and with greater forcefulness, does the communication in economic, political, religious and other very large organizations. The answer to the question-What counts as important and valued in the public consciousness?-depends entirely on who and/or which organization can impose which idea and value. As a result, it is important to establish and preserve the values and the rules of a democratic social order, so that blind and arbitrary imposition of egoistic and reckless interests can be prevented to a large Figure 1114. Collectively perceived plausibilities Collectively perceived plausibilities, i.e., collective trends in views, valuations, public opinion, foregone conclusions, and comprehensibilities, are influenced by

I , the social and collective aspects of the perception of situations and problems I , our socialization into existing structures of understanding that shape our individual perception and enter into the organization of our life

I ,the type of information offered by opinion leaders, the media, and daily communication. Collectively perceived plausibilities significantly influence how and what each individual perceives, judges, and requests and cause a normative pressure.

I ,Distorted, tendentious or politically biased information may shape collectively perceived plausibilities that are dubious, even dangerous or at least insufficient.

I , The danger is that collectively perceived plausibilities play a significant legitimating and sanctioning role within (symbolic) social interactions and are unquestioned, at least in terms of their general and basic validity.

Changes in moral values 31

extent and the opportunities for discussion, dispute and criticism can be defended. We must be acutely aware of the fact that social reality IS significantly shaped by collective trends in views, valuations, public opinion, foregone conclusions, and perception of plausibilities (Figure IV4). In this context, the social and collective aspects of perception of situations and problems play a significant role. This arises, on the one hand, from our socialization into existing structures of understanding that are comprehensible to us to a large extent, and which shape our individual perception and enter into the organization of our own life. On the other hand, we depend to a greater or lesser extent (depending on our relative independence and autonomy) on the help of the society in which we live to understand our environment. Consequently, we are susceptible to the trends of our society. Leaders who influence opinion, be they leaders of political parties, industry, science, churches, trade unions, and not least the media, are in a position to use social perception of plausibilities, to amplify, and to criticize them. Of course, people can also take a stand against collective, foregone conclusions and perception of plausibilities. They can contribute to their adequate, impartial, and justified correction and modification. Critical reconsideration takes place within daily communication. To utilize it most effectively, interdisciplinary scientific endeavors for methodologcal analysis and for constructive criticism are necessary tools and social duties, especially for the health care and medical system. "Expertocracy," however, can arise in the case of existentially important questions or frightening conflicts and problems. Such expertocracy is not generally advocated by the experts themselves, but science and research unavoidably come into the field of collective plausibilities when central problems of securing and protecting life are touched. (Such problems include the hope for development of drugs for hitherto untreatable diseases.) When we consider, evaluate, and classify, we do so according to our practical experience of burdens, troubles, strains and what opportunities are open to us. In the process of exchanging information and analyzing it together, we also include scientific information that we consider to be a confirmation of our individual experiences and views. Such scientific information is communicated to us via the various media, but sometimes in a distorted, tendentious or politically biased form (e.g., new wonder drugs for hitherto untreatable diseases, new treatments for cancer or AIDS.) By means of this ongoing communication, fed by the media, new standards come into being to interpret and evaluate problems. The process finally leads to new foregone conclusions, and collectively perceived plausibilities that

32 The ethical background

significantly influence how and what each individual perceives, judges, and requests. The network of personal concern and involvement, on the one hand, and collective standards of perception and interpretation on the other, ensure that such new standards not only act cognitively and hypothetically, but also take on an existential character and urgency. The prospect of a new treatment for a life-threatening disease, promised by the media, may result in an existential hope and an existentially justified demand. People’s definition of desired happiness or of a threatening danger and its prevention will be determined, at least partially, by common perceptions. This may have significant consequences for the political decision-making process. Moreover, foregone conclusions, comprehensibilities,and collectively perceived plausibilities play an important legitimizing and sanctioning role within (symbolic) interactions. Remarks like-That won’t do! That cannot be expected of him! That is due to him!-pven without further reasoning illustrate the legitimization. The problem, however, is that such collectively perceived plausibihties remain unquestioned, at least in terms of their general and basic vahdity. Collectively perceived plausibilities in all spheres of life serve to define individual and social perception, communication, identification and solving of problems, without which we could not reasonably and successfully organize our life (Figure IV4). Collectively perceived plausibilities shape social reality and, thereby, form general rules and guiding principles. Problems intensify, however, if collective plausibilities and public opinion (all or a part of them) turn out to be dubious, even dangerous, or at least insufficient, but nevertheless causing a social normative pressure. For example, if the media disseminate propaganda (positive or negative) about a drug or a pharmaceutical company; if they implant ideas, such as ”treatment of all diseases is feasible” or “gene technology is always dangerous” in public opinion, such foregone conclusions may be used as a collective lever to influence the individual patient, all other groups involved in health care, and society. Using that process (for instance, using the media), scientists and technologists can revive latent collectively perceived plausibilities or even induce new ones. It is important to stress that such processes increase the influence of technological on human life. It seems paradoxical that such a technological mentality (“treatment of all diseases is feasible”) at the same time is or may be rather irrational. An implicit faith in science and technology may easily become irrational and authoritarian. This problem affects both classical medicine and alternative treatment insofar as the implicit faith of classical medicine in science and technology may drive people to abandon it and switch to alternative treatment. The basis for this

Changes in moral values 33

behavior is the socially comprehensible ”if-then” logic, which may put enormous pressure on the government and on the pharmaceutical industry. All social groups and institutions in a democratic society must prevent partial, one-sided enforcement of interest and the formation of dubious and questionable public trends, opinions, forgone conclusions, and plausibilities. The latter can be prevented by a very detailed and differentiated way of describing, arguing and reasoning. In the health care system, pharmaceutical companies must speak in an intelligble, clear, and precise manner to explain the therapeutic activity of their drugs and the risk of side effects, to describe objectively the opportunities offered by new technologies and their precautionary measures to prevent any damage to the environment, and to factually state the risks as well as the prospects of success of their research program and their hopes for new drugs to improve the treatment of disease. Pharmaceutical companies, like all social groups and institutions, should regard it as a central responsibility to encourage people to ask questions, and to be naturally curious, critical, and discerning so that they do not resign themselves to authoritarian tutelage and undue influence. 3

The role of science

Scientists are, noleiis-voleizs, bound up with the social and collective structures of plausibility, both because of the results of their research and at the same time as “normal” contemporaries. The more their work is regarded by society and the individual to be of relevance for life and destiny and, as a matter of fact, is utilized and applied (i.e.,from gene technology to drug therapy), the more the results of such work participate in the shaping process of social reality and of the corresponding plausibilities and expectations. Scientific work cannot be carried out and applied in an abstract, indifferent, value-free way. Consequently, it is deceitful and dangerous if scientists restrict their work to”expert functions” in the sense of basic research and neutral help for social, governmental, political, or ecclesiastical projects or for legislative decisions. The division of work between scientists and politicians is necessary for the daily tasks, but scientists must also state their own prospective view, estimation, and judgment of the social benefits achievable by the results of their research as well as the potential damage that may be caused and how to prevent it. These are an essential part of what scientists have to contribute to society. I n short, scientists have to take their share of moral responsibility. Any restriction of scientists to ”expert functions” (i.e., following governmental or entrepreneurial interests) corresponds to and favors the distinction (and a precarious separation) between important ”public” and less important “pri-

34 The ethical backgvound

vate" spheres of life. Such separation prevents the best possible resolution of the indistinct and therefore critical connection between the feelings and hopes of humans, on the one hand, and the goals and measures governments or companies deem necessary and economical on the other. To ensure that social justice pervades the culture, and to achieve the best possible benefit from research and/or entrepreneurial efforts, scientists are obliged to participate in the pragmatically adjusted"information culture." Their contribution to the development of public opinion and judgment is, at the same time, a contribution to the realistic self-perception of humans and the realistic orientation of their hopes (Figure IV5). Simultaneously, and in consequence, it counteracts irrational social and political pressures. Figure 1115. The role of science Scientists are bound up with the social structures of collectively perceived plausibilities *as

normal contemporaries

*because of the results of their research. 0 The more scientific results are felt to be of relevance to life and destiny (or are taken as a matter of fact), the more such results participate in the shaping process of the social reality. Consequently, scientists I )must take

on their share of responsibility for collectively perceived plausibilities to achieve a best possible benefit of their research and entrepreneurial efforts *must participate in the pragmatically adjusted "information culture" to ensure that social justice pervades.

If scientists are restricted to "expert functions" in the sense of basic research and neutral help for social projects and legislative decisions I )the

precarious separation into important "public" and less important "private" spheres of life is favored *the best possible resolution of the critical connection between the feelings and hopes of humans on one side and the goals and measures deemed to be necessary and warrantable becomes difficult unrealistic, irrational public expectations and unreasonable social and political pressures arise.

*

Such an undertaking can only be successful through interdisciplinary efforts. It makes no sense (because it is unproductive) to assign the task of critical information development to individual specialists.Interdisciplinary efforts are the necessary counterpart to the differentiation and diversification in real life and to the inevitable division of competence, work, and responsibilities. Handling and solving critical social tasks, problems, and conflicts in a socially responsible way can be made possible only by interdisciplinary, scientific efforts. Consequently, it is a genuine social duty of every scientist to take part

Ethical goals 35

in that process. Moreover, the development of methods and rules to optimize interdisciplinary efforts is of great importance (Figure IV6). To summarize, it is the duty of each group of specialists in each field of science (in universities, governmental institutions as well as in industry) to adequately and correctly inform the public of goals, prospects, risks, and the (successful and non-successful) results of research projects. This is an essential and necessary contribution to the development of public opinion and decisions and to the prevention of irrational expectations and unreasonable pressures. Figure 1116. Critical information development can only be done by interdisciplinary efforts The reality of life is differentiation and diversification.

*

Competence, work, and responsibilities are inevitably divided.

0 Critical social tasks, problems, and conflicts have to be handled and solved in a socially

responsible way

* No * *

single specialist can productively take over the task of critical information development and problem solving. Such a task can only be carried out by interdisciplinary scientific efforts.

Methods and rules have to be developed to achieve optimum interdisciplinary efforts.

It is a genuine social duty of every scientist to take part in that interdisciplinary process.

C

Ethical goals

1 Health care Disease can injure and destroy life. This is the fundamental ethical as well as legal reason for health care, including medical care and research of new pharmaceuticals (Figure IV7). Thus health care is one of the primary obligations of humans and their societies (Eid 1985, Pellegrino 1988). The value of human beings lies in their individual uniqueness and their self-perception as well as their perception of others. Fear of inevitable death and grief over the death of a beloved person are strong emotional indicators of the esteem for the value of life. We strive to live a vital life as long as possible and to preserve and to extend its quality: to be able to move freely, to be masters of ourselves, to pursue a desired goal in good health and with high capability and fitness. Development and preservation of life depend on medical care, including treatment with drugs. To have access to the best possible (at least, the essential) effective medical care is a fundamental human right.

36 The ethical background Figure 1117. Ethical aspects of disease

Diseases can injure and destroy life. This fact is the fundamental ethical ground for I ,health care I , improvement of

medical care

I , research for and development of new drugs. 0

Neither diseases (as a whole) nor death can be eliminated. Acceptance of this reality helps people I ,to

recognize the realistic opportunities of their own life

I ,to

get the best benefit from effective medical care

I ,to

have realistic hopes in R&D of innovations for treatment of hitherto untreatable diseases

+ to be critical of the unrealistic promises of alternative treatments, miracle drugs and charlatanism.

We must recognize, of course, that neither disease nor death can ever be eliminated. The hope of preventing sickness and death is an illusion and the propagation of that hope is a deception. Mature, emancipated patients should be aware of the fact that disease and death are an inevitable part of life; that diseases are not just transient, reparable, technical defects of their body. Acceptance of this and of the unchangeable conditions of our life is an essential prerequisite for recognizing realistic opportunities to use and develop our talents, and to obtain the best benefit from medical care (including drug therapy.) Enlightenment, education, and help for patients to enable them to accept the individual unchangeable conditions in their lives are an important part of medical care. Good medical care avoids false hopes; reduces the temptation to search for miracle drugs, miracle healers, and miracle cures; and prevents the patient from being deceived by alternative unproven treatment and charlatanism (Figure IV7). In this sense good medical care can improve the quality of life of the individual patient and can possibly contribute to prolongation of life. We must also recognize that our quality of life, e.g., our state of health, capacity, and performance, is not an absolute parameter but more a question of the degree to which we accept the challenge of the special conditions of our own individual life, how we can deal with the limitations and burdens in our life, the damage to our health and the reduction of our capacity.

Etlzicnl gods 37 Figure 1118. Ethical aspects of health care Access to the best possible (at least, the essential) effective medical care is a fundamental human right. Societies must I ,offer this

medical care to all people independent of their privilege or wealth

+ support research for the improvement of medical care and for new treatment of hitherto untreatable diseases

+ reject alternative unproven treatments and charlatanism. Research for and development of innovations in medical care may lead to infringement of other kinds of ethical values. conflicts between ethical values (e.g., protection of animals, the environment) have to be solved by decisions based on balance of goods (there is no other choice): however,

+

I ,human rights must never be

injured.

Drugs help to protect against, to cure, or to alleviate specific diseases-no more but also no less. On the other hand, drugs can cause diseases (side effects), depending on the dose, duration of application and/or combination with other drugs. Thus, the most therapeutically effective use of drugs by a patient will require detailed information about the disease, the mechanism of action of the drug, its potential prophylactic or therapeutic activity, and its risks of inducing side effects. To g v e such information is an essential part of good medical care. All humans have the individual right -as far as possible-to a life free of suffering. This p e s us the right of equal access to medical care (Figure IV8) and is the basic challenge for the improvement or the research for new drugs. On the other hand, all humans have the unconditional right of self-determination. This right rules out dictating to other human beings how they should perceive and how fill their lives. However, the protection of this right of self-determination is linked with an essential social condition: We all are ultimately dependent on each other, especially when the full activity of our self-determination is reduced by disease and we need medical care. Consequently, independent of our perception of life and our choice of lifestyle, we all are dependent on a stable state of health and on medical care, including drugs to cure or, at least, to palliate diseases. Moreover, our obligation to design our individual lives in the best possible way and our dependence on each other requires that we neither use drugs unscrupulously nor that we waste the limited resources of the health care and medical care of our society. The human right of access to the best possible health care obliges health care systems to provide, at least, the essential medical care to all patients in need

38 The ethical background and, at the same time, to provide the expenditure for research and development of improved or new drugs for untreatable or insufficiently treatable diseases. Both goals are ethical obligations, but both have to compete for the inevitably limited resources of the health care systems. To solve this conflict we have to set priorities: we have to select the R&D projects for new drugs and define the research program for improvement of drugs, for drugs which reduce the cost of treatment, and for technologies to reduce production costs. This setting of priorities is of considerable ethical relevance. 2

Research for

new drugs

Development of new drugs to improve treatment or to enable therapy of hitherto unbeatable or newly occurring diseases depends on advances in science (i.e., insight into the pathophysiology of the respective diseases and access to new technologies) and (decisively) on the amount of disposable financial resources. Consequently, by helping to improve the quality and duration of human life, basic research; drug research, development and production; and the economic possibilities of their realization are of substantial ethical significance (Figure IYS) for several reasons: 0 The financial resources for drug research have to be earned. Any fundamental rejection of this fact is not only unrealistic but also (because it prevents innovation in drug therapy) unethical. Financial resources are inevitably limited. Consequently, not all ideas and opportunities in drug research and medical care can be implemented. Priorities must be set, i.e., some projects have to be selected and others postponed, a process with considerable consequences for patients (Figure ID). In the process of carrying out drug R&D, infringement of other lunds of ethical values may occur (i.e., candidate drugs have to be tested in animal studies, production technology may contain potential risk factors for the environment, and the efficacy as well as safety of a drug have to be established in human beings, either healthy people or patients). Conflicts between ethical values may arise and have to be solved by decisions based on a balance of values. There is no other way to decide (Figure IYS). Human rights, however, must never be violated. In view of such strict conditions, the goals of drug research and production as well as the commercial possibilities of their realization have to be seriously reflected upon. Facing the inevitable limits, the possibilities must be carefully explored and decisions must be made on which objectives to pursue.

Ethical goals 39 Figure 1119. Ethical aspects of financial resources for health care The financial resources for health care are inevitably limited. This limitation requires health care systems to spend money appropriately. Thus, they must

* arrange for fair prices I ,pay

only for medical care with proven efficacy

I ,offer

incentives for new drugs that reduce cost of treatment or improve therapy.

Drug price is a substantial portion of health care costs. Partners in the health care system should agree to drug prices that allow drug therapy to be provided to all patients in need

* * cover R&D expenditure on new drugs I ,earn

profit high enough to attract investors.

Pharmaceutical companies have to invest the contribution margins earned for R&D in the best possible, most efficient way for drugs

* that reduce the cost of treatment * that significantly improve therapy.

Selection of the R& D project

Untreatable or insufficiently treatable diseases have many quite different causes, symptoms, and consequences, and the lund of burdens on life and the degree of short or long-term threats are different as well. The common responsibility of a society for each individual patient’s fate is especially challenged in the case of untreatable or insufficiently treatable diseases. Therefore, in principle, the basic ethical rule must be that research for the treatment of untreatable or insufficiently treatable diseases is an important responsibility and duty. In that sense every serious activity which leads to research and production of new drugs by commercial or state institutions is in accordance with the ethically justified social duty of relieving or to curing disease. The existing limits in research capacity as well as in financial resources, coupled with medical needs and their changes over a period of time (i.e., variation of severity, treatability or frequency of diseases and the occurrence of new and disappearance of old diseases), requires management to plan research activities, define strategies, and select projects. In fact, selection of projects (i.e., setting of priorities in R&D) is a touchstone for the practical feasibility of basic ethical rules and whether they can be implemented or not. Simply because such basic ethical rules are valid and seriously accepted, their implementation (faced with the inevitable limits) is dependent on the setting of priorities and defining realistic strategies. Selection of projects must be based

40 The ethical background

upon evaluation of the conditions for their implementation and consideration of their priorities, importance, and consequences. Parameters when considering possible implementation include: The amount of scientific knowledge available about the pathophysiology of the disease, its causes and its effects; opportunities that exist for drug research; possibilities to concentrate all research efforts on projects that seem to be innovative and have a realistic prospect of success; the type and quantity of resources, such as the critical number of qualified scientists, the amount of technical (laboratories, pilot plants and factories) and financial resources. Parameters when considering priority and importance include: The incidence (number of new sufferers/population per year) and the prevalence (number of all sufferers/population per year) of the disease worldwide; the increase in incidence; the morbidity of the disease; the mortality rate; the degree of contagion, infection. It is obvious that all such aspects are linked and can compete with each other. Consequently, selection of some projects invariably results in assigning others to a category of lower priority. As a result, the development of new or improved drugs to treat this category of diseases is postponed; no effective drug treatment or only treatment of limited efficacy, or treatment involving side effects can be offered; and the patients concerned have to wait and feel their cases to be of ”lower priority.” On the other hand, one must consider that many new drugs were invented just by chance, by people working in research fields entirely different from the one in which the drug proved to be effective. All in all, selection of projects in drug research is certainly necessary to facilitate efficient drug research and to ensure that any investment and expenditure on drug research and development are successful. But, in view of the consequences for the patients concerned, setting of priorities should never lead to a complete one-sidedness of research activities. Human rights

One of the greatest achievements in the development of human culture is the declaration of human rights. Many cultures with their schools of philosophy, and religions by means of their core beliefs, have contributed to that declaration; but, tragically, throughout history most churches and countries have not succeeded in formulating such a declaration, or (even more importantly) they have failed to uphold the principle that all human beings are born equal and have equal rights. Our common understanding of human rights originates from the philosophy of enlightenment (mainly I. Kant); the French revolution; and the American

Ethical ,~onls 41

constitution. Within that constitution the autonomy (or self-determination) of individuals has a position of high priority. Today, the protection of individuals with regard to their person and property is declared in the constitutions of many countries and has been particularly consistently applied (especially in the USA) in a long chain of legal cases addressing medical matters including the R&D of new drugs (Sade 1994). The ethical obligation to absolutely respect the integrity of human life and limb results in the commonly accepted norm that medical treatment of a person is only allowed for the prevention or the treatment of a disease. It is, however, in no case unethical to offer oneself for the treatment of another person’s serious disease, e.g., by the donation of an organ for transplantation or by being a test person in a clinical trial to prove the efficacy of a new drug. Human rights must be especially considered when candidate drugs (after their successful preclinical development) have to be tested on humans (either healthy volunteers and/or patients) to prove whether the efficacy demonstrated in the preclinical test systems and in animal studies can be confirmed; to determine the effective dose and its limits due to side effects; and to evaluate the therapeutic potency by itself or in comparison to standard drug treatment. In such clinical studies the protection of human rights is of the highest priority. This taboo should not be ignored or violated (Bernard et al. 1988, Levine 1986).Humans must never be regarded as an object of experimentation. A purely medical test mentality would considerably violate the prime necessity to respect human dignity. Human rights, especially the right of self-determination, must always be respected, even if the clinical study would be of extreme benefit to other patients. This right of self-determination underlies the requirement to present detailed information to the test persons about all available data on the test compound as well as an estimation of its benefits and risks. Companies and physicians must be sure that (according to the most accurate knowledge) no other accepted treatment could be more successful. ‘These are prerequisites so that volunteers have free choice and give their deliberate consent to participation in a clinical study. Of course, the readiness to accept risks (both by physicians as well as patients) is higher the more life-threatening and severe the disease. To the same degree, it is also ethically permitted to accept higher risks. Human rights and human dignity also require that special care be taken of children and incapacitated persons; that clinical studies be performed according to the internationally accepted highest standards, with a maximum amount of scientific competence and care; that confidentiality of personal data is guaranteed; and that the research protocol is reviewed by an independent and multidisciplinary body, such as an ethics committee.

42 The ethical background

If the ratio of potential benefits versus potential risks is unfavorable for a test compound, such ethics committees must reject the clinical protocol. An example is germ line gene therapy, which attempts to cure or prevent transmission to future generations of gene defects resultingin serious diseases. Germ line gene therapy is the addition of genes into germ cells, e g , spermatozoa, eggs, cells in the early stages of the human embryo before differentiation of the germ line. (In contrast, somatic gene therapy is the addition of genes into one or many of the other cells of the organism). Today, the scientific basis and the technical feasibility of germ line gene therapy are far from being established. Moreover, the possible transmission of the modification of genes to future generations carries with it extremely involved risks and raises fundamental philosophical questions. In consequence (and considering that the actual state of the art does not provide reliable information whether or not benefits can be expected), the group of advisors on ethicalimplications of biotechnology of the European Commission has concluded with good reason that (in contrast to somatic gene therapy) germ line gene therapy on humans is not ethically acceptable at the present time (Archer et al. 1994) 3

Setting Priorities

As already discussed, in view of the ethical obligation to care for the individual patient and maintain the health of society, expenditure on innovative drugs to treat hitherto unbeatable diseases or to improve treatment of insufficiently treatable conditions are of high priority (Wright 1987),especially if the medical needs (degree of morbidity and/or mortality rate) and the incidence of the disease are high. It is likewise an ethical task to ensure that an effective treatment of a given disease be available to most (if not all) patients. Limited availability of drugs may be caused by difficulties and/or by the costs to produce and/or to market them. Thus, research efforts and capital investments to improve production methods and to lower production and distribution costs are needed and also ethically justified (Figure II/lO). It is obvious that such different ethical goals are linked to but simultaneously compete with each other for limited personnel (scientists), technical (laboratories, pilot plants and factories) and financial resources. How much should be invested in basic research (to gain new insight into the pathophysiology of an untreatable or insufficiently treatable disease) or in a specific research program to find new drugs (for more or less frequent diseases with a low or high degree of morbidity, mortality or contagion)? How much should be invested to improve production technology for reducing the drug price or to find drugs that reduce the costs of treatment of a disease? What should be the market price of the drug? This market price has to cover not only the cost of production and

Ethical goals 43 Figure Illlo. The price of drugs is of high ethical relevance. Partners in health care should agree on prices that cover all ethical aspects. cost of

contribution margin for

cost of

- new technologies -distribution - marketing - drug research and administration development I I

- production

I

/

1

d r y price (yWork)

y

II

b

t*

*t

D

profit

/

low price

goals of ethical relevance

-

high price

- new technologies that reduce production costs

- new drugs that reduce

availability of effective and safe drugs for all patients who need them

costs of treatment

- new drugs that improve/ facilitate therapy ~

~-

- profit that attracts investors

Figure 11/11. Setting of priorities in drug research is determined by limited financial resources and is a task with considerable ethical relevance

\

/

> 4000 diseases incidence rate of diseases high

\

i

medium

~

i

low

-

/

high

> 4000 diseases

medium

> 4000 diseases

0

-

-

low

high

/

I

/

> 4000 diseases

\

\

44 The ethical background

distribution, but also the expenditure for drug research and development, and (last but not least) provide enough profit to be attractive for investors. The market price can also determine whether and to what degree a drug can be administered to and/or afforded by patients and/or societies and health care systems. Thus, a conflict of interest and ethical values continuously arises when drug prices are defined (Figure IVlO) and when priorities in drug research and development are set (Figure IV11). Nevertheless, priorities must be set to facllitate drug research and to ensure meaningful investment and expenditure on drug research and development. Setting of priorities is thus a process of high ethical relevance (Maclean 1993)and is the genuine responsibility of all partners involved in drug research and development-the pharmaceutical industry as well as governmental and academic institutions. Setting of priorities by pharmaceutical companies requires the most objective analysis of internal strengths (i.e., quality of their own research projects, expertise in research, production technology, size of available budget) and the opportunities (new ideas for basic research programs, new scientific knowledge, new technologes) in view of the medical needs (defined by the incidence and degree of morbidity, and/or mortality of untreatable or insufficiently treatable diseases, cost of treatment). Based on such analysis, each company can decide which amount of money should be invested into which R&D program (Figure IV11). As long as the responsibility for defining goals and strategies in R&D lies with the management of the various pharmaceutical companies and academic institutions, competition among them should ensure that the sum of all R&D activities will more or less completely cover the medical needs and that onesidedness will be avoided. Governments can and do participate in that decision process by offering incentives such as research grants to gain insight into the pathophysiology of a new or hitherto untreatable disease and exclusive marketing rights for new drugs to treat diseases with high morbidity but extremely low incidence rates, preferential quick registration of and/or favorable prices for innovative drugs to treat hitherto untreatable diseases. However, governments should be careful not to interfere directly with the process of priority setting and should leave the final responsibility to the pharmaceutical company. 4

Responsibility of social partners

In the former feudal or in the dictatorial-totalitarian or communistic-totalitarian states, access to medical treatment and drugs was dependent on privilege and/or fortune. Moreover, these countries have not contributed much to the innovation of effective drugs which almost all originate in countries with a

Ethicnl goals 45

democratic social order. In addition, although the health care systems in democratic countries are in fact differently structured, they all guarantee a high degree of access to essential medical care for everyone. Thus democratic social orders have proved best at fulfilling the ethical obligation of providing effective medical treatment for all patients, including the under-privileged. They also provide the financial, scientific, and technical resources necessary for success in the R&D of new drugs. The strength of the democratic social orders is based in free elections and the parliamentary decision process that concludes with legislation based on the votes of the majority. In order to fulfill the ethical obligation to provide the best possible medical care and to ensure its improvement, this democratic social order must be protected against all aggression from minority pressure groups. In view of continuously rising health care costs, the responsibility and ethical obligation to secure equal access for as many people as possible to at least essential medical treatment and to facilitate and support a continuous successful R&D of new effective drugs increasingly lie with the parliamentarians. They must ensure competent distribution of limited resources through wise legislation. It is within the scope of the responsibility of parliamentarians that all effective and appropriate measures be undertaken to increase public health, including advising against and even prohibiting actions, conditions, or compounds that are health hazards, and to improve preventive medicine. This responsibility also includes fulfillment of all the prerequisites to facilitate drug research and development, education of scientists, the best possible (objective and scientifically based) regstration of new drugs, surveillance of drugs on the market, and objective adequate information for the public. The huge amount of services of various kmds paid for by social insurance companies and sickness insurance funds in some countries has increasingly led to the perception that health care resources are unlimited. As a result, health care services may be consumed without talung into account the available resources. Such behavior can cause social pressures, can reduce the latitude of priority setting, and can even cause a non-democratic distribution of health care services in response to egoistic and/or ideological pressures. Overloading the health care system carries with it the danger that sufficient medical care is only available for privileged or fortunate people. To avoid such a threat, all social partners must take responsibility for keeping health care expenses low enough that they can be covered by available financial resources. The main responsibility for this task lies with the government, private and public social insurance, and sickness insurance funds. Their first ethical priority should be payment for the best possible (at least, the essential) and effective

46 The ethical background

medical care for all patients. Thus, they must refuse to reimburse quack remedies. Alternative treatment should only be paid when its efficacy has been proved according to international scientific standards. They must avoid wasting money on expensive advertisements and/or sponsoring events that may be related to medical care, but are not really part of it (i.e., paying for fitness, sports or social events, etc.). Government and insurers must negotiate with all partners in the health care system on fair prices for medical care and drugs. They must support the R&D of new drugs (i.e., by setting fair prices for marketed drugs), to reduce not only the consequences of disease, but also the costs of treating disease in the future. By defining whether, to what extent, and for which disease the drug price can be paid, private and governmental health care systems significantly influence the access to available, effective drugs and indirectly the R&D program for new drugs (Figure II/lO). To fulfill the ethical obligation for the best possible medical care and to secure its improvement, all partners in the health care system have to ensure that 0 access to effective drugs is not dependent on privilege or wealth, but that the poor can also be treated the market price for drugs covers the necessary expenditures for drug R&D and provides a sufficiently attractive profit for investors the price (reimbursement) system offers incentives for innovative drugs in prophylaxis and therapy of hitherto untreatable conditions. To stress again: The limited financial resources of the worlds health care systems should be strong arguments for repstering and reimbursing only drugs with proven efficacy. Any exception to that rule would reduce the amount of money available to the health care system for effective drugs and for effective treatment. It would also encourage the pharmaceutical industry to turn their back on recognized medicine and to invest money in the development of quack remedies, because money would not be availablefor the R&D of effective drugs. In view of the inevitably limited financial resources in health care and the ethical obligation of all partners to provide effective drugs only, any measures that directly or indirectly support quackery must be considered unethical. Pharmaceutical companies are important partners in the health care system. They provide drugs, diagnostic and technical devices, and they invest money mainly in the R&D of new drugs. Because this money has been earned by selling drugs to the health care system, it should be not only an economic but also an ethical goal for each pharmaceutical company to spend the money in the most effective way. As stated earlier, the latter requires a most objective evaluation of the company’s present position, i.e., what is the potential value of internal R&D

drugs for new therapy

- drugs that reduce price of therapy -technology that reduces price of

sickness insurance funds

>

Pay only for medical care with proven efficacy. Give innovative drugs an incentive higher price.

r

0 Define goals, strategies and select R&D projects that best fit the strengths of the company. Perform and manage R&D in the most competent, effective, and trustworthy way.

patients/people

government

0 Do not overload the health care system with unjustified demands. Support new technologies for and R&D of new drugs that improve therapy.

_____

0 Distribute the limited resources with competence and through wise legislation. Do not adapt decisions to minority pressure groups.

m n

~

pharmaceutical companies

responsibility of social partners

improve therapy

treatment of hitherto untreatable diseases

availability of effective, safe treatment for all patients in need

U

ethical goals

D

Figure 11/12. All partners in health care share responsibility to meet ethical goals as well as possible

48 The ethical background projects in comparison to competitors, what are the strengths and weaknesses, the opportunities and threats. Moreover, innovative ideas have to be generated and achievable strategies developed and defined; scientists have to be hired and motivated; and the implementation of innovative projects has to be managed. Motivation of scientists and management of research should aim for success (a new drug or a new technology) as quickly and efficiently as possible. This needs cooperation and team work as well as acceptance of eccentric creative scientists and specialists.Adaptation to project groups and commitment to daily tasks are essential. Also required is tolerance of originality and individuality, freedom to think-also in unconventional ways-errors, and mistakes. This needs wise leadership, not only to manage the internal R&D activities, but also to coordinate them with external (governmental, academic) institutions and the public. All in all, the most important prerequisite for the success of such a complicated task is that all groups of society and persons involved in and responsible for R&D cooperate in the best possible way to generate innovations for the benefit of patients (Figure IV12).

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER 1 1 1

The Research and Development Project

A The process of Research and Development

R

(R&D) are the core of an innovative pharmaceutical company. In the ideal case, R&D starts with the creation of an idea and ends with the registration of a new drug for launching. Depending on the type and characteristics of the company, R&D may be embedded in different dependencies and may play different roles. For example, if a new idea or an innovation is the starting capital of a new company, the R&D project automatically defines the goals and the strategy of the company. If, however, a range of marketed products represents the dominant strength of the company, business goals as well as mid and long-term marketing strategies directly influence the areas of work in R&D. In most cases, this interaction between marketing and R&D activities is essential for the definition of goals and the formulation of core strategy, which in turn provides the context in which R&D activities have to be programmed. Management of R&D can be roughly separated into two phases (Figure IIV1). In the first phase management for innovation is of foremost importance, this includes the stimulation of new ideas, their experimental exploration, and the experimental proof of the desired pharmacological activity (Quinn 1983, Kanter 1985). The final result of this phase is the proposal of a new compound for development. The second phase consists of the management of the development project (Stuck 1980, Keisling 1983, Winck 1987).Project management has to fulfill largely defined legal instructions and directions. The goal of development is the registration by a governmental authority of the new compound for medical use. ESEARCH and development

w

I

registration for launchina

clinical proof (phase 111)

+

clinical evaluation (phase 1,Il)

preclinical development

*

evaluation and selection of

c

I

experimental proof

exploratojl research

creation of ideas

project management

innovation

management

L

(competence, intellectual property)

R&D

t pilot plant, production (technical expertise)

corporate strategy

activity of competitors

Figure 11111. Role of R&D for the strategy to reach corporate goals

marketing + sales (image, territories, competence)

medical needs

corporate goals

a

3

$ a

2

z %

!-I

0

wl

The innovatioiz process 51

In accordance with their different functions and tasks, management for innovation and project management need quite different qualifications.

B The innovation process The innovation process is characterized by some distinctive features (Figure IIV2) and requirements for success (Figure IIV3). It is a knowledge-intensive process, relying on individual intelligence and creativity. Because research of pharmaceuticals is complex in nature, a team of people with different types of creativity is needed. To be effective, the team should be functionally complete (i.e., every necessary function has to be represented), and simultaneously as small as possible, to allow the best possible exchange of information and flexibility. Members of the team should be characterized by a high degree of commitment. It is advantageous to the innovation process if the team is headed by a leader who is both able to sustain the vision and to adjust the origmal concept to emerging realities. Participants in such a team accumulate new experience very quickly. The steep learning curve makes it difficult to transfer the knowledge and experiences to others, without loss. This vulnerability to changes in team participants Figure 11112 Characteristics of the innovation process

I) Based on new ideas (result from the creation of new combinations and the ability to perceive unexpected opportunities)

r)

Knowledge-intensive (relying on individual intelligence and creativity)

I)

Quick accumulation of new experience (the learning curve is steep)

I)

Vulnerable to transfer of participants (loss of knowlege and experience)

I)

Teamwork but with visionary drug hunter

I)

Results are highly uncertain and unpredictable

I)

Cost intensive

Quinn 1983,Kanter 1985

52 The Research and Development Project Figure 11113. Requirements for the innovative process to be successful

I) Creative atmosphere (organizational structure that respects individualism and stirnulates and honours creative contributions)

I) Visionary leadership (willing to initiate and sustain effort on the basis of trust and ideas)

I)Working teams that are functionally complete (in which every necessary function is represented)

I)Team-oriented working relationships (high mutual respect)

I) Rapid and effective exchange of knowledge among participants

I) High degree of long-term commitment of all participants (5-10 years are needed from the initial idea to effective drug development) Budget for exploratory research (money that does not have to achieve a short-term return)

I) High planning flexibility (continuous adjustment of the original concept to the emerging realities)

I) Sufficient job security throughout the organization (innovations should not be seen as position-threatening)

I) High degree of commitment by functions outside the innovation producing unit to the innovation Kanter 1985

requires that the membership of the team be kept stable during the duration of activities. Although it is highly unpredictable whether a given innovation process will be successful, achieving a goal requires, over a long period of time, a high level of investment that cannot provide a short-term return. Essential for such mid and long-term investments is an atmosphere within the whole company that supports creativity. Such an atmosphere ensures not only the supply of risk capital, but also the willingness of functional units outside of the innovationproducing team to commit themselves to the innovation and to interact across functional boundaries. One prerequisite of this atmosphere is the wdlingness of all members of an organization to identify with the success of the whole organization. This is only possible when there is sufficient job security throug-

The innovntioiz yroccss 53

hout the organization so that innovations are not perceived to be positionthreatening (Kanter 1985). The innovation process, which starts with the creation of an idea, is based on the analysis of a given compound and the identification of such parameters as are recognized to be important. Using that knowledge, and by proposing a change or new parameter, a new compound can be created. In other words, new angles or perspectives are used to reshuffle the parts to make a new pattern, thus challenging conventional assumptions (Holton 1979, Kanter 1985).The direction of this synthesis process depends on the goal of the creative person, which in turn is defined by the interaction of the person with his or her environment. If the person feels squeezed or constrained by this environment, his or her creativity will be directed at escaping from this uncomfortable position or changing it, at the cost of research innovation. If the manager recognizes the situation and alters it to generate a supportive atmosphere, the person may redirect their creative attention towards innovation research. It is irrelevant whether the constraints really exist or are only perceived to exist. Decisive for the creative process is only that the creative person benefits from their removal and readjusts his or her creativity to promote innovative research. Management for innovation involves, on the other hand, selecting factors that promote creativity to reach the goal in accordance with the chosen strategy of the company. Management has to eliminate all conditions that could induce or even force people to invest part or all their creative energies into decreasing or avoiding those conditions, instead of putting their energies into innova tion. What factors promote creativity? Adequate working conditions resulting from, but also characterizing corporate culture, although essential for creativity, do not stimulate or direct it. Such worlung conditions include 0 respect for the dignity of each person and tolerance of individual differences. 0 rules for cooperation and the applicability of such rules to everybody without exception (this includes clear definition of rights, obligations and tasks). 0 adequate technical, functional and personnel capacity, unlimited access to information, and an adequate salary and social system. an organizational structure that stimulates interdisciplinary and interfunctional communication and mutual, integrative adjustments, but limits the command system. Merit reward systems, such as a public bonus system of payment or other publicized incentives and awards, can visibly demonstrate respect for people and their abilities to contribute to the innovation process. These measures may indeed be stimulative, but they are only a part of management of innovation in its true sense.

54 The Research and Development Project Figure 11114. Prerequisite for innovative R&D management Long-term horizons

I , Scientific competence

*

Driven by perception of opportunities Objective (no bias for or against any of the projects that compete internally)

I , Ability to convince scientists and to come to mutual agreement I , Sensitivity to and confidence in co-workers; share of responsibilities Broadly defined jobs, assignmentsfocused on results to be achieved, mandate to solve problems

I ,Provision of creative atmosphere by adequate incentives,tolerance of individualism, and integrative organizational conditions

* *

Reliability and persistence in activities to achieve the joint goals Flexibility to adapt the original concept (measures, strategies) to the emerging realities Courage to stop an unattractive project

I ,Identificationwith the success of the whole organization Management that stimulates creativity gives people the feeling that each new step that brings a project forwards in accordance with the strategy, or that creates a new project to reach a defined goal, is of personal benefit. In other words, management ensures congruence between the personal perception of benefits and the goal and strategy of the company as far as possible. The main, if not the only, way to achieve this congruence in research and development (under conditions of high uncertainty and low predictability) is by personal communication, negotiation, mutual adjustments and by conviction. There are several essential prerequisites (Figure IIV4) that have to be fulfilled by management in order to ensure optimal creativity in R&D: Scientificcompetence Scientists can only be convinced by a management that understands their scientific work and can scientifically substantiate any decision to continue, to change or to terminate this work. Scientificcompetence is actually one of the most difficult prerequisites for management to meet. It is probably easier to fulfill this requirement in companies with a small R&D program than in multinational companies with

The innovation p~ocess 55

their extremely wide range of activities. Because of deficiencies in the scientific competence of management, many multinational companies suffer from lack of innovations, have poor R&D pipelines and have to license-in attractive R&D projects from medium-sized or small companies. Segmentation of R&D into units of expertise in multinational companies can be a successful approach to establish management with scientific competence able to nurture creativity and be successful. Objectivity Generally, several exploratory research projects compete with each other within a functional unit for innovative research. Any bias on the part of management in favor of one or against another project is not only prejudicial towards the privileged or discriminated project and makes its objective evaluation more or less impossible, but also erodes the credibility of management. Moreover, lack of objectivity can more or less destroy the possibility of personal communication that is needed to convince R&D people and to stimulate creativity towards corporate targets. One way to increase objectivity is the obligation to reach mutual agreements by means of peer to peer and integrative communication. Sensitivity and coizfidencc New ideas mostly arise intuitively, by association. The creative process needs time for thinlung, dreaming, personal contacts, exchange of information, and discussion. Management must generate an atmosphere in which this process is not simply tolerated, but actually stimulated by providing organizational as well as informal help. Within a creative atmosphere, many ideas and projects emerge and compete with each other. Selection of the most attractive ideas and projects is one of the most interesting, most decisive and critical duties within exploratory research. Management has to catalyze this decision process, to guide and secure the mutual adjustments, and bring the integrated discussion to a final conclusion. After selection of the most attractive ideas, management has to provide all the organizational help needed to develop new ideas for an innovation. This process of creating a stimulating atmosphere for ideas, attending the birth of ideas and selecting the best ideas requires considerable sensitivity on the part of management. In addition to a high degree of scientific competence and objectivity, management must be sensitive to the individual character of each scientist and respect each person’s contribution. In an atmosphere characterized by sensitivity and confidence, management is able to participate directly in the creative process by motivating co-workers.

56 The Research and Development Project 0

Reliability and persistence An effective way of destroying creativity of R&D is to change management, or R&D areas, or strategies frequently. This procedure, exercised with or without the help of consulting companies, may give the impression of strategic competence and operating skills. Very often, however, it is nothing else but helplessness emergng from a dominating command system. Such a command system tends to suffer from a constellation of problems: - scientific incompetence, - negligence of the different talents and psychological sensibilities of R&D people, and - tendency to ignore the complex nature of innovative research and the often extremely long duration and high investment needed to ensure success through R&D. Once defined according to the core strategy of the company, at least four or five years are needed to establish scientific competence in R&D for a particular field. And at least half of this time is needed for the R&D people to acquire confidence in their management to such a degree that creativity can develop to an optimal level. At least 10 years are needed from the creation of an idea until registration of a new therapeutic compound. Altogether, R&D of a pharmaceutical drug is a process that requires more than 10 years. That is about one-third, and generally the most creative part, of the worlunglifetime of a scientist. Any change in the R&D area or the core strategy makes all the commitments of each individual in the innovative team (as well as the investment of money into such a project) more or less useless. The importance of reliability of management and persistence in the defined R&D area and formulated strategies cannot be over-emphasized. Flexibility Decisions within R&D have to be revised and adjusted to, among others, the continuously emerging achievements in scientific knowledge and technology as well as the activities of competitors. Such adaptations require a high degree of flexibility. Management must stimulate and accelerate the necessary consensus, inspire the commitment and intellectual support of all scientists involved to effect the change believed to be necessary. Flexibility is enhanced by loosely defined job descriptions. The less detail specified in the description, the greater the individual scope, which is necessary for creative action as well as effective and quick adjustment of individual work to meet emerging needs. In view of the overall limitation of personnel and expenditure in R&D, adjustment to change also involves the continuous reallocation of budget funds and capacity. The more objectively, suitably and quickly this realloca-

The evaluation of a project 57

tion can be performed, the better the chance that the innovative process will be successful. Thus, management must effectively organize, support, and stimulate reallocation towards the achievement of the defined goals. Delegation of responsibility for each potential research area to "champions," and requiring these champions to convince scientists who are responsible for budget funds to allocate their resources to the project, may be another way of increasing flexibility, suitability, and commitment (Byrne 1987).

C The evaluation of a project R&D projects are evaluated on the basis of several parameters, to estimate their attractiveness and to define the competitiveness of such projects for the company (Figure IIVS). The best possible objective assessment of a project is a difficult undertaking (Roussel et al. 1991). Depending on the development stage of the project, many if not all estimations of the parameters are based on future events that may occur within a range of probabilities. In other words, the estimates are unpredictable to a greater or lesser degree. For this reason, all the expertise needed to develop and market a new drug should be brought to bear in the evaluation of a project. This includes preclinical and clinical R&D, production, marketing, patent rights, registration, and finance. The caliber of the evaluation is directly correlated with the competence, knowledge and experience of the people who participate in the process. Thus, the person with the weakest qualifications determines the overall quality. Lack of expertise dramatically increases the possibility of misjudgment and can even make objective evaluation impossible. Figure 11115. Parameters for evaluation of R&D projects R&D project

company's R&D

~~

competitiveness I

attractiveness ~~

pharmacological profile medical need turnover potential risks activities and expenses till launching

+ + + + +

~

~

I- -

+ + + + +

58 The Research and Development Project Objectivity and neutrality are essential. Prejudicial attitudes towards a project or towards persons involved in the project can very easily influence the estimation of the parameters. There is a temptation for both the R&D people and management to be in favor of a project. However, bias on the part of management is even more dangerous, as it can have an amplifying effect on other attitudes towards a project through possible submissiveness and opportunism of co-workers. To avoid such risks, project evaluation should be performed under conditions that fulfill the following requirements (Figure IIV6): 0 The evaluation is carried out by a group of persons with different qualifications (preclinical and clinical R&D, production, marketing, intellectual property, registration) but all highly competent in their respective indication (working) field of the project. 0 The evaluation occurs outside the hierarchy in R&D. If necessary, external experts are consulted. 0 The estimation of each parameter is both detailed and understandable. Primary data are not encoded or otherwise concealed. The project evaluation process is adjusted according to the stage of research and development of the project (e.g., projects in the embryonic stage of exploratory research cannot be evaluated as extensively and with as much detail as projects that are at the clinical study stage). The project evaluation process is standardized, to allow comparison of projects at similar development stages as well as at different development stages as far as appropriate. Figure 11116. Conditions under which R&D projects should be evaluated group of persons with the necessary qualifications and competence in the field of indication performance independent from hierarchy (R&D management) detailed, understandable analysis (precise questions, no encoding) evaluation adjusted to the stage of R&D standardized procedure

compound: stage of development:

indication:

Projects are described and rated according to the latest R&D results

standard (market-)compounds:

project:

Figure lW7. Pharmacological profile of project

60 The Research and Development Project The following parameters provide the basis for the evaluation of projects. 1 0

0

0

2 0

0

0

Pharmacological profile (Figure lW7)

What is the precise pharmacologcal target of the R&D project? Define it by describing the (proposed) therapeutic effect. Is a compound that has reached this target equal to, or superior to, marketed products or is it even a unique compound with a new biological principle and with the prospect of major therapeutic benefits? What results have already been obtained? How far has the target been achieved? Rate the results from in vitro experiments, animal and clinical studies. Is the elaborated pharmacological profile (efficacy of the drug), the breadth of the therapeutic window (difference between minimal effective dose and maximal non-toxic dose), and the main toxicity identical to or different from the anticipated one? What are the R&D compounds of competitors and how can their pharmacological profile, breadth of therapeutic window and lunds of toxicity be rated in comparison? Describe in detail possible differences between the competitor’s compounds and the in-house project. Medical needs (Figure 1W8)

What is the morbidity or mortality rate of the disease to be treated with the new compound? What is the incidence (number of new sufferers/population per year) and the prevalence (number of all sufferers/population per year) of the disease worldwide? Does any therapy exist? Is it good, suboptimal or insufficient? Is the influence of therapy costs on the decision for each therapy low or high? What is the target for clinical efficacy of the in-house project? Describe it as far as possible in detail.

3 Market and turnover potential (Figures 111/9-11) 0

What is the total number of patients per year with the particular disease to be treated? How many patients with this disease are treated with the currently marketed products (standard compounds), and how many would be treated with the new class of compounds to which the new internally developed drug belongs? (The total number of patients indicates the market potential.)

m

I

low

medium

high

very high

medical need

project:

~~

I

1 medium (> 1x105)

frequent

incidence and prevalence of the disease

r-,

suboptimal (slight side effects, duration of effect, method of application, price:

/,,

insufficient (efficacy, tolerance)

existent possibility for therapy

1

v

very high

--,

(7,

(Iy

medium

small

considerable

,,

1

P\

:ision for therap)

If therapy on de.

nfluence of price

stage of development:

indication:

Projects are rated by calculation of a mean value, obtained across columns.

medium

high

norbidity/ nortality of jisease

~

compound:

\

->

"me too" i/

,/---\,

,,

improvement formulation method of application

/

improvement efficacy tolerance

\ /'

/-

new therapy

targets for clin. efficacy

Figure 11118. Medical need; position of the project has to be marked by crossing the circle in the respective field

62 The Research and Development Project

0

How many patients who would be treated with the new internally developed compound are accessible? (This number of patients indicates the turnover potential for the company.) What different scenarios for success (best, medium, worst) could be defined? What is the most realistic scenario facing the in-house project, g v e n its achievable pharmacologcal profile in comparison to the strengths and weaknesses of competitors? What average total dose per patient per year is necessary for treatment (number of treatments, dosages) with standard compounds, and which total dose is believed to be necessary with the new class of compounds and with the new internally developed compound? What are the costs of treatment per patient and year with the standard compounds and with the new internally developed compound? A top-down approach to the market and turnover potentials involves answering the following questions: - What price could be accepted by the market (in the country where it will be marketed) for treatment with the new compound in view of its pharmacologcal profile? - What would the manufacturer’s sales price be? - What are the maximum acceptable production costs for the finished product per patient per year which guarantee contribution margins sufficient to cover all necessary expenditure and the divisional profit? (Usually, production costs are less than 20% of the manufacturer’s price.) - Can the target price for the production of the finished product per patient per year be achieved, and what R&D expenditure (covering production technology) will be necessary to achieve this price? A bottom-up approach involves answering the following different questions: - What is the minimal price for the production of the finished product per patient per year? - What contribution margins have to be considered? - What could the manufacturer’s sales price for the finished product in the country of sale be? Is that sales price competitive? Could it be accepted by the market? - Does the therapeutic advantage (pharmacological and toxicological profile) offered by the new internally developed product justify the sales price? What is the turnover potential of the new internally developed compound? What are the most realistic scenarios in view of its pharmacological profile,

- total:

-Japan:

- Europe:

- North America:

turnoverlyear in case all patients are treated

sale price of therapy per patient per year:

dose per treatment:

sale price per treatment:

no. of treatments per patient per year:

- Europe: -Japan:

- North America:

total number of patients (PN)/year (million)

standard therapy:

project:

Figure 11119. Turnover potential

I I I I I

I I I I I I

I

I I

! (% of PN)

(million)

with standard compound

1 no. of patients treated (% of PN) (million)

I

I

I I

I

I

I

I I

!

:

I

I

tu rnoverlyear in the country: e x work

no. of patients acces.&lefor company: (% of MP) (million)

turnover potential (TP):

stage of development:

indication:

no. of patients treated with new class of compound

market potential (MP):

cornpound :

I

description of scenarios

1)

scenario with highest probability

other: total:

Japan:

Europe :

North America:

total no. of patients (PN)/year (million)

project:

~~~

no. of patients treated with standard compound (% of PN) million

~

I

~-

no. of patients treatable with new class of compound (% of PN) million

turnover potential (TP)

1)

of MP) million

no. of patients treatable with compound of company

stage of development:

indication:

market Dotential (MP)

t----

I

'

1

~

II

standard therapy:

compound:

Figure 111110. Turnover potential: no. of treatable patients

<.

2

3 m

d

~~

~

scenario with highest probability

-~

-total

- other countries

-Japan

- Europe

sale price/patient/year scenarios turnover (million DM) - North America

cost price for finished producvpatientlyear

doselpatientlye;

project:

I compound

market potential

standard therapy:

compound:

Figure 111111. Turnover potential: estimation of turnover

turnover potential ex work compound of company

turnover potential in the countQ compound of company

stage of development:

indication:

1

a

high medium low

' very high

'

high

very high

'

~

low

medium

i

~

I very high

I -~

I

, medical neec

I

1

30-60

30-60

40-90

-

*) reference product already established in the market Prange 1994

(PIUS)*)

me too

superior*)

product profile ~-

I

1-5

5-1 0

1-5

1-10

0

5-20

20-50

5-20

-

lower range

higher range

higher range

1

1-5

1-10

lower range

0

registration questionable

.

5-15

1-5

1-20

00

~

-

higher range

higher range

rough estimation of turnover potential re ional differences (expressed in % of market potential) ____ 0 narket potential number of competitors Japan Europe USA

Figure 111112. The first product launched has the chance to get the highest turnover.

B

2

9.

F x s 3 2

R

$

2s

B5

%

Tlie evaluation of a yrojcct

the medical need for an improved or new treatment and the number and activities of competitors? Prior experience can be used to estimate the turnover potential achievable in the case of various scenarios, expressed as a percentage of the market potential of a new compound (Figure IIY12).

4 Risk factors The estimation of risk factors must take into account three main areas: The pharmacological profile R&D of a new biologcal principle for the treatment of a disease for which no therapy is available incorporates per se a higher uncertainty as well as a higher risk of failure than R&D for an improved drug. Failure may be caused by insufficient efficacy or unexpected toxicity of the drug. The development stage The less that is known and proven about the new internally developed compound, the higher is the possibility of failure of the project. Generally, any new compound in preclinical development carries a risk of failure of at least 75%. That means that, in a best case scenario, only 1 out of 4 to 5 preclinical R&D projects will be successful. This high risk of failure is not significantly reduced until clinical results are available from controlled phase II/phase 111 studies, in which the efficacy and the tolerance of a new compound have been demonstrated (Figure III/13).

Figure 111/13. Overall estimation of risks for a new pharmaceutical compound

risk:

>95%

+ ++ +++ ++++

> 50 - 75 %

-

registration and

fclinical R T , stages of development

phase 1.11

i

-+I+

controlled phase II

+I+

clinical R&D

phase Ill

67

68 The Research and Development Project The available expertise (Figure 111/14) As emphasized above, the level of expertise in the various disciplines needed to generate, develop, produce and market a new product for the treatment of a defined disease influences the success (or failure) of R&D. Poor competence in only one discipline not only makes the evaluation of a project questionable (and dramatically increases the risk of misjudgment) but can also be prohibitive or even disastrous for the successful development of a drug. Every effort should be made to assess the standard of in-house expertise as objectively as possible. If necessary, external advice should be sought to complement deficiencies in any discipline needed to evaluate the new internally developed compound. Other risk factors (Figures IlU1 5-1 6 ) Deficiencies in the expertise required to develop a compound and to demonstrate unproven but postulated therapeutic activities of a new compound are not the only risk factors. Patent rights, (i.e., whether the company has access to or owns the intellectual property needed for the sale of a compound); the potential for success in marketing the new compound in view of medical needs and economic pressures; and the capacity of in-house R&D, production and marketing in comparison to the competitors must also be considered. Rating of overall risk Especially in the very early stages of development of a product, where every risk factor has to be considered as equivalent, the parameter with the highest risk defines the total risk. In the course of development, however, increasing knowledge should reduce the various risk factors and the overall risk. If this reduction of risks cannot be carried out in time, the remaining risk factor develops into a "knock-out" parameter. (It is very helpful in the evaluation of a project to define such possible knock-out parameters and to ensure that adequate measures are taken in this event.) 5

Activities and expenses up till launch and post-launch (Figures 111/17-18) What activities have to be undertaken and what expenditure is needed for those activities to launch the new internally developed product? This question concerns preclinical and clinical R&D as well as pilot plant, production and premarketing and should be answered for each year of the anticipated research and development duration. What activities have to be undertaken after launch to achieve the best possible turnover? What expenditure is needed?

expertise, experience and models in house, proposed pharmacological profile can be tested

expertise and experience in house; technical equipment established

research and development pharmacology- preclinical development

-

,

~

expertise available (specialized MD). experience in field of indication in house

clinical development

I

no mtemal expense and expenence. access lo experlobe ana models Dy co operat on

new field: no in- new field; no internal ternal expertise; expertise; no access no access to ex- to external expertise temal expertise yet

,-.

expertise, exper ence and technical equipment n house (or available by *?xistingcontract)

production formulation

= symbols, to be used in portfolios

I I

-\

new Reid; no Inter- new field, no internal expertise; no access to external access to external expertise yet expertise yet

, nal expertise: no

new field; no access yet

knock-out parameter:

~

Germany

~

1

no activity cooperation question.

side field of activity cooperation possible

main field of activity

marketing Europe Japan

stage of development:

no nternal expert - no interna experti- no ntema expertise ana expense and exper e n w se and exper ence ence bdl cooperat~onwltn ex perienccd partner poss ble no lrcnnical equip- but conlacis to exrnent coopcrarion ternal experts an the poss ole f e d . cooperation exist no or DOSS ble

I

indication:

but no experience. 1 bul no experience. lteihnical equipbut no experience. test systernsllechnical equ,pment Byail- models available by ment available, no cooperation existexperience ing or possible able by cooperation cooperation

I

expertise, experience and test systemsltechnological equipment in house

biochemistry biology

compound:

Parameter with highest risk defines total risk.

>75%

.

\ _ *

!o-50%

,,;,,

<20%

-isk

project:

position of the project has to be marked by crossing the circle in the respective field

Figure 111114. Evaluation of the specific risk factor: expertise

e

/-

Ii/ ,

USA

++++

0

+++

0

0 ++

0 +

risk r 75%

project:

-

significz

3

no effective drug in the market

0

-

C

compound not yet tested or contradicting results

CJ

0

0 -

significz superio

3 ~-

knock-out parameter:

drugs in the market fulfill the necessities to a high degree

n

0 +,++,+++,++++ = symbols, to be used in portfolios

Parameter with highest risk defines total risk.

jependence on patent rights of :hird parties; licensing is not posjible, unclear or very expensive

3

dependence on patent rights of third parties; licensing is expensive

possibly

0

only slight need for improvement of efficacy, tolerance or formulation of drugs in the market

0

predictive power of models questionable; compound effective; small therapeutic window

3

need for improvement 01 efficacy or tolerance of drugs in the market

predictive power of models predominating; mmpound effective; medium therapeutic window

0

equal

0

0

dependence on patent rights of third parties possible; optionally: Datent rights for selective inventions; licensing is possible

-

R+D ac of corn

possibility of marketing

iredictive power of models iroven; compound effective; iroad therapeutic window

preclinical pharmacology (in vivo) and toxicology

indication: stage of preclinical development:

no dependence on patent rights of third parties; optionally: own patent rights

patent rights

compound:

Figure 111115. Overall risk evaluation project at the stage of preclinical development

compound not yet available

0

compound available in lab. scale, process for production not yet elaborated, production unclear

13

production possible (factory, process), process for production not yet established

(1

compound available (internal, external), process for production established

availability of compound

~

~

~

~~~~~~

compound not yet tested or contradicting results

7 i/

predictive power of models questionable. compound effective, small therapeutic window

i ,

( \

predictive power of models predominating. compound effective, medium therapeutic window

L,

predictive power of models proven, compound effective, broac therapeutic window

weclin. pharmacology in vivo) and toxicolog)

compound:

/ 7

y, ,_ < 4

\

indication:

~-

no clinical experience, bad tolerance or contradicting efficacy

good tolerance even in other indications, no definite results showing efticacy (noncontrolled studies)

v -~

first results indicate efficacy according to defined target (controlled studies phase II. Ilb) good tolerance

\ i ~

= symbols, to be used in portfolios

\

equal

~

superior significantly

~

c

7

possibly superior

/

~

,\

\J

significantly inferior

R+D activity of competitors

knock-out parameter:

drugs in the marke fulfill the necessitie to a high degree

nly slight need for imrovement of efficacy. ilerance or formulatio f drugs in the market

I

need for improvement of efficacy or tolerance of drugs I the market

c,

no effective drug in the market

compound effective (i.a. phase Ill) and tolerable accor ding to defined target

,

possibility of marketing

stage of clinical development: clin studies

Parameter with highest risk defines total risk.

dependence on patent rights of third parties; licensing is not possible, unclear or very expensive

L-1

I , .

jependence on patent .ights of third parties, icensing IS expensive

~~~~~

C?

iependence on p a j F r i g h t s i f third parties possible; iptionally patent rights for se ective inventions: licensing is iossible

~~~

cj

nodependenceon patent rights of third parties; optionally: own patent rights

patent rights

project:

Figure 111116. Overall risk evaluation: project at the stage of clinical development

~~

compound not yet available

L/

_.

tion unclear

production not yet elaborated, produc-

lab scale process for

cornpound available in

(factory. process). process for production not yet established

production possible

i/

,-

established

compound available (internal external) process for production

availability of compound

project:

remarks:

compound:

Figure 111117. Measures and expenses till launch

stage of development:

indications:

3

a

s

L:

(D

3

u N

project:

remarks:

compound: launching year Europe USA

Japan

other

U W

74 The Research and Developrncnt Project

0

These questions refer to preclinical and clinical investigations to expand the therapeutic activity of a drug, to increase production and to penetrate the markets. What are the total costs (current budget and investments for depreciation)? Generally, the total costs are lower for products that have a unique pharmacological profile (mainly due to the relatively low expenditure needed for clinical studies and global marketing) compared to improved drugs or me-too compounds, although expenditures for exploratory research of unique compounds can be much higher (Figure IIV19).

Figure 111119. Drugs with a unique pharmacological profile are the cheapest to develop and to launch rough estimation of out-of-pocket costs in million DM*) product profile

exploratory preclinical clinical research development development

global marketing total prelaunch postlaunch*) costs

unique

20-100

30-60

20-50

20-30

100-140

190-380

t

20-50

30-60

, 50-150

80-100

160-200

340-650

10-20

30-60

80-150

90-120

180-300

390-650

superior

t me too (PIUS)

1

+

t

~

*)to achieve the best possible turnover within 5 years after launching estimates based on collected information, Weber and Sedlacek

6

Estimated success of marketing (Figure 111/20)

Based on the scenarios defined in the estimation of turnover potential (Figures 1IV3to ll),the growth of turnover after launching and the final annual turnover of the R&D project can be estimated. The overall success of marketing depends on: 0 who is first on the market, and when the new internally developed drug can be launched in comparison to the competitors, 0 which indications turnover can be achieved, and 0 whether and to what extent the turnover of an internally developed product will be cannibalized by a new competitive or the new internally developed product, and what turnover this internal marketed product could achieve in case the new internally developed product cannot be launched? If all necessary action after launching the R&D project has been taken in time, experience suggests that, for a defined indication, turnover should reach its peak in the 5th year.

The evaluation of II project 75

c

0

76 The Research and Development Project 7

Variabiiity and accuracy of project evaluation

Project evaluation should not be a solitary event but a routine process repeated at regular intervals. Such repetition offers the chance to increase objectivity and to reduce uncertainty by collection of additional information. Moreover, deficiencies in expertise in specific disciplines or techniques can be reduced. With increased objectivity, the variability caused by uncertainties decreases, and the scenarios that are created become even more realistic. Repetition of project evaluation is also an efficient method of monitoring the progress of research and development of the project. Professional and objective evaluation of R&D projects is essential to the selection of the most attractive and competitive R&D areas in which corporate goals can be defined and core strategy determined. Misjudgment in project evaluation jeopardizes corporate goals and strategies, making them unrealistic and unachievable. This is best demonstrated by companies which, over a long period of time, have failed to successfully bring R&D projects to the market stage, although such projects were highly rated in their project evaluation and although competitors in the specific fields were successful.

D The comparison of the company’s own projects Evaluation of each individual project by a standardized process allows management to compare the attractiveness of (and the company’s competitiveness in) different projects; to define strengths, weaknesses and opportunities; and to set priorities. Only projects at similar stages of development should be compared with each other. In order to facilitate comparison of projects it makes sense to classify projects into at least three groups: exploratory research, preclinical development, and clinical development. Different portfolio procedures have already been proposed to evaluate and compare R&D projects (Spadaro 1985, Roussel et al. 1991).Common to most is the encoding of original data to a greater or lesser degree. Such encoding can simplify the multi-criteria decision-making process. On the other hand, the encoding conceals the main and important opportunities and weaknesses of the different projects and makes it difficult to judge which project is more attractive and consistent with the company’s position and goal. Generally, project evaluation means identifying and appraising alternative projects and allocating resources to those alternatives that, within the given constraints, will maximize the net benefit to the company. However, resource allocation and maximizing net benefit is not the ultimate objective in project

The comparison of fhe compaiiy’s own projects 77 Figure 111121. Major parameters for comparing projects attractiveness of project ~~~

pharmacological profile

1

- degree of innovation

~~~~

competitiveness of company

- quality of the company’s own product

~~ ~~

medical need

[ costs and turnover potential

time for development and market position

- morbidity of disease - efficacy of existing therapy - incidence and prevalence ofdisease

return on investment

personnel and budget

, - development stage of product,

- number of competitors

efficiency of organizational structure

evaluation, but is only a means by which an organization can allocate its resources in order to achieve more significant objectives and goals. Successful project evaluation depends, to a large extent, on clearly defining objectives and goals and incorporating them into the resource allocation process. Funds will be assigned only to those projects that contribute most to these goals and objectives (Khorramshagol and Steiner 1988). It is advisable to apply that goal programming model to the evaluation of projects in drug R&D as well. The major if not the only goal of drug R&D must be innovation. By means of such innovation the company should be able to earn benefits. Consequently, it is strongly recommended that the orignal unconcealed parameter, ”innovation” (described by the ”pharmacological profile” of a project), is taken as the main parameter for comparison of R&D projects. All other parameters are secondary. Consequently, a hierarchy of parameters for comparing projects in the R&D portfolio can be developed, which is illustrated in Figure IIV2l and described below. 1

Innovation and expertise

In view of the fact that innovation is one of the main driving forces in the pharmaceutical market, it must be the aim of R&D: Because scientific competence is an essential (but not sufficient) prerequisite for innovation, innova-

78 The Research and Development Project Figure 111122. Portfolio: comparison of innovation (pharmacological profile) in relation to expertise, overall risk and medical need projects in clinical development

projects in preclinical development

projects in exploratory research

pharmacological profile

superior to standard

equal to standard

75% 50% 20% rlsk by deficiency in expertise

20%

symbols to be used for plotting projects

" IJ 0 0 0

high

medical need

medium veryhigh low

8

20%-<50%

@

50%-75%

0

75%

projects plotted in this area are of low attractiveness

overall

risk

projects plotted in this area are of questionable attractiveness

?

Figure 111123. Portfolio: comparison of turnover potential in relation to overall risk, remaining costs for R&D and pharmacological profile turnover potential (mlllion DMlyear)

projects in exploratory research

projects in clinical development

projects in preclinicaldevelopment

>I000

500-750

350-500 200-350

100-200

50-100 c50

hl 100%

symbols to be used for plotting projects

-unique

remaining

0

r200

75%

Q - superior to standard

j

@

-equal to standard

t

100%

75%

I

I

50%

20% overallrlak ..

projects plotted in this area are of low attractiveness

pharmacological profile

?

projects plotted in this area are of questionable attractiveness

The comparison of tlie comp~7ny’sown projects

tion (i.e., ”pharmacological profile”) and expertise (i.e., “risk due to deficiency in expertise”) are the main parameters (x-axis and y-axis, Figure IIV22) for comparison and preselection of projects. Each project is plotted using a circle, its size represents the mean value of the medical need. The color density of the circle represents the overall risk. From the portfolio illustrated in Figure IIV22, the following can be inferred independent of the goals and strategy of the company: Projects with high pharmacologcal profile and high expertise (Al, A2, A3) are candidates for further development. Projects with low pharmacologcal profile (Dl, D2, D3) and low expertise should be terminated. If expertise in some qualifications is deficient for projects with high pharmacological profile in the stage of exploratory research, measures should be taken to increase that expertise as development progresses. If, in spite of adequate measures, expertise still remains deficient (C’2, A3), cooperation should be sought to compensate for the deficiencies. If this cannot be managed, despite having a high pharmacologcal profile, such projects (C2, C3) are candidates for termination or licensing-out. 0 It may be advisable to develop projects with a pharmacologcal profile which is equivalent to that of a standard drug. In such a case the expertise (B1, B2, B3) and the commercial or social need (i.e., use of the standard drug is restricted by its high price or by its limited supply) should be high and the overall risk low. Usually, however, development of such a project requires above-average expenditure due to very expensive clinical studies (huge phase I11 studies to prove that the efficiency is similar to, or slightly better than standard) and high expenditure for global marketing. 2

Turnover potential, costs and overall risks

Compounds selected on the basis of innovation and expertise can be subsequently compared according to the parameters ”prelaunch costs” and turnover potential” (Figure IIV23). Several procedures are used, which consider both parameters for project evaluation. Those procedures include the calculation of the ”Internal Rate of Return” (IRR), the “Pay back Period” (PBP) and the “Net Present Value” (NPV) (Anthony et al. 1979, Powell 1985). Today, most companies use the calculation of the NPV (Remer et al., 1993), by adding the expected ”prelaunch costs” and ”the turnover potential” for a compound over the period from the present until 10 years after launching. The commercial value, either its orignal amount or the quotient resulting from division of the NPV by the cumulated R&D costs, is either correlated with or multiplied by the probability of “technical success.” The resulting portfolio or calculated number is usually taken to rate the attractiveness of R&D projects (Roussel et a]. 1991). ”

79

80 The Research and Development Project However, the disadvantage of this procedure in drug research, is the far-reaching encoding of the original data. Because the primary data (turnover potential, costs, risks) are only estimations that are based on factors of considerable uncertainty, the encoding process may not only mask such incertitude, but also exacerbate it. To avoid such problems, the projects should be plotted into a portfolio using the primary data. ”Overall risks” of the projects are correlated with their maximal “turnover potential/year” (x-axis and y-axis). Each project is plotted with a circle, its diameter represents the cumulated R&D costs until launching (Figure IIV23). Such a portfolio helps to differentiate between more and less attractive projects. All projects with a low turnover potential and a high risk (Dl, D2, D3) are less attractive if costs for R&D are high. In contrast, all projects with high turnover potential are attractive. Their attraction increases if the risk and the remaining costs for R&D decrease as development progresses. Moreover, projects with a high degree of innovation are more attractive than those with a lower degree. Based on such parameters, projects can be ranked according to priority for development. 3

Development time and market position

As already pointed out, the first product of a new class of compounds has a chance to become a market leader. Consequently, it should be the corporate aim in R&D to launch a new product before or at the same time as the first compound from a competitor, irrespective of whether the new product has a global or a niche market. Future market position is described by the different scenarios (best, medium, worst) for the turnover potential reached five years after launching. The graphical comparison of such scenarios according to turnover potential (y-axis) in relation to launch year (x-axis), 0 the remaining R&D costs (diameter of the circle for each project) and the overall risk (blackening of the circles) helps management to set priorities for allocating the limited R&D budget (Figure IIY24). For example: Projects with a low turnover potential over the whole range (defined by the scenarios), with a late launching year, and with high R&D costs as well as a high overall risk (i.e./ B2, B1) are less attractive than projects with a high turnover potential (Al, A2). Projects with a high turnover potential, early launching year, low R&D costs but high risk (D3) could be as attractive as projects at the same development stage but with a low turnover potential, low risk and high R&D costs (A3).

Selection of the main R&D ayeas, definitioll of g o d s and stratcgics 81 Figure 111124. Portfolio: turnover potential in relation to year of launching,market position (scenarios)remaining costs for R&D and overall risk turnover potential (million DMlyear) (5th year after launching)

I

500-750 350-500 200-350 100-200 50-100

!r + -i/s, @0

--

--

B3

_/-

__.--B, ,_I-

0

0

_/-

/-_/_/-

__I,-----

,/-

lower attractiveness

B,

__/-

1 1

0

1

_/_<.-

_,_,-+’

D3

< 50

symbols to be used for ploning projects

I

T

1 1

1 1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

I 1

I 1

1 1

100-200

~

0 <20%

<50 50-100

1

remaining costs for ~milllon RBD DM,

scenario with highest probability

7

’I ~

best rangeof worst

@

0

*0-50°’

>50-75%

overall risk

>75%

Such a complex evaluation to describe the comparable attractiveness of each R&D project (irrespective of their stages of development) enables management to set priorities overall, to abandon less attractive projects, and to ensure adequate allocation of the limited R&D budget. Setting of priorities in R&D is essential for launching the most attractive R&D projects as early as possible and for reaching the best possible market position.

E Selection of the main R&D areas, definition of goals and strategies 1 SWOT-Analysis Before selecting the main R&D areas and subsequently defining goals and strategies, management must analyze the company. Essential are the analysis and the definition of the strengths and the weaknesses of the company, and the opportunities for and the threats to the company (Steiner 1979, Porter 1979, 1987) (Figure IIV25). This so-called SWOT analysis should be done for each functional unit (that is, for R&D, production, marketing and sales) and should also be performed for marketed as well as R&D projects (Figure IIV26). A SWOT analysis must be based on the best available knowledge of the activity of the competitors, the expected scientific and technical developments and the sociopolitical environment.

82 The Research and Development Project Figure 111125. The SWOT analysis is the basis for the selection of the R&D area, the definition of goals and the selection of strategies.

selection of R&D area

evaluation of

I

analysis of

- -Strengths

- -Opportunities - -Threats

-Weaknesses

3

vision

D

recognition of

strategy

- main strengths - attractive opportunities

Figure 111126. Selection of the main R&D areas should be done on the basis of a SWOT analysis

Questions to be answered

__ I

I

I

I-> L - 2

i

weaknesses

I

_opportunities

- Do strengths protect against threats?

- Can opportunities be

,.

I

- Can strengths eliminate weaknesses?

strengths

I

I

realized by strengths?

- Do opportunities overcome threats?

- Does the budget cover the R&D area thought to be necessary?

- competitors

- governmental knowledge

regulations

The quality of this analysis-determined by its objectivity-is of decisive importance for all subsequent decision steps (Figure IIV27). Strengths and weaknesses of R&D can be deduced from the data obtained from the evaluation of each individual R&D project. The sum of all strengths and weaknesses in comparison to the opportunities and threats describes the R&D position of the company.

Selectioiz of the main RbD areas, definition of goals and stmtegies 83 Figure W27. Quality of SWOT analysis is dependent on

I) objective evaluation of strengths

I) honest definition

1

in relation to competitors

0 in view of the actual scientific knowledge and technology

of weaknesses

I) profound perception of opportunities

I) clear recognition of threats

i

with regard to medical and market needs

0 including R&D projects and market products

The perception of the opportunities and threats is based on, as well as limited by, the degree of expertise in the research area and the overall knowledge of competitors’ activity and medical and market needs. It is therefore essential to seek the advice of experts in the respective R&D fields to gain an appreciation of new and future technologies, scientific achievements and forthcoming innovations causing market changes, and to better understand the different approaches of competitors and forthcoming social and political pressures on the market. Such essential knowledge is difficult to acquire but can best be gained in locations where the atmosphere, the ”genius loci,” allows access to the most recent information and speculation. A close, continuous contact with private and state research institutes, governmental, political, social and trade associations must be maintained and ensured. 2

Selection of the main R&D areas

The results of the preceding SWOT analysis provide the knowledge of production, marketing and sales that is necessary to select the main R&D areas. In other words, the question can now be answered: Which group of R&D projects can best eliminate weaknesses (especially with respect to internal marketed products), protect against threats and take advantage of opportunities? Such answers have to consider expectations of major interests inside and outside the company (Steiner 1979). Various R&D areas might be more or less equal in their potential to improve the position of the company. Thus, selection of the best alternative should be based on a comparison of the overall turnover potential achievable by one

84 The Research and Development Project Figure 111128. Risk reduction of turnover potential of a R&D project project:

indication:

turnover potential: (scenario with highest probability)

compound:

best case medium case worst case realization turnover realization turnover realization turnover % million DM % million DM % million DM

risk of project

100 % 70 % . 40%ppp 10%

I20%

>20-50 % > 50-75 % > 75 % ~~

-

~

100 %

80 % 50 %

~~

p

~~

+ ++

~

_

_

_

30 "/. -

_

_

4% 2% 0%

~~

p

__

_ _

4%

~

~~p~

++++

5%

-~

8% 6%

~

~~ _

90 % 60 %

_ _ _ _ _ ~-

+++ _

>95%

million DM

-

20%-0% ~-

~

-

~

~

~

~

~

3% 2% 1%

~

~

~

p

~

~

p

~

~~ -

~

~

p

0% ~~

group of R&D projects with that achievable by another group of R&D projects. However, simply adding the turnover potential of each R&D project in a group would give misleading results, because this procedure does not consider the differences in the prospects of implementing the projects. (The prospect of implementing a project is inversely correlated with its overall risk of failure.) Risk has been defined during project evaluation. The simplest way to account for this risk in determining the turnover potential of a group of R&D projects is to reduce the turnover potential (estimation of the scenario with highest probability) to the level that may be achieved according to the overall risk (Figure IIV28). Such a reduction can be done for different scenarios (best, medium, worst case), to provide a range of future turnover (example see Figure IIV29). 3

Definition of goals

The SWOT analysis not only helps in the selection of the best group of R&D projects but also offers the possibility of highlighting the driving forces of the company. Knowledge of such driving forces, and the best possible perception of opportunities, enables management to create a vision in which the company uses its strengths to reach a competitive position and satisfy medical and markets needs.

-k

> 75 % > 75 %

B) preclinical development

C) clinical development

100

1000

< 20 %

F) clinical development phase Ill 6000

1000

20-50 %

E) clinical development phase II (controlled)

overall turnover potential

1000

> 50-75 %

1000

700

400

80

1000

1000

40

900

600

300

50

40

20

medium case

~~

1500

~~

800

500

200

0

0

0

~

worst case

risk reduction of estimated turnover potential (million DM) best case

1000

turnover potential (million DM)

D) clinical development phase II

phase I

+++

> 75%

A) exploratory research

~

overall risk

development stage of projects A-F

~~

Figure 111129. Example of a risk reduction of the turnover potential of a group of R&D projects

86 The Research and Development Project Figure 111130. The strengths and weaknesses of a company provide the major basis for defining goal and strategy

opportunities

threats

vision future position

actual position

i

~-

weaknesses strengths

~~

goal -~~

i

Figure 111131. Steps to define the goals of a research driven company

I

Evaluation of R&D projects

I

SWOT analysis of

* functional units R&D Production Marketing & Sales

* R&D projects market products Definition of main R&D areas to * eliminate weaknesses

* protect against threats

* use strengths

I Definition of goals that can be achieved * assure survival * increase profit

Selection of the main RbD areas, definition of goals and strategies 87

To put this vision into practice, specific goals have to be defined. As the setting of specific goals is also a decision process, it should be based on a SWOT analysis (Figure IIV30). SWOT analyses help to define the main R&D areas and to set specific goals (Figure IIV31). Very often, failure of companies to reach their specific goals can be attributed either to lack of competence in carrying out project evaluation and SWOT analyses or to the cardinal mistake of defining specific goals that are not in line with the results (i.e., ignore the results) of the SWOT analysis. Ignorance of the “SWOT situation” can be a serious problem for R&D management. Achievement of specific goals is an essential prerequisite for any company to achieve the fundamental goals of long-term survival and earning the best possible profit. The future profit share can be defined in a bottom-up approach, which ensures a high degree of implementation. Moreover, it offers the flexibility of considering highly attractive, but highly risky, expensive and long-term goals within the selected R&D area. In contrast, top-down definition of the future profit share may restrict long-term flexibility in the desire to gain short-term economic successes.From the point of view of R&D, preference should be given to the bottom-up approach, with the caution that minimum future profit share has to be defined in a top-down way. 4

Formulation of strategies

Achievement of goals depends on strateges describing the pathways that lead to and should be followed to reach the goals. For each goal, there may be many such paths, and it is an entrepreneurial task to select the best possible way or strategy. Alternative strategies that are very different from each other have to be developed and compared with each other. Actions necessary to achieve each alternative strategy have to be defined in detail to enable the best possible evaluation. Parameters for evaluation should include the overall costs, the success that can be achieved (e.g., turnover potential), the time needed and the overall risk to realize the strategy. Comparison of the different options should result in the selection of the most suitable strategy (Figure IIV32). Once such a decision has been made, the goals, the strategy to achieve the goals and all parameters that led to that decision have to be promulgated within the company to convince and to motivate all employees to work for the achievement of the specific goals by means of the formulated strategy. Understanding of the decision process by each co-worker is the conditio sine qua OH for individual commitmeizt and for the realizatioiz of the overall strategy. Failure within the decision process or incomplete promulgation of the information will automatically lead to irritation, demotivation and even to problems

88 The Research and Development Project Figure 111132. Development of a strategy

comparison of options

actual position

I

goal

of loyalty, resulting in open or covert opposition. This opposition will grasp the next best opportunity to change the goals and strategies. Changes in goals and strategies within short intervals are a clear sign of incompetent goal-setting, inept development of strategies or insufficient leadership. Once the strategy to reach specific goals has been formulated, its successful achievement requires perseverance in the decision and commitment of all the participating people. As discussed at the beginning of chapter 111, R&D projects require at least 10 years from the creation of an idea to the launching of a marketed product. On the other hand, each strategy and even the goals are developed from the actual position described by the SWOT analysis, based on internal and external parameters. Such parameters are continuously changing, often in very unexpected ways, especially opportunities arising from development of new technologies, increase in scientificknowledge, changes in the market and in medical needs. The latter changes also affect the threats through social and political changes and activities of competitors. Because such external parameters change, the position of a company described by its strengths and weaknesses also continuously changes. In consequence, strategy must be continuously adjusted to this changng and developing environment. Even the goals must be modified (Figure IIU33). The paradox for management is that the need for perseverance with a formulated strategy to reach defined goals is always confronted by the necessity to adapt strategy and goals to forthcoming but hitherto unknown changes in the environment. These competing demands have to be balanced. The greater

Selectioii of the main R&D areas, definition of goals mid strategies 89 Figure 111133. Goal and strategy must be continuously adjusted to the changing opportunities and threats

l

scientific knowledge technologies

' future changes

opportunities

1 actual position (strengths, weaknesses) threats

, ~

,

competitors sociallpolitical pressures

, future changes

I

I

I

the skills of R&D and corporate management in wallung this tightrope, the greater the chance that the R&D strategy defined today can be realized. That means the company will finally reach its goals for the market in about 10 years by avoiding situations that require a drastic change or even abandonment of long-term strategies and goals. To avoid such situations, the position of the company and its strategy have to be checked at regular, short intervals--or, better still continuously-and the necessary corrections taken. This procedure enables smooth adaptations to be made, which can be better justified to co-workers and have a higher degree of acceptance than drastic changes in strategies and goals. Drastic changes, or even abandonment of long-term strategies and goals, may be caused by management's failure to continuously adjust strateges and goals to the developing environment. Major changes in the environment, be they the recognition of significant scientific errors, new and revolutionizing scientific discoveries or grave political or social changes in the market, can force a company to change its strategy dramatically or even to give up specific goals. The reasons for such a drastic change can be justified to co-workers and understood by them. Understanding of the decision process is essential for co-workers so that they bear the consequences of such a decision without demotivation.

90 The Research and Development Project

To summarize, successhl achievement of goals entails selection of the best possible strategy, its promulgation within the company, its continuous adjustment, and also perseverance of all efforts towards the goal (Figure IIV34). Figure W34. Prerequisites for achieving goals Selection of strategy

+ proposals of different options

+ definition of the measures needed for each option

+ evaluation of each option

(costs, success rate, time frame, risks)

+ selection of the best option to reach the goal Promulgation of selected strategy I ,understanding by each co-worker

+ broad loyalty and support

Continuous adjustment of strategy

+ to changing opportunities and threats

to alterations of strengths and weaknesses

Perseverance in selected strategy

+ competent formulation and adjustment of strategy

+ long term commitment of management

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER I V

Measures to reduce risks

C

LEARLY, one fundamental goal of any company is its long-term survival with the best possible profit. To achieve this, management has created a vision and defined a specific goal and a strategy. Concentration of all available capacity on that one strategy to achieve that goal will reduce the time needed for its realization and may reduce risks but does not guarantee success. In fact, if the strategy fails because of unexpected external factors, concentration on one strategy to reach a specific goal could be life-threatening for the company. Consequently, management should make provisions to minimize such risks, as discussed below.

A Choice of technology An R&D project can be deemed successful, if the resulting new compound reaches the market as the first product in a new class of compounds. To ensure this success the development time should be as short as possible. As already discussed, the probability that a new chemical entity (NCE) in the preclinical development stage will reach the market is considerably low ( 10%). This is mainly due to the limited predictability of animal studies for human diseases and unexpected toxicity. The animal model used to test the NCE may be of questionable similarity to the corresponding human disease, but no better test model is available. Or, the breadth of the therapeutically effective,non-toxic dose range (also called the fherrzpctlticzoiizdozo) mainly tested in mice, rats or dogs cannot be confirmed in human beings due to species-dependent differences in metabolism, pharmacolunetics and toxicity of the test compound. In contrast to new chemical entities, biopharmaceuticals seem to have a much higher chance of success. Over the period from 1982 to 1991, the probability of

92 Measures to reduce risks

launching a biopharmaceu tical drug from preclinical development was about 0.4. Thus, the chance of success of biopharmaceuticals is more than three times higher than for NCEs (Figure IV/l). The basis for that calculation was a set of 472 projects which were subject to a change in their development status during the observation period. If projects without a change in the development status were included (altogether 683 projects), the probability of launch was still 0.3, i.e. nearly three times higher than for a NCE (Struck 1994). Figure IVll. The market entrance probability seems to be higher for biopharmaceuticals than for new chemical entities probability of launching of development projects

new chemical

phase I

preclinical

phase Ill

registration

*) Halliday et al. 1992, ") Struck 1994

Figure IV/2. The average development time seems to be shorter for biopharmaceuticals than for new chemical entities 12 years (mean of 472 projects)

r

I 2,3

i

1,E

i

2,2

i

2,0

2,O

i

1,6 launch

ceuticals (1983-1991)*

> 15 years >4 launch

;

I

I

*)Struck 1994, ")Miller 1992, Shaffer 1992

clinical research

:period

i

I

I

~~

++ +

+++

++

urogenital

*) estimates extrapolated from data of Schneider 1994, Pharrna Business 1995, Scrip 2026, 1995

++

+

+

oncological

dermatological

analgesidantispasmolytics

neurological

~~

++

++

++

autoimmune/ rheumatological

I

+ ~

++

+

+++

(+)

+ +

++

metabolic/ gastrointestinal

++

+

+ ++

I +++

cardiovascular

++

somatic gene therapy

antiinfective

->

I +

>

~

biotech products

(+)

\

~

synthetic compounds

respiratory

unmet therapeutic need

+ +

rough estimates of major subdivision of the pharmaceutical market (1994, billion DM)

Figure IW3. Biotechnology will significantly contribute to future market size

94 Measures to reduce risks Figure IV/4. Market potential*) of vaccines technical approach

time of recognized importance

turnover '94 (billion DM)

potential turnover 2005 (billion DM)

~

dead bacteria, viruses or toxoids

late 1870's

1.5

2.5-3.0

live (attenuated) vaccines

(late 1790's) early 1950's

1.I

1.2-1,5

recombinant proteins

mid-I 980's

1.2

1.2-2.0

conjugated vaccines

early 1990's

0.5

0.8-1.2

live recombinant vaccines

mid-I990's

0.1

0.5-1

synthetic vaccines

late 1990's

0

0.2

DNA vaccines

midllate 1990's

0

0.5-1.4

total turnover

4.4

+ + + +

+

.o

7-1 0

*) estimates based on compiled information, Hungerer and Cambillard (1994)

One of the reasons for this difference is that, generally, biopharmaceuticals are not detected by pharmacologcal screening and/or exploratory experiments but by target-specificresearch. Biopharmaceuticalsneed less time for preclinical research and for regulatory review by governmental agencies. Biopharmaceuticals may have species-specific (i.e., human) activity that limits experiments in animals. Moreover, if the biopharmaceutical is a protein and immunogenic for the xenogeneic animal, long-term toxicity studies cannot be performed and don't increase the overall risk. In addition, the time needed by governmental agencies for regulatory review is about 10 months shorter for biotechnology products than for an NCE (Miller 1992).For example, the average FDA review period for 16 biological products was 1.8 years (Shaffer 1992). In the European Union, the concerted state procedure for regulatory review of biotechnology products is 13months. Thus, on average, the period of regulatory review of biopharmaceuticals is about 1.6 years.

Clzoicc of technology 95

Of course, total development period for a biopharmaceutical varies considerably and depends on the time needed to prove efficacy in the patient. Erythropoietin in anemia or G-CSF in neutropenia could be tested very quickly. Generally, however, the mean development time (including preclinical research) for a biopharmaceutical is about 12 years (Struck 1994),compared with the overall development time for NCEs of about 15 years (Miller 1992, Shaffer 1992) (Figure IV/2). If the time needed for preclinical research is not taken into consideration, about 11 years are necessary for development of NCEs. This corresponds with the data of MacInnes (1995), demonstrating that the mean development time for NCEs from synthesis to first market has remained relatively unchanged since 1980 at between 10 and 12 years. Figure IV15. Market potential*) of plasma proteins and peptides -~

~~~

~

~~

~~

therapeutic1 technical approach

time of recognized importance

human plasma proteins

mid/late

-

~

turnover '94 (billion DM)

potential turnover 2005 (billion DM)

4

4

0.1

0.2

mid-I 980s

2.0

5.0

midlend

7.0

9.0

0.2

0.5-1 .O

somatic gene therapy mid-1990's with in vitro transduced cells

0

0.5-2.0

somatic gene therapy with in vivo applied genes

0

1.O-3.0

1970's

.)

early/mid-

monoclonal antibodies

1980's

4

peptide hormones

.) cytokines

1980's

.)

end 1980's

recombinant plasma proteins

* * ~~

mid-I 990's

~~

~

total turnover

~

13.3

*)estimates based on compiled information, Prange 1994

~

20-24

96 Measures to reduce risks Figure IV16. The market potential*) of biotechnology (in billion DM)

2.5

total

17.5

somatic gene therapy

2

0

30-34 (estimation)

-

cytokines

plasma proteins

I 1980

1995

2 2000

*) estimates based on compiled information

In conclusion, research and development of biopharmaceuticals has a lower risk and can be performed more quickly than research and development of NCEs. It can be foreseen that biotechnology will contribute considerably to the development of new drugs for the treatment of insufficiently treatable or hitherto unbeatable diseases (Figure IV/3). The future potential of biotechnology can be demonstrated particularly in the field of vaccines (Figure IV/4) and proteins (Figure IV/5). If we consider all of the biopharmaceuticals, their turnover increased by a factor of 7 in the period between 1980 and 1995 and it is expected to at least double in the future (Figure IV/6). In addition, experience and knowledge in biotechnology will inspire the development of technology to screen for and to design NCEs in a cost-saving, target-specific way. Thus, biopharmaceuticals are of considerable attractiveness. To minimize the risk of drug research and development, management should carefully select the technology area. Biotechnology is indeed highly attractive to those companies that already have or can acquire expertise in this field.

B Reinforced selection of research projects As already described in detail, each R&D project has its own risk, which should be reduced step by step in the course of development. Even after the product

Reinforced selection of research projects 97 Flgure IV17. Controlled clinical pilot phase II studies within exploratory research can significantly reduce the risk of cost-intensive drug development exploratory research

-

I I

-

-

-

project D

1

-~

I

ProJectC proiect B

-

-

i'

~~

preclinical preclinical I development clinical research research (short pilot pilot phase I phase II

preclinicallclinical development

preclinical development m l -l

selection of best project@)based on phase I1

phase I '11

contro'led phase 111 phase II

L''

1;

launch

is launched, the opportunity to achieve the proposed turnover potential of a new drug is counterbalanced by the risk of failure in marketing and by threats from competitors and changes in market needs. One of the most prominent risk parameters is the proof of clinical efficacy of a new compound according to its anticipated pharmacological profile. Clinical efficacy is studied in the final phase of the development program, when a considerable part of the money needed for preclinical development has already been spent. Failure to prove clinical efficacy means a loss of return on investment, loss of opportunities for future profit, and loss of time. To minimize that risk, management must compile those clinical data which indicate the clinical efficacy of a compound within the exploratory research phase (pilot clinical study phase HI) and decide (based on such data) whether or not the expensive and time-consuming preclinical and clinical development should go ahead (Figure IV/7). In order to undertake a clinical pilot study, a pure compound and the essential preclinical toxicity data must be available. Moreover, a clinical pilot study should only be undertaken when the pharmacologcal profile of the compound is unique (i.e., provides a new treatment) or is at least signdicantly superior to standard drugs. For compounds with such a potential advantage, a controlled pilot study (that means in a very limited number of patients) can determine whether it is

98 Measures

to reduce risks

effective or not. In order to provide a solution, the investigation has to be reduced to one or only a few essential parameters to be measured clinically. Preselection of compounds by this means reduces the risk of failure as well as the overall costs and time needed for successful development. Moreover, it improves the chances for the company to be the first in launching the new product (even if it is registered at first in a small indication only). In addition, tlus strategy stimulates R&D management to target innovative compounds that fulfill great medical needs. Cost savings in drug development also offer management the opportunity to shift the R&D budget more towards research, thus increasing the number of research projects. Such expansion of exploratory research within a defined R&D area improves the chance of success quantitatively and also qualitatively, insofar as the types of risk of the various research projects are different from each other.

C Designation of multiple goals and partnerships As pointed out at the beginning of this discussion, designation of a goal and selection and definition of a strategy carry with them the risk that the chosen course of action may turn out to be unsuccessful. One means of reducing that risk is the continuous adjustment of goal and strategy to changes in the environment, position and needs of the company. This course of action, however, does not protect the company against drastic changes in the environment, which may force management to abandon the goal and strategy completely. Such a decision would be life-threatening, if the company had concentrated all efforts and resources on the achievement of only this specific goal. To guard against this risk, management must select several goals that are different from each other and formulate, for each, the best strategy. The number of goals should be adjusted to the company’s financial capacity. If the financial capacity needed for this approach is insufficient, strategic alliances or partnerships with companies that are able to supplement one’s own strengths and compensate for weaknesses in the various R&D areas should be sought (Figure IV/8). The degree of complementation and synergies achievable by strategc alliances and partnershps depend not only on each partner’s position and portfolio in R&D but also on each partner’s size, market strengths and culture (Porter 1987). Partnerships between multinational and medium-sized companies offer opportunities that are different from those with small companies. The same appears to be true for partnerships between medium-sized companies and small companies or with multinational companies (Figure IV/9).

Desipatioiz of multiple goals and partizerslzips 99 Figure IV/8. Selection and pursuit of several goals with the help of partnership increases the opportunities and the chances of success competitors, social/political pressures threats partnerships

goal A

- cooperation - joint ventures

actual positior

for - risk reduction - increase in

capacity

goal C

- complementation/

synergies opportunities innovations, scientific knowledge,

-

Figure IW9. Strategic alliances for complementation and synergies i

I

I I

I

multinational company

II

I

I

I

1

I

medium-sized company potential niche products generics

license fees royalties funding of R&D potential block busters new technologies

'

I

4

i

0 cannibalism of the company's own products

0 improvement of image

0 improvement of R&D pipeline, technologies

larger company

0 competition of compounds, R&D projects

complementationof business (markets, product portfolio capacity)

0 loss of identity, loss of contact with opinion leaders, loss of credibility

0 more profitable alternatives (do it alone, others)

0 unique pharmacological profile of R&D compounds

T. Marcel 1994, modified

dangers

antagonisms

0 risks with the acquired R&D projects

0 burn rates of smaller partner

0 more profitable alternatives

about allocation of resources and trade-offs

0 conflicts with strategic decisions

social and political driving forces

more profitable alternatives (do it alone, other alliances)

0 corporate culture

~

-

improvement of R&D pipeline

for companies of equal size

I )

0 corporate culture

1

.~

0 benefit from expertise, capacity marketing strengths

-

synergies

D

provision of adequate capital

0 share of risks for success

smaller company

for companies of different sizes

Figure IV/IO. Evaluating strategic alliances

5-

w2.

$

0

5-+

Ft

v,

z2

0 0

w

Dcsigiiatioiz of multiple goals and paytncrships 101 Figure IV/11. Questions to be considered for strategic alliances basic questions:

+ common goals?

* commitment of top management? + synergies?

+ antagonisms?

* dangers? + alternatives? specific questions:

+ fields of cooperation I ,differences and

similarities in culture

+ confidentiality without paralysis

* duration of cooperation upfront payment to reimburse expenses previously incurred funding of R&D, launching and marketing

+ + technology needed and fee for it + sharing of responsibilities and costs for registration + milestones and payments + liabilities (adverse reactions, patent contests)

+ manufacturing and supply (transfer price, costs for transportation, insurance, delays)

* equity investments + royalties and profit-sharing

* revision and termination T. Marcel 1994, supplemented

Of course, differences between potential partners may offer opportunities for synergies or may threaten each partner by antagonism and dangers. Loss of identity, loss of credibility, loss of contact with opinion leaders, conflicts with strategic decisions about allocation of resources and trade-offs and cannibalism of marketed products are only some examples of such dangers (Figure IV/10). These threats may exceed the potential advantages of partnership and may direct the company into a position far beyond its defined specific goals. To minimize such threats and dangers, the evaluation of options for strategic alliances should not only answer technical questions, to clarify in detail the potential amount and spectrum of synergies and the kmd and degree of risks, but should also answer the basic question of whether or not the top manage-

102 Measures to reduce risks

ment of the potential partner(s) will unconditionally support a strategic alliance, once common goals and synergies have been defined. In consequence, options for strategic alliances should be evaluated as broadly and as profoundly as possible (Figure IV/ll), to avoid unexpected developments and to reduce the risks for a company in reaching its goal by means of the selected strategy.

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER V

Project management

A

Historical context

T

HE NOTION of managing a project as opposed to managing an organi-

zation is relatively new in management history. Like so many other management concepts, project management has its roots in military strategy and is analogous to managing a military operation, such as a campaign or battle, as opposed to the war itself. The term, project management, was first used in the air and space industry.Traditional organizational structures-with a clear hierarchy, vertical lines of authority and communication, standard operating procedures-were problematic. Making complex products such as aircraft was very inefficient until managers discovered that organizing by major aircraft part (such as wing, engme, fuselage), and assembling teams from the required functions (engneering, design, manufacturing) to work on each part enable the aircraft to be completed on time and within budget. Eventually, the part tasks became known as projects; the functional groupings as project teams; and the person responsible for integrating the functional activities of the team as project manager. Today (facing the problems of traditional vertical organizational structures (Figure V/l)), project management is widely used in the pharmaceutical industry (as well as in other industries), because it is the structure of choice when the task is complex and uncertain. When multiple functions are involved and enormous amounts of information must be processed in order to complete the job, project management is more effective than traditional ways of organizing (Keisling 1983).

104 Project management Figure V/1. The conventional hierarchic organizational structure is not efficient in solving the complex and uncertaintask of R&D of new drugs

1

Business Unit Pharmaceuticals

and communication

launching of new d W

B Organizational theories A number of organizational theories and much organizational research confirm the effectiveness of project management under conditions of complexity and uncertainty. Other work provides insight into managing project teams. These theories-about organization structure, life cycle models of growth, technology transfer and communication, and creative group problem-solving-are briefly summarized below, with special reference to the pharmaceutical industry. 1

Organizational structure

The term, organizational structure, is often used to refer to the boxes of an organization chart in which departments, divisions, units, etc., are depicted, but the chart only portrays the intended, formal relationships among portions of the organization. In fact, "structure" has a broader definition deriving from the disciplines of anthropology and sociology: Structure is the pattern by which people in an organization relate to each other and communicate with each other. There are two fundamental patterns of relating and communicating in human organizations (Figure V/2). One is superior-to-subordinate and subordinate-to-superior, resulting in a vertical structure (the typical hierarchy, or

Orgaiz iza t io iza1 f licorics 105 Figure V12. In conditions of turbulence and in complex work processes lateral structures are superior to vertical structures vertical structures

’

7

1L lateral structures

7

superior to subordinate, subordinate to superior

peer to peer

at the top

in groups of competence

at the top

in groups of competence

from top to bottom

laterally

low

high

restricted

high

lcollaboration

low

high

loverall effectiveness\)

low

high

relationship

I knowledge

>

decisions

Iinformation flow

’>

objectivity

Iflexibility

>

pyramid). In the vertical structure, knowledge is presumed to reside ”at the top,” and those ”at the bottom” take instruction and follow the decisions of their superiors. (The paradigmatic vertical structure is, of course, the parent-child relationship.) The second fundamental pattern of relating and communicating is between peers, resulting in horizontal or lateral structures. Research on organization structure and technology showed that lateral structures characterized innovating, high technology companies that responded quickly and effectively when technology changed. Lateral structures such as those used in project management have been found to be more effective than traditional vertical structures under conditions of turbulence (i.e.,rapid change and h g h uncertainty) and in complex work processes for which few rules and standard operating procedures exist. Because people relate to and communicate with each other as peers, they are more apt to collaborate. Relating and communicating as peers, they are also more apt to communicate openly and informally, ensuring fruitful debate and intellectual challenge of ideas. (This is also addressed, below, under creative group problem-solving.) The penultimate example of lateral structure is the matrix (Figure V/3). “Matrix” is defined as a network of intersections and can be pictured as the

106 Project management weave of cloth in which the warp consists of the vertical functions or disciplines and the woof consists of the horizontal programs, projects, or products. Each person at an "intersection" reports to both the manager of the function or discipline and the program, project or product manager. As Gaibraith (1972) noted in his seminal work on the matrix: "The matrix organization represents a complete commitment to joint problem-solving and shared responsibility." Figure V13. The matrix structure combines the advantages of the lateral structure and of the vertical structure

--

- .-

-

I--

innwatio

,

/ ,,'

pracfinlca t development

clinical

registra-

tion

Essential for the success of a matrix structure is delegation of responsibilities from the various vertical functional units and disciplines to the lateral structure (i.e., project management and teams) with the commitment to solve the problems of a project jointly. In other words, vertical positions have to recognize and to accept that their partners in lateral structures are of equal rank (Sounder 1987).If this requirement cannot be met, the matrix structure loses its potential advantages in solving problems in the best possible way. In fact, the many intersections that characterize the matrix structure can enable the vertical structure to dominate. Under such conditions, the opportunities for objective and effective problem-solving are drastically reduced and the deficiencies of the vertical structure exacerbated. The consequences are increased chaos, subjectivity, ineffectiveness, and bureaucracy. In conclusion, to reduce the danger of an ineffective matrix structure, authority should be delegated to project management. Moreover, project manage-

Orgnnizatioizal theories 107

ment should be a partner equal to business management in directing the respective business unit. Several pharmaceutical companies make use of the matrix structure at several levels. At the corporate level are heads of every major function or discipline (columns, or warp) and heads of every major business (rows, or woof). The manager of pharmaceutical research worldwide thus reports to both the manager of corporate research (the vertical function, or technical speciality) and the manager of the pharmaceutical business (the horizontal product grouping). Within the pharmaceutical business, each therapeutic area may be organized as a competence center (e.g., strategic business unit) and contain research, development, marketing (among other functions).The head of, say, cardiovascular research then reports to both the head of pharmaceutical research (who, in turn, is “matrixed” to the corporate level) and to the head of the cardiovascular competence center. Within the research teams in each strategc business unit, members report to both the project manager and their respective discipline heads. In pharmaceutical operations, drug discovery is a complex task involving many disciplines, and the scientificand technical uncertainty and economic risk of drug research and development are high (especially in the face of tighter safety, efficacy, and economic constraints and increasing global competition). These, as noted, are the conditions under which project management and the matrix are more effective. Pharmaceutical teams generally consist of scientists and other professionals from multiple, vertically organized discipline and functional areas. Program teams in exploratory research (e.g./discovery) could be composed of chemists, molecular biologists, pharmacologists, etc. Project teams in preclinical and clinical development could be composed of chemists, pharmacologsts, toxicologsts, physicians, production engineers, and marketing representatives. And product teams could be composed of physicians, marketing representatives, and sales people from every country in which the company sells its products. Whatever the ultimate objective of the matrix organization (discovery and exploratory research, development, sales, etc.), it is important to keep in mind that the teams are temporary lateral structures that will take a different form each time they are constituted, because each program, project, or product has unique characteristics.

2 Life cycle models of growth The growth of populations, diffusion of innovation, and pattern of scientific citations (to name only a few phenomena) follow a similar logistic curve of change over time. Also called the life cycle, this curve has been found to reflect

108 Project management

the “life” of a project and consists of four general stages: formation, build-up (early and late), main, and completion or termination stages (Figure V/4). Each stage has different characteristics and requirements from both a technical and a behavioral perspective. Figure V14. A Project life cycle consists of four general stages

degree of project completion completion (or termination)

100 %

formation

In the formation stage of the project, scientific and technical uncertaintylack of knowledge about the project topic-will be highest (Figure V/5). Uncertainty is more formally defined as the difference between the amount of information required to complete the task (e.g., discover an agent that can reduce plaque formation in Alzheimer’s disease) and the amount possessed by the project team at the start of the work (Gaibraith 1972). The greater the difference, the higher the uncertainty. During the formation stage, especially, the major activity of the project manager and of team members will be to gather, exchange, and process information. Over time, technical uncertainty will decrease, and the amount of information processing activities will decrease as well. Behavioral uncertainty-lack of knowledge about team reporting relationships, performance evaluation, etc.-will also be highest in the formation stage (unless the same people have recently worked together on a similar project). Again, the activity of the project manager and team members will be to gather, exchange, and process information that will clarify reporting relationships, norms, and performance requirements. Over time, behavioral uncertainty will decrease.

Orcyaiiizatioiial tlzeorics 109

If the project is in a novel area for the company, the formation and early build-up stages will also be characterized by high scientific and technical equivocality. There will be multiple interpretations of the desired endpoint, acceptable quality, clinical objectives, and so on. When uncertainty is high, more information is required. But when equivocality is high, it is difficult to state what information is needed, what questions to ask, and so forth. In this case, people must exchange their perspectives and conflicting interpretations and arrive at a shared agreement on the issues. Not surprisingly, in novel projects both scientificltechnical uncertainty and equivocality will be high. Under such conditions, equivocality should be reduced first, because the team must agree on (for instance) clinical objectives before they can efficiently and effectively reduce the uncertainty of how to achieve those objectives. During the formation stage, if behavioral uncertainty is high (i.e., the same people have not worked together on a similar project), then behavioral equivocality will be high as well. Members of the team will have different conceptions of their personal role identity ("Who am I in this team?"). Such roles cannot be specified in advance but emerge as the disparate people become an organic whole (this is what is meant by "team building"). Interestingly, although behavioral equivocality decreases during the build-up and main stages, it increases again during the completion or termination stage (Figure V/5). The reason is that people on the team, facing its dissolution, also face the loss of their team identity and increased ambiguity concerning their future work identity. Under conditions of high behavioral equivocality, whether in the formation or completion stage, the project manager and team members must meet and share their perspectives until agreement is reached. 3

Technology transfer and communication

In pharmaceutical operations, each defined phase (discovery and exploratory research, preclinical and clinical development, marketing, etc.) follows a distinctive life cycle (Figure V/5). Moreover, if there are N phases from idea to product, there will be N-1 transfers of the technology (i.e., the compound) across the interface from one team to another (Figure V/6). If the research is in novel areas, so that the output from the discovery and research team will be a breakthrough (as opposed to incremental) innovation, then the early transfers or hand-overs can be rate-limiting steps because they will be characterized by high scientific and technical equivocality. Because the innovation is a breakthrough, the teams will have little past experience to assist them in solving the problems each phase will present. Thus, the problems will be subject to multiple and conflicting interpretations (the conditions of high

110 Project management

equivocality), which must be resolved before further development can take place. During early technology transfers, the most critical aspects of the technology (compound) to be handed on to the next team are the knowledge and experience gained by the former team members. But when the hand-off is characterized by high equivocality, a special form of communication is required: transactive (two-way), interpersonal communication. Research on technology transfer in high technology organizations has confirmed that this form of communication is necessary for the hand-off to be timely and effective (Avery and Smilor 1990). Figure V15. The degree of uncertainty and behavioral equivocality changes over the life cycle of a project

life cycle

Figure V16. Each defined phase of pharmaceuticaloperation follows a distinctive life cycle. Technology has to be transferred across the interfaces.

I$~~~,lp"I preclinical 1 drug dis-

/ covery

I transfer ~

of

1 technology

I

development

~

clinical development

_.

' registration marketing I ~

1

launching of new drug

Orgunizatioizul tlzcorics 111

Complicating the hand-offin many pharmaceutical companies is the fact that discovery and exploratory research groups may not be located geographically close to sites in which further development will take place. Thus, transactive, interpersonal communication must be carefully planned by the project manager. The effectiveness of the early transfers and the overall time it takes to bring a drug to the market are contingent on how well the knowledge and experience of the discovery and research group are transferred, or communicated across the interface, to the next team. If members of the two teams cannot easily be brought face-to-face, the project manager has three choices (Leonard-Barton 1990): First, a few scientists from the follow-on team can be brought in to work with researchers in the discovery group. They can then communicate the knowledge and experience, and bring the compound to their own team when they return. Such scientists would be termed recciucr reprcsciztatiucs, and the members of the research team termed senders, in communication theory (Figure V/7). Second, a few scientists who formerly worked in the following functional area (such as preclinical development) can be brought into the discovery and research group. Again, they will bring the compound and communicate the knowledge and experience gained from the research team in face-to-face discussions with preclinical development. Such scientists would be termed surrogatcs. v

Figure V/7. In cases of high equivocality transfer of knowledge and experience should be managed by surrogate receivers or integrators.

I

sender

++-

I

I

receiver

t

intearators

w

I

way of transfer

close

transactive (two day) interpersonal communication

fairly close

receiver representatives work with senders, learn and bring knowledge and experience to receiver

distant

surrogate receivers worked formerly with receiver, work with senders, learn and bring experiences to receiver

distant

integrators work with sender, learn and bring experience to receiver

4

112 Projecf management 0

Third, a few scientists with experience in preclinical development can be brought into work with the research group in a consulting capacity, and then bring the compound and communicate the knowledge and experience to the preclinical development team face-to-face. Such scientists would be termed integrators.

In making the choice among these options, the project manager should take into consideration how distant the research and preclinical development sites may be. If they are fairly close, then receiver representatives may be most practicable. If the distance is so great that people from preclinical would have to be away from their facility for some time, then it may be better to use surrogate receivers or integrators. If people from the same company are available (i.e., surrogates), they may be preferable to outside consultants. In either case, the national culture of surrogates and integrators should match the national culture of the preclinical (i.e., follow-on) team. If discovery and exploratory research occurred in Germany, but preclinical and further development would take place in the United States, then American surrogates or integrators should be used. Matching cultures in this way will facilitate communication in the receiver group-and technology transfer.

Figure V18. Receiver representatives, surrogates or integrators should be brought into the sender team during the main stage of life cycle.

0 I sender

receiver

degree ~

,

degree

life cycles

main i build i

~

formation

>

UP

1 o r m ! ? t i o n ~>~

time '

1transfer oftechnology

-receiver representatives - surrogate receivers - integrators

time

Orpizizatzoiznl fhconcs 113

The point in time to bring these team members together is crucial. Because of the two peaks of behavioral equivocality described above, it is important that receiver representatives, surrogates, or integrators be brought into the discovery and research team during the main stage. If the transactive, interpersonal communication is timed for the completion stage of exploratory research and the formation stage of preclinical development, the hand-off will be unnecessarily protracted. Scientists will be dealing not only with the high scientific and technical equivocality of the breakthrough innovation but also with the high behavioral equivocality aroused by the dissolution (in the case of discovery and exploratory research) or formation (in the case of preclinical development) of their team (Figure V/8). It also has to be decided whether an appointed project manager should be responsible for the management of a project over all development stages or whether each development phase of a project should be cared for by a different project manager. The decision for the one or the other possibility depends on the organizational structure of the company and the number of developmenl phases and locations which define the kind and number of technology transfers and communications. The more complicated the technology transfer and communication are, the more arguments favor the appointment of one project manager responsible for all development stages. 4

Creative group problem-solving

Studies of creative people reveal that they share common traits: high tolerance of ambiguity, curiosity, the ability to juxtapose apparently disparate elements, persistence (Harrington 1990). Similarly, researchers have found common answers to what inhibits creativity in organimtions: overemphasis on tangible rewards, unclear goals, constrained choice, overemphasis on the status quo (Amabile 1990). That trait of creative people described as the ability to combine different elements, or as sensitivity to asymmetries and incongruihes, is associated with the use of particular cognitive structures. Cognitive structures are defined as mental constructs or rules by which people process sensory data, thoughts, images. Cognitive scientists, those studying how people think, characterile cognitive structures into two types: rigid, and fluid. Rigd cognitive structures are described as ”tightly interconstrained, so that one part (of the knowledge base) strongly predicts another” (Rumelhart et al. 1986). Fluid structures allow more creative thinkng, because they allow the knowledge base to be turned “upside down” and searched for previously unperceived incongruities that may provide the clue to the problem at hand.

114 Project management

Cognitive structures can be either rigid or fluid under certain circumstances. That is, the same people who solve problems in a creative way will, under differentconditions, solve problems in a stereotyped and uncreative way. The conditions associated with the use of fluid cognitive structures are the conditions that should characterize a well-functioning project team: collaboration, intellectual challenge, candid communication, and risk willingness. Simply stated, lateral structures-the matrix and the project team-have been found to produce the right conditions for creative problem-solving. Creative thinking requires use of fluid cognitive structures, and the conditions under which fluid structures are used are conditions produced by these lateral designs (Figure VI9). Figure V19. Lateral structures can produce the right conditions for creative problem-solving

>

rigid cognitive structures -

-

I--_-

__

+++

- authoritarian management

+++

-top down communiques

+++ +++ +++

- risk aversion - "silos" fluid cognitive structures\)

- collaboration - intellectual challenge - communication - risk willingness

+

lateral structures

+

+++

+++ +++ +++ +++ ~.

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER V I

Corporate and technology strategy

A Technology strategy

C

ORPORATE strategy defines, among others, the unique technology identity of R&D-determining whether R&D will be at the leading edge of science and technology, or a fast follower of the leading edge and so on. Also, in defining the competitive position of the firm, corporate strategy determines whether the firm will market drugs across a broad range of therapeutic areas, or a narrow range. In the context of such decisions, technology strategy has to define how managers must invest and manage the firm’s R&D resources-people, time, space, facilities, equipment, money-so that they are not only being used to achieve the business objectives, but are also being developed to maintain the firm’s technologic advantage in the future. Problems arise if managers do not realize that corporate and technology strategy and project management are inextricably linked. Technology strategy determines the composition of the project portfolios, the priorityrankmg of projects within the portfolios, and the criteria for malung trade-offs among projects. At the same time, experience at the project level informs R&D allocation decisions, and these decisions inform the defining of technology identity and competitive position by corporate strategic decisions. Competitive technology strategy thus requires a feedback loop of two-way communication among three spheres of management action: corporate, R&D, and project (Sapienza 1993). But science and technology resources are not only used in R&D; they must be continually developed. As the frontiers of science and technology evolve,

116 Corporate and technology strategy

the intellectual capability of the pharmaceutical company must advance as well. Thus, competitive technology strategy also requires another feedback loop between technology use and technology development (Figure VYl). Figure Vlll . Linkage between corporate and technology strategy

spheres of technology action spheres of management action

I I

develop --7

I

7-

~-

-~

7-~~~

corporate

Defines unique technology identity and competitive technology position of the firm

Ic) j I

Changes identity and position:

I

~

Where? How? When? Determines project decision criteria

Changes decision criteria:

Although the scheme is straightforward, managers generally face two impediments to achieving a competitive technology strategy. They face a technical impediment, because corporate, R&D,and project managers often have incomplete or even contradictory perspectives of the role of science and technology in the attainment of corporate strategy and business goals. They face a behavioral impediment, because communication within the company is predominantly one-way. As a result of both impediments, the required coherence among corporate, R&D, and project decisions is missing. Without this coherence, the allocation of R&D resources may be inappropriate, and the very survival of the company jeopardized as a result. The major questions to be answered in formulatinga competitive technology strategy are the following: What are the core fields, in other words, what are the relevant therapeutic areas of the business? How many people and how much money should be allocated immediately to the relevant therapeutic areas in highly speculative (i.e., leading edge) projects? Given current and future competition, what criteria should determine which compounds from discovery would be put forward into development? In the medium term, how many people and how much money must be allocated to the development of breakthrough innovations?

Technology strategy vectors 117 0

Given the expected development time, what resources would be needed to market the drug to large consumer groups in the countries when the drug was approved? In the long term, what marketing capability would be needed to support the drug over its expected market life, and In the long term, what scientific and technologic capability-people, money facilities, space, time, equipment-would be needed to ”move” R&D to the next scientific frontier, to enable the company to stay on the leading edge; and, how many and what types of people should be recruited, and what types of training should be provided to current R&D personnel?

If answers to those questions can be found in an agreement between lateral and vertical structures of the company (see chapter V), several important risks would be minimized. The company would be less likely to: neglect measures for product support essential for short-term and mid-term extension of the present business 0 miss new products which, by their new technology, will replace presently marketed products fail in R&D activities for product support and new products because of inappropriate prioritization, concentration, and insufficient budgets 0 lose its competitive position by missing opportunities in new technologes, new scientific perceptions, and new or adjacent R&D fields.

6 Technology strategy vectors In addition to identifying the unique technology identity of the company’s R&D, corporate strategy also provides the framework for deciding upon two attributes: 0 the acceptable level of ownership of R&D capabilities, and 0 the firm’s general attitude towards scientific/technologic uncertainty and economic risk (reflected in therapeutic area focus). Each of these attributes can be arrayed along a continuum. The first continuum ranges from the company that invests wholly in in-house II&D capabilities to one that licenses-in all products and relevant processes. The second ranges from the company that chooses to be on the leading edge of the relevant science and technology to one that chooses to pursue those frontiers. Together, the attributes describe the company’s technology strategy vector (Figure VI/2). And, over time, this vector describes the company’s technology trajectory (Figure W3). The utility of the vector construct is that managers of R&D can evaluate the magnitude and direction of their investment

118 Corporate and technology strategy Figure V112. The company's level of ownership of R&D capabilities and its attitude towards scientific uncertainty describe the magnitude and the direction of the company's technology strategy vector.

high uncertainty (leading edge in relevant science)

direction

company B

I

low uncertainty (pursuit of science frontier)

magnitude buy (license-in all products and processes

> make (whole investment in in-house R&D)

Figure V113. The change of the technology strategy vector over time describes the company's technology trajectory

direction of R&D efforts / high uncertainty (leading edge in relevant science)

position toda:

/

I

low uncertainty (pursuit of science frontier) buy (license-in all products and processes ~~~~

,make

investments (whole investment in in-house R&D)

position in future

Technology strategy vectors 119

and determine its consistency with corporate strategy, as well as its impact on competitive position, as discussed below. 1

Magnitude

Magnitude of the firm’s R&D investment is measured by three parameters: the total amount of funds expended annually on R&D the firm’s ”make” (i.e.,in-house) versus ”buy” (i.e.,license-in) position in the current technology, and the firm’s ”make” versus “buy” position in the relevant emerging sciences and technologies. The total amount expended annually on R&D constitutes the point of origin of the vector. In economic terms, it also represents the size of the firm’s capital cost barrier to entry (Porter 1980). But the firm creates an experience barrier to entry, to the extent that it invests in in-house (i.e., ”make”) R&D capabilities (Porter 1980). In vector metrics, the size of this experience barrier for a particular pharmaceutical company-that is, the percentage of total technology funds allocated to internal R&D-can be represented by the length of that vector. Managers must also prepare R&D to move from the life cycle curve of the current technology to the next. They can do so, and erect another experience barrier to entry, by means of primarily “make” decisions in the emerging sciences and technologies. These include investment in in-house personnel and equipment, as well as alliances with and acquisitions of other institutions on the leading edge of the relevant disciplines. The ”make” or ”buy” choice in either current or future capabilities has a long-term impact on the firm’s competitive position (Figure VI/4). A predominantly “buy” choice may cost less initially, but the long-term returns will be reduced by royalty and other fees. More importantly, allocation of part of the R&D resources to outside agents means that less is available over the long term to develop the expertise in-house and create an experience barrier to entry. Unless corporate strategy dictates that the firm will remain in a “pursuer” position (discussed below under Technology Archetypes), licensing-in of either current or future intellectual capability is a short-term tactic at best. 2

Direction

The direction of the firm’s R&D efforts can be measured by determining the proportion of total R&D funds (in-house plus strategic alliances, etc.) allocated to low-, moderate-, or high-uncertainty programs and projects. A survey of pharmaceutical industry scientists (Figures VV5a-b) provides a useful indication of perceived scientific and technologic uncertainty for many therapeutic

long-term returns

I

whole investment in inhouse R&D

magnitude

I I

I

leading edge in relevant science

range of action

*

licensing-in of all products and processes

uncertainty

pursue the science frontier

uncertainty

range of results

direction

9

G I::

Figure VV4. The magnitude and direction of the company's technology strategy vector are decisive for the competitive position of the company.

c3

+ 0

Technology strategy ~ i e c t o ~ s121 Figure V115a. Comparison of perceived scientific uncertainty research topic

Japan

USA

neuro-degeneration!

5.51

1

1

I I

1-1

difference

-

5.91

spinal cord injury

cognitive impairment] schizophrenia

I

5.4 4.41

6.2 4.51

1 3 . 9 1

anxiety

1-

depression

1

epilepsy

1

16 . 3 -

sleep disorders

cocain d e p e n d e n c y 1 4 1

1-1

nicotine dependency

1 2 . 6 1 analgesics 1 3 9 . 1

anesthetics

-

19.2-

muscle relaxants

1 3 . 9 1 hemophilia 1 3 8 . 1

platelet disorders

1-1

thrombolysis

myocardial ischemia] atherosclerosis)

-

hypertension gastritis

4.41 4.3

1

12.21

1 2 . 8 1

peptic u l c e r l 2 . 6 1 irritable bowel syndrome)i AIDS ) viral infections1 fungal infections-1 bacterial i n f e c t i o n s v l

19.2Malaria1-

Amoebiasis

5.31 4.3

2.61

I

+

122 Corporate and technology strategy Figure V115b. Comparison of perceived scientific uncertainty research topic

USA

Japan

prostatic hypertrophy

-

+

13.61 I

bone cancer

difference

51

7 2 5 .) GI-cancer 7 1 reproductive cancer )5.2-1 lung cancer

-

skin cancer

1 4 . 4 1

1-1

obesity

13.61

diabetes

1-1 periodontal disease I )

-

hyperlipidemia

7 3 5 . 1 conjunctivitis 1 3 5 . 1 angina

1-1 psoriasis 1 4 . 2 1 collagen vascular disease 7 1 arthritis

pulmonary emphysema

1 4 . 5 )

1antiinflammatory agents 1 2 5 . ) pulmonary asthma

antihistamines

1 2 . 1 1

1-

immune suppression

-

1 4 . 4 ) sexual dysfunction1 4 . 5 1

-

transplantation

renal failure nephritis

bladder dysfunction)l

Sapienza and Innami, 1993

I I

4.6

1

4.61

Technology strategy arclietypes 123

areas. Like the ”make” versus ”buy” decision regarding magnitude of R&D efforts, the ”direction” decision has important long-term consequences. The choice of a predominantly low-uncertainty technology strategy will cost less initially but is equivalent to adopting the corporate strategic posture of cost leadership, with its attendant risks of ”technolopal change that nullifies past investments or learning, and of low-cost learning by industry newcomers or followers, through imitation” (Porter 1980). If such a posture is not consistent with corporate strategy, then management must reallocate funds accordingly (Figure VV4). In the course of time, technology strategy describes an evolutionary path or trajectory. Thus, R&D management should assess their measures of magnitude and direction at least every 3-5 years, to ensure that the trajectory is consistent with the corporate objective. How these measures can be utilized by R&D management is discussed below.

C Technology strategy archetypes If the magnitude continuum is defined as the x-axis and the direction as the y-axis, then three general domains are described along the diagonal (Figure VV6). Each domain can be considered to identify an archetype: technology entrepreneurs technology managers technology pursuers. Within each domain, pharmaceutical companies will exhibit similar R&D characteristics. For example, companies within the technology entrepreneur domain will be more narrowly focused on high-uncertainty programs and projects. They will invest primarily in in-house capability; and they will move from the lower to the higher science and technology life cycles by ”growing” the expertise in-house. As in all situations, the entrepreneur domain is the risluest, but it is also the domain in which highest rewards could occur. Companies in this domain are llkely to be new entrants, such as some of the recent biotechnology firms, or companies that have changed their corporate strategy to take higher risks. Companies within the technology manager domain are large in size, because they cover a broader range of uncertainty in their R&D and strlke a balance between in-house capability and use of licensing. They will move from the lower to the higher science and technology life cycles by establishing strategic alliances as well as by ”growing” the expertise in-house. These firms tend to be in the “major league” of the pharmaceutical industry.

124 Corporate and technology strategy Figure V116. Technology strategy archetypes

direction of technology vector

1, I

technology entrepreneur

1

_

_

technology manager

I

technology pursuer

direction:

I

I a

~~ ~

1

magnitude of technology vector

proportion of R&D funds allocated to high versus low and moderate uncertainty programs and projects

magnitude: of total R&D budget, proportion of in-house expenditures versus licensed-in position in the current technology and in relevant emerging sciences and technologies

The technology manager domain represents a strategy of spreading risks. Organizations in this domain are likely to be well-established companies, and the danger they face is in slipping to the lowest domain if they become complacent. Companies in the technology pursuer domain are focused on low-uncertainty programs and projects. They invest in in-house capability but rely more than firms in the other domains on licensing-in; and they move from lower to higher science and technology life cycles primarily by licensing-in the new capability. This domain represents a low-cost technology strategy, but the potential payoff is also low. Organizations in this domain could be those that have slipped back from the manager domain because, for example, they delayed too long in investing in e m e r p g areas of science and technology. By making use of the magnitude and direction measures as well as the archetype framework, R&D managers will be able to uncover, first, any inconsistency between the company’s direction of R&D efforts and magnitude of capability. For example, a high-uncertainty focus coupled with a low magnitude of capability is a short-term tactic at best. This inconsistency could arise if

Tcchizology strategy avclictypcs 125

the licensing strategy is decoupled from the R&D technology strategy, or if management underestimated the investment required to support a high-uncertainty focus. Using the technology strategy archetype, managers can also determine if the company does or does not fit within a domain and can speculate on the long-term competitive consequences of a chosen posture. For instance, if the company changes its technology trajectory-by a change in technology strategy and concomitant change in investment-what new competitors might it face? Finally, by using the framework and metrics over time, managers can determine if the company’s technology trajectory is consistent with corporate strategy. If, for example, managers had articulated an entrepreneurial corporate strategy but the technology vector has slipped away from that domain, then corporate objectives will not be met without increases in financial outlay and reallocation of that outlay.

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER V I I

Leadership and Management

A Leadership theories

L

EADERSHIP is most commonly perceived as the ability to influence others

in such a way that persons willingly strive toward an objective that is consistent with the desires of the leader. On the other hand, leadership has been defined as one of the most observed and least understood phenomena (Burns 1978).Thus, it has been claimed that there are almost as many definitions of leadership as those who have attempted to define the concept (Stogdilll974). Modern attempts to define and to understand leadership began in the middle of the last century (Carlyle 1841) with the “Great Man Theory.” Since then, many other theories have been proposed, all trying to explain the key question: ”What makes an effective leader?” The major leadership research approaches have been categorized in terms of evolutionary eras and periods (King 1990, Shamir 1991, Wofford et al. 1994), revealing the breadth and the complexity of leadership theories (Figure VIV1). Within the various approaches, three classic perspectives on leadership (traits, situations, and behavior) can be identified (Figure VII/2). In terms of the behavioral perspective, leadership is generally described by five fundamental styles of decision-makmg and communicating: autocratic, bureaucratic, diplomatic, participative and free-rein (Owen 1976). Each style has advantages and disadvantages, depending on the special environment and conditions of the situation in which leadership is necessary and practiced (Figure VIV3). The participative style of leadership formed the basis for the introduction of management of objectives or MBO (Drucker 1955).MBO’s success in industry led to a greater emphasis on a relationship orientation, on the satisfaction of

power relation approach leader dominance approach

reinforced change theory action theory of leadership operant behavior approach

environment approach role attainment theory sociotechnicalsystems

contingency theory

influence

behavior

situation

contingency

continued on following page

path-goal theory normative theory

great man theory trait theory

main theories

personality

area

Evans 1970 Vroorn 1973

Fiedler 1964

Hook 1943 Stogdill 1959 Trist et al. 1951

Bass 1960 Argyris 1976 Sirns 1977

French 1956 Schenk 1928

Carlyle 1841 Bingham 1927

representatives

Figure Vllll. Overview of modern leadership theories _ _ _

-

more of the factors of behavior, personality, influence, and situation; leaders should be placed in situations most suited to them Or trained to adapt their own style to the requirements of the situation - a leader has to provide conditions to enable the success of subordinates a leader has to adapt decision-making behavior to the situation and the need for decision acceptance andlor quality

- effective leadership is contigent on one or

the behavior and interactions they are permitted to contribute to the group

- the leader and the subordinate roles are defined by mutually confirmed expectations Of

right circumstances

- leaders were thought to arise only by being in the right place at the right time under the

-

concern for individual and group cohesion, both can be learned leader is a manager of reinforcement of the desired subordinate behavior

- leadership is a subset of human behavior; essential are initiating structure and

leader

- leadership is a relationship between individuals and not a characteristic of the solitary

- leadership cannot be learned but is inherited

- the personality and behaviour are decisive for a leader

characteristics

E

2

3

5

-a

5

ff $2 ~R2

.

relationship; type of transactions with different subordinates may be different; leadership requires the consent of subordinates - subordinates convey esteem and status to the leader in return for the leader's skill in furthering goal attainment; leadership consists of exchange processes in which followers needs can be met if their performance is adequate

- leadership may be a perceptual phenomenon in the mind of the observer (leadership is

Jacobs 1970

Pfeffer 1977

social exchange theory

King 1990, Shamir 1991, Wofford et al 1994

self-fulfilling prophecy

Eden 1984

House 1977

Peters et al. 1982 Manz et al. 1987

search of excellence approach self-leadership approach

transformational charismatic theory

culture

Kerr et al. 1978

substitute period

anti leadership ambiguity period

build, to monitor and to reinforce a culture of high expectations

- leader can be activated from all (lower or upper) levels in the organization; leader has to

thinking than reactive and conservative; leader exercises influence to produce enthusiastic commitment by subordinates

- leaders must be visionary and more proactive, more radical and more innovative in their

changes from one of increasing quantity to one of increasing quality

- leadership is omnipresent in the culture of the entire organization; leadership focus

an encompassing term to describe organizational changes that we do not understand otherwise) - substitutes for leadership are identified; characteristics of the subordinate and the organization can prevent leadership from affecting subordinate performance

- leadership involves transactions behveen the leader and subordinates that affect their

Graen et al. 1982

leader-member exchange theory

transactional

characteristics

main theories

area

representatives

Figure Vllll Overview of modern leadership theories (continued)

130 Leadership and Management Figure VIIIZ. The major classic theories of leadership

Individuals have the ability to influence others in such a way that persons willingly strive toward an objective.

definition of leadership -

theories: .trait

~

r3

Certain persons are "born to be leaders," having inherited a set of unique characteristics that could not have been acquired other than through heredity. Effective leaders have "built in traits" such as ability, need for power, social ability, endurance, assertiveness, reliability, and advocacy.

.situational

~3

Leadership is (often) the product of situations in particular groups. Individuals evolve into leadership roles and the situation will be conducive to the emergence of the leadership role.

*behavior

0

Effective leadership is dependent on the style of the particular leader and his or her fit to the necessity of a particular situation and group. Leadership styles are classified as autocratic, bureaucratic, diplomatic, participative or free-rein.

Bernhard et al. 1990, Haimann et al. 1973, Owens 1976, Lee 1992

followers or subordinates and on the use of power. For example, the satisfaction of followers appears to depend on primary (individual or group-specific) determinants and/or environmental (hygienic) factors utilized by the leader (Lee 1992). How the leader uses power appears to depend on the individual's style of leadership, which may correlate directly with the beliefs of the leader about human nature and human motivation (Figure VIV4). A strong leader is able to stimulate a process in which individuals are self-directed, creative and seek to facilitate and influence others towards selfactualization as well as productivity (Lee 1992). Thus, a successfulleader mainly utilizes a diplomatic and participative style, which involves subordinates in the decision-making process and stimulates and supports their self-control in achieving the desired objectives. To be strong in R&D, leaders must be visionary and more proactive, more radical and more innovative than reactive and conservative in their thinking. They should be able to inspire enthusiastic commitment from their subordinates. Such a charismatic leader (Shamir 1991) must behave in certain ways in order to produce the desired effects (Figure VIV5). Charismatic leadership is characterized as part of the transformational eraleaders motivate followers to work for transcendental goals or organizational visions and to attain self-actualizingneeds using self-reinforcement as the basis of control (King 1990, Wofford et al. 1994).

"free-rein"

~

advantages

to best effort - possible utilization of time and resources

- may stimulate intrinsically motivated people

morale, output and esteem - supportive to decision due to inclusion of best information, ideas and talents - encouragement of growth and development of all members of a team

- increases motivation, enthusiasm,

- rational decisions - increased cooperation with respect for others

increasing sense of fairness and impartiality - increasing reliability of positions and decisions

- consistent application of rules,

- command system (when appropriate)

- low toleration of ambiguity

- high efficiency (when appropriate)

Owen 1976, Lee 1992

~~~

participative

diplomatic

bureaucratic

autocratic

styles

~ ~~

~~~~~-

~~-

-

-

~~~~

~

~~

detailed knowledge of staff competence, integrity and ability to handle less control

- very little managerial control - high degree of risk, if manager does not have

mendations are sought and not used

- avoidance of responsibility by "democratic method" - very time-consuming, appears inefficient - risk of disorganisation (if not handled well) - subordinates feel ignored and rejected if recom-

creasing respect for manager

- misinterpretation as weakness may cause de-

~

- demotivating for creative, intelligent, secure people

- inflexibility (where rules are inappropriate) - paralysis/ambiguity where no rules exist

- one way communication, lack of feedback, risk of communication breakdown and costly errors - high insecurity, claim to be the main expert

weaknesses

~

Figure V1113. Advantages and weaknesses of decision and communication styles in leadership

s

w

2

Y

-_

8

-s. s

2-

2

g-

t-

8

132 Leadcvship and Management Figure Vll/4. Beliefs of the leader about the nature of people are frequently associated with his or her style of decision-making

autocrative basic assumptions: The average person dislikes work and will avoid it as far as possible.

basic assumptions: B Work is natural and not to be avoided. B Commitment is a consequence of motivation.

Most persons have to be forced or threatened by punishment to get them to make the effort necessary to accomplish organizational goals. The average individual is basically passive, prefers to be directed, rather than to take any risk or responsibility. Above all, the individual prefers security.

In the case of commitment to organizational goals the individual is self-motivated and the work provides inherent satisfaction. The average person learns to accept and even seeks responsibility given the proper environment. The ability to be creative and innovative in solvingorganizational problems is widely distributed in thepopulation.

In modern organizations the intellectual potential of employees are only partially utilized. ~

~~~

~

~~~~

~~

~~~

~~

McGregor 1966, Lee 1992

Transformational leadership is the polar opposite of transactional leadership. Transactional leadership essentially consists of exchange processes in which follower's needs can be met if their performance is adequate. Several comparative studies have reported that transformational leadership behavior is more positively related with subordinate satisfaction and effectiveness in a variety of types or organizational settings than is transactional behavior (Wofford et al. 1994).Thus, transformational leadership may be the most promising type. Nevertheless, transformational leaders also use transactional behavior, when this is thought to be appropriate (Bass 1985, Wofford et al. 1994). Given the different perspectives of the various leadership theories, Kmg (1990) provides a complex definition of leadership, suitable for practical application to management (Figure VII/6).

Lcndcidzip throrics 133 Figure V11/5. The charismatic leader

I)Behavior of the leader

-2 dynamism and energy, display of self-confidence and enthusiasm I

>high commitment and motivation

["Jsetting and meeting high performance standards L :>creative

and innovative behavior

13expressing goals and roles in ideological terms ?>showing

confidence in followers and having high expectations of followers

I)Effects produced in the followers i >heightened motivation

r> positive effect toward the leader and the task !

>self-assertiveness

L> [-

job meaningfulness

>trust in the leader; agreement and support of leader policies

L>low role conflict and ambiguity and high performance quality Shamir 1991

Figure V1116. Practical applications for the understanding of leadership Leadership is:

I) A complex, interactive process with behavioral, relational and situational elements.

I) Found in the leader and occurs also at individual, dyadic, group, and organizational levels.

I) Backed upward from lower organizational levels as much as it is backed downward from higher levels.

I) Occurs internally within the leader-subordinate interactions as well as externally in the situational environment.

I) Motivates people intrinsically by improving expectations and not just extrinsically by improving reward systems. King 1990

134 Leadership and Management

6 What is leadership and management in R&D? There is often confusion between the terms leading and managing. There is also a negative connotation sometimes ascribed to the term, “to manage,” because of its primary meaning, “to control.” In fact, the good leader must also be a good manager, and the good manager a good leader as well. Leading in R&Drefers to the act of directing and facilitating the activities and efforts of scientists and to being an exemplar and inspiration to these scientists. Managing refers to designing, adjusting, and utilizing the systems of the R&D organization, including recruitment, performance appraisal and reward, decision-making and approval, and information systems (addressed in chapter X). To be successful, the director of R&D must excel in both leadership and management (Figure VIW). Figure V1117. Successful leaders of R&D have to display leadership and management

leading

0 action

managing

0 control and utilization of the system

direction and facilitation of activities and efforts of scientists

recruitment and reward of scientists

0 representation

appraisal of contributions and projects

exemplar and inspiration to scientists

making decisions and approval

Leadership-the directing, facilitating, inspiring of people-should be distinguished from decision-making styles (Figures VIV34). The director of R&D may be described as “autocratic“ or “participative.” These words do not describe the person’s way of leading so much as they describe how and to what extent input is sought from others in the decision process. For example, if the director were the sole decision-maker, then the style of deciding (not necessarily of leading) would be described as autocratic. And if wide input were sought, the style would be described as participative. Styles of including input from others (or not) are generally consistent with organizational culture (discussed in chapter X). Ideally, they should be based

Leadership and structure 135

on common sense. If the decision is made in times of crisis (such as during clinical trials in which immediate decisions must be made about stopping or continuing), one might expect a more autocratic decision-making style. Of course, if the director of R&D were not completely expert in the crisis situation, then he or she would seek counsel immediately from those who were. If the decision were to have an impact on a large number of people in R&D and the situation were not a crisis, then one might expect the decision-making process to be as participative as possible.

C Leadership and structure One of the primary responsibilities of the head of R&D, as both a leader and a manager, is to ensure that the structure of the organization fits the conditions of the work being undertaken. As discussed in chapter V, there are only two basic structures-lateral and vertical-and there is persuasive evidence that each is more effective under certain conditions. Because the lateral structure (the pattern of relating and communicating as peers) is the structure of choice under conditions of high uncertainty, ambiguity, and rapid change, R&D management must take a leadership role in creating such a structure for discovery efforts in novel (i.e., highly uncertain and ambiguous) areas. Similar structures have to be created in problem situations in later stages of R&D that are also characterized by high uncertainty and, especially, ambiguity about the issues involved. Moreover, the leader of R&D must ensure that project managers create a lateral structure during the formation stage of the project life cycle, when uncertainty and/or ambiguity about the work will be highest. Because a vertical structure (the pattern of superior to subordinate and subordinate to superior relationship and communication) is more efficient under stable conditions, with uncertainty and ambiguity reduced, R&D management must take a leading role in creating these structures for such phases of discovery that can be preplanned and conholled by rules and standard operating procedures, and for much of development. By the same token, management must also ensure that project managers create vertical structures during the late build-up and main stages of projects, for the sake of efficiency.

D The matrix challenges Matrix organizations are the most complex structures and present two major challenges to the management of R&D: 0 ensuring that vertical and lateral structures co-exist productively, and 0 ensuring that performance evaluation is conducted appropriately.

0 no constraint on size

reduced uncertainty and ambiguity

0 applicable in stable conditions with

I

1

i I

I

management

I

vertical structure

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~

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.

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essential for exploratory research suitable if stable conditions in development turn into instability and uncertainty

0

0

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must be small in size to be effective

applicable in unstable conditions of high uncertainty, ambiguity and rapid change 0

.

Figure V1118. Productive coexistence of vertical and lateral structures IS the most difficult challenge of R&D management

.

.

.

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The matrix cliallcriges

1 Coexistence of vertical and lateral structures In typical pharmaceutical R&D operations, both vertical and lateral structures must co-exist, often a difficult accomplishment (Figure VIU8). The matrix, in which project teams are drawn from vertically structured functional and discipline departments, represents the greatest structural challenge to the management of R&D. If the "verticality" of departments is allowed to dominate the lateral matrix, then (as noted in chapter V), the opportunities for optimum problem-solving are reduced. But, by the same token, when the conditions are appropriate for the vertical structure, maintaining a lateral structure will lead to time and cost inefficiencies. In both cases, the outcome will be delay and cost overruns, with perhaps severe economic consequences because of lost market share and product revenues. There are several guidelines for the two types of structures in R&D: Lateral structures, because they involve peer relationships and communication, must be small. Lateral structure constrains the size of the group involved to not more than about 200 people, which has been found to be a number that allows everyone to know one another. I n a large R&D operation, several small discovery units that can easily be laterally designed will be more effective than one larger unit. Vertical structure has no such size restriction. As a general rule, one large development unit will be more productive and efficient than several small ones. Economies of scale can and should be considered in development. 0 When conditions change within the vertical structure (i.e., problems arise that are characterized by high uncertainty and ambiguity), R&D management has to ensure that small, lateral, problem-solving groups are established. Putting tighter controls on the vertical structure, or malung more explicit rules and decision criteria, or bringmg in more people to push the work through without delay will only degrade performance. When conditions change within the lateral structure (i.e., project completion moves towards the main stage) R&D management ha5 to ensure that the team structure also changes to be more vertical. The project manager should, a t this point, supervise the relevant systems and allow team members to go about their work in relative independence but according to the agreed plans. 2

Performance evaluation

The second challenge of the matrix is performance evaluation. For every project undertaken in the R&D organization, the performance of five entities (Figure VIYS) must be evaluated: the project manager 0 individual team members

137

138 Leadership and Management 0 0

0

the team as a collective the relevant heads of functional units or disciplines from which team members are recruited, and the head of the project management function.

Figure V1119. Within a matrix organization the R&D performance evaluation should consider five entities and required qualities.

.) project manager 6successful completion of a project within agreed time and budget constraints 0leadership and managerial abilities

.) individual team members 0technical contribution 0individual performanceas team member

.)team r> effectivity

.) functional and discipline heads 0availability of scientific and technical expertise to the project as needed 13 development of the scientific and technological competence of R&D

.) head of project management 0technical accomplishments(project teams, resource allocation) 0leadership and managerial abilities The project manager

The primary objective of the project manager is to bring the project to successful completion within the agreed time and budget constraints. (In the case of technical failure and termination of the project, then ”successful completion” would be changed to ”terminated efficiently.”) The skills required to bring the project to successful completion are both technical and behavioral. Like the director of R&D, the project manager must be a good manager, able to control project planning and management systems, in order to meet deadlines. If the company is serious about the importance of effective project management, then project personnel will be trained in project planning and management techniques. But the project manager cannot, and should not, be judged solely on the basis of technical performance. Like the director of R&D, the good project manager must also be a good leader able to inspire team members, to negotiate difficult resource requirements with functional or discipline heads, and to maintain the

The matrix challcrzgcs 139

necessary balance between collaborative and supportive interpersonal relations within the team and productive activity on the project. The evaluation of the project manager’s performance has to be based on a judgment of the person’s technical and behavioral abilities. This requires that the evaluator understand the technical slulls involved a i d is sensitive to the cues that the project manager’s leadership has been effective. Thus, it is important to know how well and how quickly disparate individuals have been molded into a smoothly functioning team, how effectively conflicts have been resolved, how willingly team members have relinquished functional loyalties for project loyalty, and how well project communication flows. Clearly, to judge the project manager appropriately, the evaluator cannot be so distant from projects that only “on time and within budget” serve as performance criteria. Individual team members

In the matrix, each member of the team reports to his or her functional or discipline head and to the project manager. Each member must contribute to the success of the project by his or her technical expertise-chemist, molecular biologist, toxicologist, etc.-and by his or her ability to move the entire activity (not just the discipline part) forward. Individual performance, therefore, is based on the functional or discipline head’s judgment as to the caliber of the technical contribution of the individual and on the project manager’s judgment as to the effectiveness of the person as a team member. What constitutes an effective team member? Individuals must be willing to listen actively to other members who have different perspectives, slulls, experience (what is described as eccentric in chapter VIII). A technical expert who does not listen but continually forces his opinion on the team narrows the scope of inquiry and reduces the level of creativity of the solution. Effective team members must be willing to put aside their personal objectives for the sake of the whole. A technical expert who only wants to hone his or her molecular modeling skills, for example, is unllkely to p e the project itself the commitment and attention it requires. Moreover, effective team members must be willing to pose questions if their knowledge is limited or potentially outdated. A technical expert who arrogantly insists upon the correctness of his approach, or the suitability of her perspective, without first testing the implicit assumptions, may doom the caliber of the project to mediocrity. Such a person is not an effective team member. In consequence, the effectiveness of a team member, like that of the project manager, depends on both technical and behavioral skills. Individual team members must therefore be judged according to both criteria.

140 Lcadevskip and Managcment The team

As a collective, the team is responsible (with the project manager) for the successful completion of the project on time and within budget. As a collective, then, the team must be evaluated by the head of the project management function (or director of R&D) for its collective performance. What is difficult for many R&D organizations, however, is not the judgment of the team as a team but the reward or censure of the team for its collective results. Here, the head of R&D must be creative: Working with the Human Resources Department as appropriate, an incentive system must be devised that reflects one of the desired outcomes of the matrix organization: namely, effective teams. Effectivenessrefers not only to the achievement of a goal on time and within budget but also to the ability of a team to abandon a project for reasons outside the control of the team (e.g., effectiveness can be measured by answering the question of whether the project was stopped quickly and efficiently). “Pay for performance” systems exist that reward individual behavior. They can certainly be designed to reward collective accomplishment. Functional and discipline heads

Heads of departments from which team members are recruited must also, in the matrix organization, be held accountable for project performance. These heads must ensure not only that scientific and technical expertise is available to the project as needed (a project-specific judgment), but also that such expertise is continually assessed and developed so that the organization remains competitive. In a matrix organization, department heads play a very important and often overlooked strategic role. In addition to their responsibility for current business achievements (project success), they are responsible for developing the scientific and technological competence of R&D to ensure future business success. Thus, when functional and discipline heads are evaluated by the director of R&D, these two time frames must be kept in mind. Department heads must be judged by the short-term technical contributions of their members on the project teams and by clear indications that technical capacity is being improved for the future (for example, by training programs and hiring of people with new skills). The head of project management

If the organization is large enough to warrant a separate project management structure, with a head of project management to whom all project managers report, then the final entity to be evaluated is this head.

C/zarnctcristics of thc good /cndcr

Like project managers, the head of project management must be evaluated on both technical and behavioral accomplishments. O n the one hand, projects must meet their deadlines and on the other hand, project managers must build effective teams and negotiate competing resource allocation demands without jeopardizing project success or creating enmity between the project nianagement and functional departments or disciplines. The system of performance evaluation must be consistent with the required attributes of the matrix organization. When people in R&D are completely committed to “joint problem-solving and shared responsibility” (Galbraith 1973), then performance evaluation will be collaborative, with agreement on the assessment criteria just described. If these fundamental conditions are not met, then no externally imposed system of performance evaluation will be successful.

E Characteristics of the good leader Leading and managng R&D well is not an easy task. Scientific activity, whether in projects or not, is less about doing (for example, conducting a test) than it is about thinlung (for example, designing a test so that the right questions are addressed). Pharmaceutical companies are genuinely knowledgeable organizations: their output is knowledge of the disease or condition and how to cure or relieve it, as embodied in the developed drug. The endeavor of pharmaceutical scientists, lherefore, is to generate knowledge and ideas, an endeavor that is oblique, difficult to preplan, and almost impossible to measure prospectively. To be a good leader of a cognitive activity like R&D, particular attributes and skills are critical (Figure VIYlO). Good leaders are able to stimulate, encourage, and support creative thinking. They must have scientific and technological expertise to judge the caliber of the expertise residing in the organization. They must stay close to the science and also bring out the highest performance of their scientist, by intellectually challenging others’ ideas and putting their own forward to be challenged. When challenged, people learn. Thus, both leader and followers (R&D management and the scientists) must continually test assumptions, seek feedback, and grow in the required competence. On the other hand, good leaders must be humble enough to hire the brightest and smartest scientist. Such scientists are crucial to the success of the organization, because otherwise it becomes dull and mediocre. Good leaders in R&D know that their scientists are the most precious resource they have. They choose them carefully, try to nurture them and be in close communication with them. Good leaders are aware that the work of the whole organization suffers, if their scientists are incapable of some part of the work, or d o not trust the leader’s judgment, or d o

I41

142 Leadership and Management Figure V11110. Characteristics of a good leader in drug R&D

I) Ability to stimulate, encourage and support creative thinking. I) Sufficient humility to hire and to tolerate the brightest and smartest scientists. I) Willingness to nurture scientists and to be in close communicationwith them. I) Strength to keep bureaucracywithin bounds. I) Ability to balance productively scientific freedom and economic constraints. I) Backbone to shield scientists from inappropriatepressures. I) Understandingof being facilitator, willing to give up the satisfaction of his or her own research in order to help other's research.

I) Ability to decide about projects and staff.

not care enough to do the job well. Everything that is done well in R&D is done because there are good scientists motivated to do the work. Often such scientists can be troublesome. Consequently, heads of R&D may be tempted to prefer people who are easy to lead, submissive or have to look up to them. Good leaders know, however, that yielding to such temptations has detrimental consequences for the organization. Good leaders keep "bureaucracy" at bay. They ensure that they, and everyone who works for them, do not insist upon inflexible application of management systems, job descriptions, and other systems in R&D. Paralysis arises if the orderliness of the process is always emphasized rather than the individual scientists, and if everything is planned and everything is exactly prescribed. When this rigidity spreads throughout R&D, the productive atmosphere is lost. The human touch may almost disappear if systems are considered more important than people. Such inflexibility results in organizational rigidity and reduces creativity. Good leaders balance scientific freedom and constraints. They understand that creativity is in fact helped by clearly allocating responsibility and applying quantitative criteria to the work. This balance of freedom and constraints is very clearly demonstrated in the retrospective case study of the invention and development of the Hz-receptor antagonist, Tagamet (Sapienza 1987). Sir James Black, the inventor of the Hz-receptor antagonist, said (Black 1986) from his personal experience:

Clzaracfcrisficsof the good leader 143 Creative scientists have to look for goals, and constraints, and restrictions, because that is how they can win. Maiiagement has to conic iii and coirsfrailz the openendedness of scientific activity, because the only way to arrive someplace is to deliberately constrain the process.

In agreement with that point of view is the comment made by Sir James Blacks R&D director during the development of the H2-receptor antagonist (Sapienza 1987):

I f you leave scientists to r u n their o w n timetables, they are all like gold prospectors. They all say: Arouizd the corner zuc will strike aiz even richer vein! A n d that is what they arc like regarding compounds. So 1 had to put pressure on them to bring compounds forward, to display the data they had and make sure the information was put OIZ the table at afairly early stage. For this you need to be active as a leader and in touch with the science. Good leaders shield scientists from inappropriate pressures. Although good leaders have to put the right pressures on their scientists, they must also shield them from (especially)inappropriate demands of the larger corporation. They have to stand between the pressures of the corporation and the needs of the scientists. One of the greatest attributes of a leader is his or her ability to protect scientists by talung on the corporate demands. The leader does not hide things from the scientists, but bothers them only with issues that are relevant to what they are doing, or that may seriously affect their future. This means, for example, that scientists need to know budgetary constraints; if there are major organizational changes facing them; or what the general view of corporate strategy is. But they do not need to be bothered with the day-to-day arguments. A good leader has to shelter scientists from irrelevancies. Good leaders understand that they are facilitators. That means they have to lead from behind and have to be willing to give up the satisfaction of their own research in order to help research of others. They must understand that they are now a facilitator of the collective research activities, attending to the progress of R&D and recognizing a pattern in it. In consequence, they have to be able to take satisfaction from the facilitation itself. Managlng R&D is much less visible and less easily viewed as a success than managing an operation that produces a tangible output. The leader of R&D has to look for the many small ways to find satisfaction, such as the day-to-day worlung with people, and not just in the rare but spectacular achievements. In consequence, the leader’s success often remains unrecognized and unappreciated.

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER V l l l

Managing for innovation

T

0 MANAGE for innovation means to successfully lead an organization of

creative scientists. As discussed throughout this book, certain qualities of human interaction within R&D are necessary for innovation. To produce these qualities, the head of R&D must understand motivation, culture, organizational systems, and measures.

A

Motivation

The word ”motivation” is derived from the Latin words “movere” that means “to move” and “motio” that means “(e-)motion”and is related to “motive” that which is within a person moving him or her to action. In a general sense, when we use the term ”motivation” with respect to work, we mean that people are moved to work at a certain level of effort, to carry out their jobs responsibly, to take the initiative, to go beyond the ”letter of the law” that is their job description. In pharmaceutical R&D, the word describes a group of scientists workmg with energy, enthusiasm, and creativity. Most definitions of motivation include a t least three parameters: energy, direction and persistence (Cropanzano et al. 1992).Energy has been considered to be a stable personality state as well as trait (Cardner et al., 1988), but the activation level is dependent on the individual’s affective response. For example, a person can be lethargic, anxious or enthusiastic. These emotionally charged responses have implications on how an individual will approach a task. Direction and persistence are influenced by the changes in arousal levels that occur over time or across situational boundaries. Decisive are the cognitive processes that produce these temporal and situational changes (Cropanzano el al. 1992).

146 Managing for innovation Direction is related to behavior insofar as direction can be represented as a goal or standard that the individual is trying to attain. In other words, direction implies some level of organization of one’s activity to attain some outcome (Pervin 1989, Cropanzano et al. 1992). 1

Motivation theories

Motivation theory attempts to explain behavior, interests, attitudes and desires in humans and in animals. Several aspects have been emphasized in the modern history of motivation theory (Figure VIIV1). Some aspects are based on animal observations such as ethological approaches explaining behavior on the basis of instincts (James 1890, McDougall 1908). These genetically oriented theories list several predominantly biological drives mainly serving survival and reproduction. These ideas also form the basis of the instinct theory put forward by Lorenz (1937)who observed animal behavior and defined key stimuli which elicit inborn patterns of behavior. Psychoanalysis developed by Freud (1905,1915), a second major source of drive and motivation theories, is based on the principle of hedonism and claims that one major drive called libido, based on sexual energy, forms the source of all higher order motives. Its goal is satisfaction (i.e., drive reduction) and social norms and laws controlling the individual by the superego have to be coordinated with the biologcal energy of the libido by mechanisms of the ego. Since many motives could not be explained satisfactorilyby biological needs and the principle of homeostasis, approaches to motivation based on learning and the concept of secondary drives and habits obtained from operant conditioning by reinforcement were introduced (Tolman 1932, Hull 1952). Emotion based theories of motivation were introduced on the basis of the idea that the combination of valence and intensity may describe emotion. The inverted U-shaped relationship between activation and positive emotion was described as an underlying principle of motivation. The differentiation between arousal (central nervous activity) and activation (peripheral physiological and motor activity) was put forward to explain different sources of motivation. McClelland (1953) introduced the concept of anticipatory emotions derived from experience like fear and hope, which were suitable to explain achievement motivation. Thus, evaluations of actions or events are conceived as sources of emotions and, again, determinants of future motives. In modern psychology, hope for success and fear of failure (Heckhausen 1963) are based on these considerations of evaluation of stimuli according to their novelty, hedonistic qualities, relevance, coping resources, and consequences.

~~

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compiled from Schneider & Schmalt 1994

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attention-derived actions, hierarchy of intentions within a goal-oriented act, regulation of sequences of acts

Ach 1935, Dijker 1975, Kuhl 1983

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volitional and action theories

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intentions as antecedents of behavior, expectations of outcome, attributions

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Lewin 1926, Atkinson 1964, Rotter 1954, Seligman 1975, Weiner 1985

cognitive psychology

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emotional experience, curvilinear relationship between activation and positive emotion (moderate activation = positive valence), anticipated emotion like fear of failure and hope for success based on evaluation of stimuli and goals

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Spence 1956, Mowrer 1960, McClelland et al. 1953

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psychology of emotion, activation, and arousal

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Tolman 1932, Hull 1943, 1952

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principle of hedonism and homeostasis; one common source called libido yields energy to the Id and is controlled by the Ego and Superego

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genetics, drives serve survival and reproduction, instincts are elicited by key stimuli

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James 1980, Mc Dougall 1980, Lorenz 1937

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representatives

Freud 1905, 1915

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instinct theory and ethological approaches

theories and approaches

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Definition: Drive which energizes behavior of individuals to satisfy their needs or to remedy their deficits

Figure Vlllll. Classic theories of motivation

148 Managing for innovation Parallel endeavors attempted to pinpoint the neuroanatomic and neurophysiological localization of these emotions by means of animal experiments. Cognitive theories of motivation emphasized these aspects of intention and expectation as well as of situational incentives and stimulus attraction which helped to explain concepts like level of aspiration, saturation, or memory for unfinished tasks. These expectation value models have led to the development of attribution theory, which describes the outcome of actions of a subject as either due to the subject’s own capacities and responsibilities, due to powerful others or to fate, and can explain why some individuals respond by “learned helplessness” (Seligman 1975) and others by mastering a situation. Action theory has its roots in an older concept of psychology of will (Ach 1935), which explains actions by decisions anteceding the actual performance of an act. Intention characterizes an act of will as opposed to impulsive acts or habits. In modern action theory (Kuhl1983), action is conceived as a process consisting of several steps from the intention through attentive activity directed to the stimulus side, informationprocessing and emotional control, increase in the value of stimuli and acts suitable for reaching the goal, and finally control of the environment to facilitate implementation of the intended act. This process is conceived as governed by several regulatory systems functioning according to flow chart models. In most of the various approaches which attempt to explain motivation, all kinds of drives and motives have been analyzed with a different emphasis on origin and functioning of these motives.

Figure VIIIR. Categories for classifying motivations primary and secondary needs collective versus individual drives 0 motives directed towards social

versus individual goals 0 intrinsic and extrinsic motivation modified after Coates 1994

biological versus learned higher order needs

e e

produced by groups or individuals satisfaction from social or individual activities

I)induced by internal values or external stimuli

Motivatiorz

Thus, motivation emerges in current theories out of the intrapersonal concepts of intention, cognition (sense of efficacy and performance-reward expectancies) and values (Terpstra 1979, Evans 1986, Sullivan 1989). Relevant variables include factors expected to have an impact on motivation, such as leadership behavior, feedback of performance, the design of jobs and organizational norms (Evans 1986). Motives governing behavior have been assigned to several categories according to their origin, function, and goals (Figure VIIV2). Among the different categories for classifying motivation, goal-setting is one model of work motivation (Locke et al. 1990). Goals can be used as a general organizing principle. Clusters of behavior are meaningful to the extent that they are organized in order to achieve a goal (Cropanzano et al. 1992). A common denominator of most of the afore-mentioned motivation theories is that they categorize motives or underlying traits called needs into several groups. They have come up with different numbers and structures of needs rangingfrom unitary concepts like Freud (1905,1915) to lists of up to 20 different needs (McDougall 1908, Murray 1938). They are usually structured to range from more basic biological needs to peripheral or more subtle ones (Maslow 1954, Cattell 1965). The three major interrelated needs (Kusyszyn 1990) mentioned in many motivation theories are: a need to confirm existence a need to affirm worth and a need to produce effects (to be a causal agent!). When humans produce desired or intended effects, they experience pleasure; when they fail to produce desired effects, they experience discontent and disappointment. The greater the effect, the greater the feeling of self-efficacy. For some persons, however, mental, emotional, or bodily blockades combine with the desire for efficient efficacy to produce great blocks to self-efficacy and self-actualization (Kusyszyn 1990). Often the task itself is seen as providing satisfaction, arising (for instance) from the values of and the moral obligations inherent in work. Performing the task may be gratifying because of the meaning it provides for the individual in terms of affirming identity (Vroom 1964, Coates 1994).Human beings are not only goal-oriented but also self-expressive. To maintain and to enhance their self-esteem and self-value, people may be action-oriented, learning by doing and learning from their mistakes (Shamir 1990).They can readily perceive their ideal self, but they can also differentiate between this ideal self and any normative identity transferred to them by management. Conception of the ideal self defines the target to which the individual strives and thus regulates behavior.

149

150 Managingfor innovation Differences in personal attitudes may lead to different motivating circumstances. One individual may be motivated by an easy job that is highly rewarding, the other by solving a difficult problem. Both people can experience a similar level of satisfaction. On the other hand, attitudes are singularly attributes of individuals. People simultaneously hold many attitudes and experience complex emotional states. Thus, a given situation at the work place may motivate one individual and demotivate another. Such effects may cause divergent or even contradictory forces, depending on the social relationships employees have with each other and with the power relations within the organizational environment (Coates 1994). A number of classical theories of motivation (Figure VIIYl) have their roots in the principle of hedonism. The individual is seen as a rational maximizer of personal utdity (Coates 1994),attempting to get the most reward for least effort. Even need theories emphasize an expressive individualism and individual satisfaction, rather than a collective one. However, there are various motivations or drives that are based on a lesser degree of hedonism (Figure VIIV2). Asian, especiallyJapanese, people may have a collectivist notions of motivation, comprising attachment to the organization and achievement of organization goals. Thus, motivation may be culture-specific, so that classical western psychological theories may not be completely extrapolated to other societies (Coates 1994). Motivation may be specifically evoked by an individual. In some cases the charisma of an individual leader enables a radical change to occur in the organization that cannot be explained by individualistic utilitarian motivation theories (Golden 1992). Specific situations can influence motivation. Extreme examples are groups with strong rules and regulations that prescribe individual action and response patterns without allowing alternatives. Such groups have low tolerance for variation and expect as well as produce uniformity of behavior. But groups that even moderately exercise their influence on persons, for instance by low tolerance of differences among individuals ( e g , within social and welfare services), influence motivation. Beliefs, moral, and general values and understanding contribute to as well as arise from such an organizational environment and are often much more implicit than explicit. 2

Basic conditions for motivation in R&D

There are certain basic or infrastructural conditions that lay the groundwork for an organization in which people will be motivated to work (e.g., Moorhead and Griffin 1995).The minimum requirements are that:

Motivatioiz 151

Worlung conditions in the laboratory are safe; space is adequate; and equipment is available to do the work. Scientists are trained appropriately. Scientists believe that their efforts will lead to results (e.g., synthesizing a chemical leads to treating a specific tumor disease); these results will lead to a specific outcome (successfulcompletion of the project, recognition for their work, and the handing over of a compound for preclinical development); and they must value the outcome. Scientists are treated and paid fairly, compared with other similar pharmaceutical companies. Scientists are not asked to achieve the impossible, but they are challenged to push the bounds of their possibilities. 3

Matching motivational needs to the job

These basic conditions are not all that is necessary for a ”motivated” R&D organization. After this groundwork has been laid, it must be ensured that each scientist’s personal competence matches the demands of the job. This goes beyond matching the technical aspects of personal competence, such as education, training, special skills, to the stated job description. It also includes matching the human aspects of the scientist’s competence to the human aspects of the job demands. Every job (whether director, project manager, lead scientist) has different technical aspects (such as knowledge and experience) as well as different human aspects. For example, the human aspects of the job of R&D director include an ability to see the ”whole picture” of organizational strategy, while those of the leading scientist do not. Similarly, the human aspects of the job of project manager include building the project team, while those of the leading scientist include single-minded concentration on the experiment. If there is no match between the human aspects of the job and the person, then the individual will be fundamentally unhappy in his or her work and, consequently, will not be motivated (in other words, unable to work with energy, enthusiasm, and creativity). Every director of R&D knows a scientist who, having been brilliant in the laboratory, is then promoted to a managerial role, only to realize that the human aspects of the management job are very different from the human aspects of the leading scientist role. In the worst case, a skilled iizcornpctcizcc has been generated and the performance of the entire organization suffers; the manager is displaced; and it takes a long time for the remaining scientists to become productive again.

152 Managing for innovation Three work-related needs

Insight into the required match between the human aspects of the job and the person comes from the work of the personality psychologist David McClelland (1984).He and his colleagues found that each individual has three work-related motivations or needs. 0 Each person has a need for power, defined as the need to influence the outcome of the organization. 0 Each person has a need for affiliation, defined as the need to have collaborative interpersonal relationships within the organization. 0 And each person has a need for achievement, defined as the need to set an individual goal in the organization and work until it is accomplished. 0 Each individual also has a unique structure and order of those needs (Figure VIIV3). For instance, one individual may have a great need for power, a moderate need for achievement, and little need for affiliation. Another may have a great need for achievement and lesser needs for power and affiliation. When they observed people over a period of time, McClelland and colleagues noted the following (Stewart 1982): 0 The unique ordering of motivating needs does not change with different work experiences; it is a constant part of the individual personality. The unique ordering of motivating needs is an accurate predictor of long-term patterns of behavior but not necessarily of any one action on the part of the individual. Each motivational need exists in each individual. Men and women can have a dominant need for affiliation or power or achievement. There are no consistent differences between the sexes (Stewart and Chester 1982). The priority, however, of the different needs may depend on age and culture. The scientific and technical progress of organizations requires persons with a dominant need for achievement. They are productive as individual contributors but generally are not interested in managing other people. People with a dominant need for achievement are concerned with their own progress, rather than with the progress of the larger organization. People with a dominant need for power are found to be the promoter of radical organizational change and strategic innovation. They seek positions of leadershp and are impatient in a position that does not provide them with scope for influencing the organization. People with a dominant need for power and a low need for affiliation are often able to make very difficult decisions without being concerned that others will like or dislike them because of these decisions. People with a dominant need for affiliation excel when the job enables them to satisfy their need for establishing and maintaining cooperative

Motivation 153

interpersonal relationships. But, they may be concerned about how well they are liked, and they may favor the group they manage over the requirements of the larger organization. Figure V11113. Characteristics of work motivation related needs I

I

1

1

need for affiliation:

1

~

~~~~~

~~

~

ordering of needs is unique to each individual

~

~~

~~

n e e d farachievement:

I .

+concerned with personal progress in one's own work

need for power:

,

~

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general characteristics of motivating needs:

interested in establishing and maintaining interpersonal relationships ~

~~

~

+seek positions of leadership to influence the organization

are a constant part of an individual personality and do not change with different work experience are an accurate predictor of long-term patterns of behavior and motivation

age and culture: there are no consistent differences between the sexes

Stewart 1982, Stewart and Chester 1982. McClelland 1984

Expression of motivational needs

An understanding of scientists' motivational needs can generally be gained from listening to how they describe their work as well as by observing their behavior over a period of time. The way people speak about their work reflects quite clearly their dominant need (Figure VIIV4). Scientistswith a dominant need for affiliation will describe their job in terms of people and will describe their situation in terms of the relationship between them and their friends and colleagues. In contrast, scientists with a dominant need for achievement will describe their job in terms of means-to-an-end (supplies and equipment). They are unlikely to mention colleagues (with the exception of technicians on their project), nor will they be very interested in the "corporate." They will be concerned, however, that the job be challenging. If the current employer tries to keep them working on a project once the questions have been answered, at least in principle, they are likely to leave the company. Finally, the scientists with a dominant need for power will focus on the strategic aspects of their jobs and will admit that they would be happy to move from the laboratory to management. People with a great need for power will

154 Managingfor innovation

talk about attaining or maintaining control over the means of influencing others, such as organizational positions. Figure V11114. The way scientists speak generally reflects quite clearly their dominant need -

~~

I

scientists with a dominant

parameters, mainly mentioned when scientists describe their jobs I

I)

affiliation

7

0 1

~~

- manner of communication and exchange of information - rating of social environment - appraisal of relationship to superiors, colleagues and co-workers

achievement

1=3:~1 I

I)

power

- description and classification of research projects and goals - rating of technical facilities, equipment and technicians - degree of satisfaction with their own accomplishment - formulation and realization of strategies - personal contribution to the success of the organization - degree of satisfaction with their own leadership activities

4

I

I

I

I I

1 ~

I

The motivated and creative R&D organization

In R&D, the director must be sensitive to the cues that each individual provides in terms of his or her own motivational needs and understand what is fulfilling in different jobs (Figure VIIV5). People with a great need for power must be given scope to be influential; they are unlikely to be motivated if the job does not provide these opportunities. People with a great need for achievement must be allowed to work as solo contributors or leading scientists on projects and not be asked to manage large groups. And people with a great desire for affiliation must be put in jobs that allow them to establish and maintain good interpersonal relationships, such as project and middle management. As noted earlier, one of the most common mistakes in R&D is promoting a scientist to management on the basis of technical accomplishments, without ensuring that the human aspects of the management job match the human aspects of the scientist’s personal competence (i.e., motivational needs). Very often, the scientist is pleased with the promotion at first and then increasingly frustrated by the human aspects of the job demands, such as conflict resolution, problematic employees, corporate pressures.

Motivation 155 Figure V111/5. General measures to keep an R&D organization motivated and creative

.I)Scientists should only be moved to positions that fit their personal competence : Technical abilities and dominant motivation needs should match the , \

demands of the job. -1

7y “Skilled incompetence” may arise, if personal competence is not matched to the job.

. I )Within the R&D organization, there should be a balance of major needs. , I ) Enough scientists with a dominant need for achievement to ensure scientific and technologic process r\

,/

At least one person with a dominant need for power to ensure strategic direction and focus. Enough persons with a dominant need for affiliation to provide cohesion and collaboration.

I)If a scientist should be moved to a new position, individual specific training and advice must be provided.

If the head of R&D is worried that some scientists are demotivated, then moving them to positions that better fit their personal competence may be the solution. If that is not possible, then the director should discuss other career moves, before the scientists become demoralized and begin to erode the morale (i.e., motivation) of the whole organization. If the management of R&D is recruiting, then some thought should be given to the issue of the balance of personalities in the organization. Ideally, there should be enough scientists with a dominant need for achievement, to ensure scientific and technologic progress; several with a dominant need for power, to ensure strategic direction and focus; and enough with a dominant need for affiliation, to provide cohesion and cooperation. To avoid conflicts more than one person with a dominant need for power should not be charged to work on the same project or in the same group, as need for power is mostly associated with the urge to dominate people. Interestingly, some organizations become ”unbalanced” because the management of R&D recruits scientists with motivation needs similar to their own. Finally, if the head of R&D considers promoting a scientist to management and believes that the human aspects of the job match the person, then appropriate training and mentoring should be provided for the scientist. For example, if the person has a great need for affiliation, that person will initially find it very difficult to make decisions that are perceived to hurt someone. In addition to being sensitive to the motivational needs of the scientists within R&D, the leader must also be sensitive to the needs of those on the same

156 Managingfor innovation

level of the organization and those to whom he or she reports. It is not unreasonable to assume that one or more of these colleagues may be in a position in which the human aspects of the job and personal competence do not match. If a person with a dominant need for achievement has been promoted to upper management, then two actions can be suggested. First, an assistant with a high need for affiliation may be diplomatically recommended for him. Second, consideration may be given to providing strategic direction by means of a team or task force that includes a person with both the technical competence and a great motivational need for power. When the basic conditions for motivation are met, and the human aspects of the job and of the person are matched, the manager of R&D is well on the way to achieving the goal of an innovative organization.

B Culture Organizational culture can be depicted as a sphere consisting of three levels or layers (Schein 1985), each of which is discussed below (Figure VIIV6). 1 The outer level: Manifestations

What people generally observe first about organizational culture are the tangible and visible artifacts such as the formal logo or symbol of the company, the geographic and physical location, dress codes, and so on. But informal symbols may also be manifestations of the organizational culture. Intangible behavior constitutes a second type of manifestation of culture. Many rituals are found in every R&D organization, especially rituals around meetings (where they are held; whether people arrive on time or not), eating (only at one’s desk, only with one’s department), socializing (the Thursday lunch out, Saturday games), and styles of including input from others in decision-malung (Chapter VII). Although they are important in understanding the organization, manifestations only provide clues to culture and must not be assumed to provide the “whole story.” In the same way, no artifacts of ancient societies completely explained their cultures. 2

Below the surface: Justification

Metaphorically peeling back the outer layer of culture (the manifestations) reveals the level of reasons (justification) for actions, decisions, and so forth. Justificationis found in formal published materials, such as annual reports (“The company invested nearly20% of reuenues in R&D because it believes thefuture depends on technologic excellence”); newsletters (“Employees will notice that we have put

Culture 157 Flgure V11116. The organizational culture of a company consists of three levels

Outer level:

1-

-What is the reason for being?

to the public (regular reports, answers to questions) -what is said and not said

- formal logo - geographic location - dress codes - informal symbols (rituals, socializing styles of behaviour)

Schein 1985, Sapienza 1985

additional restrictions 011 travel to coizfereiices because of downward pressure 011 drug prices“); and so forth. Justification is also found in the answers people give to direct questions. For example, when asked why their European company was building a large research facility in Asia, the director of R&D answered: “ W e hope this will prouidc our scientists zuith a iiew way of thinking about research.” Justification provides additional insight into the culture of an organization often because of what is not said. In the annual report example above, the company actually lagged behind the technological status of competitors and was attempting a”1astd i t c h effort to stay in the major league. In the newsletter example, the company was constraining employees’ travel but continued to

158 Managingfor innovation hold corporate meetings at luxury resorts. And in the example of the Asian facility, the company had had a ”dry” pipeline for more than 15 years and most likely needed more than a “new way of thinlung about” research. In examining justification, then, one should always consider what might be behind the statement and not take the statement on face value (the opposite may be nearer to what is actually the case). 3

At the heart of culture: Core ideology

The inner layer of the culture of an organization consists of the core ideology, a few, deeply held beliefs about what makes the organization unique, what is its very reason for being (Sapienza 1985). The three levels or layers of culture are tightly linked, but the direction of influence is from the core out through justification to manifestations. The core ideology is forged in the founding history of the organization, especially the experiences and background of the founder@).As Edgar Schein noted, if the organization is successful, people will”repeat what works and g v e up what does not.” If the organization undergoes a crisis, then ”once people learn how to avoid a painful situation, they continue to pursue this course” (Schein 1985). As a result, the core ideology becomes associated with basic survival and is, therefore, extraordinarily powerful. These core beliefs are handed on to generations of employees by at least three means. New recruits generally imitate the language and behavior of their colleagues and, in time, come to share their core beliefs. As people communicate with each other they arrive at a shared understanding of the world as seen through the “lenses” of the core beliefs of the culture. All the formal and informal ways through which people are recruited, trained, and mentored convey ”appropriate” language and behavior based on the core beliefs. Beliefs in ”what works” can be very positive in the organization. A belief in quality, for example, can be interpreted as valuing excellence of product as well as quality science. A belief in the company as a family can be interpreted as valuing employees and encouraging all to work to their full potential. But, core beliefs can also be interpreted in a way that inhibits creativity in R&D (Figure VIIW). For instance, a belief in quality can become a rationale for risk-averse decisions and for analysis at the expense of action. A belief in the company as a family can be interpreted in such a way that intellectual challenge is regarded as disrespectful to ”superiors.” Thus, the leader of R&D must be alert as to whether the culture of the organization (i.e. the core beliefs) supports

Culture 159 Figure V11117. The influence of the core ideology on R&D activity

e

Core beliefs are handed on to generations of employees through

>:

imitation of language and behaviors by new recruits

0communication and shared understanding training and mentoring

I) Core beliefs can be very positive in the organization L

> valuing excellence in performance

I

3

valuing interpersonal relationship and motivation of employees

I) Core beliefs, however, can also very effectively inhibit creativity in R&D “homogenization” of scientists may result in scientists who avoid challenging and being challenged intellectually >> recruiting policies based on the culture of the organization may not attract the brightest and most eccentric scientists

0“view” of the external world through the “lenses” of the core belief may lead to inability to recognize the changes in the external “environment”

or inhibits creativity. In other words, the leader must decide if there is incongruity between the norms of the organization and the norms of an innovative group of scientists. An illustration of the influence of culture is provided by a disguised case study of a real pharmaceutical company (Sapienza 1995). The company was founded by a prominent local family around 1910 and managed by family members until the early 1970s. The founder, who was president for nearly 30 years, continually emphasized quality and was remarkable for his patriarchal management style. He was one of the first company presidents to offer life insurance to all workers, not just senior managers. All personnel were salaried; there was no union; and no employee was ever laid off. Such policies were said to reflect the sentiment of an old local family for its neighbors. The president, after all, was the first mayor of the town, president of the Chamber of Commerce, and a benefactor of the local symphony orchestra, hospital, and schools. By the 1980s, the company was renowned for quality and for being a very nice place to work. But its reputation for scientific creativity was not high, and analysts were concerned over the few products in the pipeline to take the place of those soon to come off patent. The company was still located in the same small town where the founder was born and buried, a place that employees described as wonderful for raising families. However, its isolation made i t difficult to recruit leading-edge scientists, who preferred to work closer to the major universities. Several company scientists acknowledged their isolation but said:

160 Managing for innovation This is the most academic-likemember of the pharmaceutical industry. We're given a lot of freedom to publish and to collaborate with academics. Probably because we're geographically isolated we're interested in these external interactions. By the late 1980s, senior management were worried about their long-term competitive advantage and felt they were coming to diminishing returns to scale in R&D. They decided to build another research facility abroad, hoping to administer culture shock to their organization:

W e want to build abroad because we need to open doors to a new way of approaching RbD. It's easy to go to a county with the same language, but it also means you won't get that distinctive input. As our R b D organization here became bigger, we found that the bureaucracy became bigger. Research creativity also became hampered because of the internal culture. Management is more remote, more formal. W e also want to be in the vanguard of building international R b D facilities. We want to be a bit more risk-taking than we have in the past. The process by which they came to that decision, however, was described by the same managers in terms diametrically opposed to producing culture shock.

Year after year we discussed what we should do, and we tested ideas about building abroad. After some time, these "radical" ideas became vey comfortable, like well-worn shoes. There were no surprises after a while. Managers also described the relationship between the headquarters and the new facility in familial terms:

Although the R b D facility here is the parent, and its purpose is to sewc all the children, we decided that the new facility would be set up to discover compounds for the entire corporation. We decided it would be dedicated to corporate R b D and, thus, would serve the global business. If we operated with a parent-child model, then the head of RBD here would tell the scientists abroad what to workon and how to do their research. But we want bothfacilities to be independent.

By mid-1994, the international facility had been in operation for several years. Although planned to be independent, it was in fact dominated by the home R&D facility. The hoped-for culture shock never took place, because the international facilitywas characterized by the same norms as the domestic organization: scientists were not encouraged to challenge each other intellectually,either within or between the two facilities, and research decisions were extremely averse to risk. In a not uncommon maneuver, senior management were replaced. Today the company is listed as a possible take-over candidate by a larger, more creative and profitable firm.

4

Culture and creativity

Ironically, core beliefs that become problematic for scientific creativity most often arise out of early success. Scientists may adhere to core beliefs because of the success they have experienced. A problem emerges when scientists con-

Culture 161

tinue to view the external world through the “lenses” of their core beliefs and to behave as usual, although the world is changing and the frontiers of science are rapidly advancing. If scientists are hired because they ”fit” the company’s belief system, such homogenization may result in scientists who talk primarily with each other; who avoid challenpng and being challenged intellectually; who are relatively unaware of the external environment and its consequences for the organization; and who become more complacent and averse to risk, while insisting that they are engaged in highly uncertain and innovative research. The warning signs of a company being on a clear path to crisis are generally obvious many years earlier: too few innovative products in the pipeline; inability to attract the brightest scientists; and a reputation for dependability but not creativity. The norms of the R&D facility of such a company are counterproductive, albeit consistent with how their core ideology had been interpreted. The “right” culture is one in which the norms encourage scientists to ask questions of anyone, anywhere; to challenge each other intellectually, no matter what title one holds; to communicate candidly and openly; and to take risks. A climate of questioning and collaboration, challenge, candor, and risktalung is a climate in which novel science will emerge (Figure VIIVS).

Figure V11118. Essentials for the “right” culture in R&D

I)

Norms should encourage scientists

0to ask questions of anyone, anywhere r’>to challenge each other intellectually, no matter what position and what title one

holds

I)

The climate should provide for the scientist

candid and open communication

0 no limitation of collaboration

0encouragement of risk-taking I)

Failures, inevitable in working with high risk projects I

> should be regarded as a learning process but not as mistakes to be punished

162 Managing for innovation

C Organizational system The quality of the human interaction within R&D is significantly affected by formal systems (Figure VIIV9) that have to be managed. Thus, creativity in R&D is considerably affected by recruitment, performance appraisal and reward, decision-making and approval, and information systems. Figure V111/9. Essentials for the “right” organizational system in R&D

I)The informationsystem must guarantee that the right information is available at the right time

0 information has to be available on a “want-to-know” basis 0 distribution of information on a declared “need-to-know” basis is a retrospective process and inhibits the functioning of lateral structures

I)The recruitmentsystem must be designed

13 to increase creative thinking by attracting, discovering and retaining competent 3

eccentric scientists to exclude people who fit a bureaucratic mold

I)The performance appralsal and reward system should honor Q effective teamwork I

>

intellectual challenge and contributions to the better thinking of the group

0 candor and openess of communication 0 risk willingness I)The decision-makingand approval system should be reduced to r-> strategic decisions (does the activity in question fit in with the chosen strategic

direction and advance the organization more efficiently than another option?)

0 operational decisions (does the activity in question advance the project or function more efficiently than another option?)

I)Decisions should be made by the people closest to the issues.

1 Recruitment Although much justification may be given for recruiting wide-rangng and diverse individuals, most companies’ recruitment systems are designed instead to find people who fit a particular mode. Instead of ensuring diversity, personnel policies and procedures ensure conformity. Interviewing to weed out personal style and intellectual differences among scientists then produces an R&D organization that is intellectually dull and mediocre. For the sake of scientific creativity, the recruitment system of R&D (at least) must be designed to attract, discover, and retain what Sir James Black (1986)

0l;ymizational system 163

termed the “competent eccentric.” What this means is a person who is competent (both personally and technically), to do the job, but is also eccentric in comparison with others in the organization. In other words, the recruitment system must be explicitly designed to find scientists who do not fit. If this appears to fly in the face of traditional human resource management, it has to be considered that creative thinking is eccentric thinlung. Gerald Holton, a physicist and thoughtful observer of the scientific process, noted that creative scientists are able to provide insight into a phenomenon ”in such a way that amounts to a special perception” (Holton 1973).He also stated that ”sensitivity to previously unperceived formal asymmetries or to incongruities of a predominantly aesthetic kind” was characteristic of the creative scientist (Holton 1978).Clearly, this type of thinking is eccentric to the deliberate, sequential, so-called logcal mode favored by many teachers and textbooks and deemed appropriate to scientific (and business) discussions. Of course, once eccentric thinkers have been hired that eccentricity must be supported by ensuring that other scientists listen to them and take their challenge seriously. Creative thinlung can also be encouraged by bringing in visiting scholars and other experts who are llkely to provoke the perception of “asymmetries”and ”incongruities” because their own thinlung is very different from (i.e., eccentric to) accepted convention. 2

Performance appraisal and reward systems

As discussed in Chapter VII, performance evaluation is one of the major challenges faced by the R&D director in the matrix organization. If not well designed, performance appraisal and reward systems can cause the matrix structure to lose its lateral characteristics of peer to peer relationships and communication. They can also reduce the creativity of R&D. Which attributes of these systems are appropriate to the matrix and to an innovative organization? Appropriate performance appraisal and reward systems must evaluate and reward teamwork. Being an effective member of a team (cf. Chapter VII) requires: 0 listening actively to people with different perspectives, slulls, and experience (those who are eccentric to the norm) 0 putting aside personal objectives for the good of the whole, and 0 being willing to challenge one’s own assumptions first, and then the assumptions of others. Evaluating and rewarding teamwork are, of course, more time consuming and more complicated for those involved than evaluating and rewarding individual accomplishment. Moreover, the culture of the organization, the core

164 Managingfor innovation

ideology as described above, must support both collaborative behavior and a genuine commitment to joint problem-solving (Galbraith 1973). Appropriate performance appraisal and reward systems must evaluate and reward intellectual challenge (and the core ideology must support a climate of intellectual challenge). Of course, genuine commitment to intellectual challenge requires that the head of R&D challenge the scientists and also encourage them to challenge him or her (and do not publicity humiliate or privately rebuke those who do). Performance appraisal, then, must take into account how often and how well the individual contributed to the better thinlung of the group by challenging and testing assumptions. Appropriate performance appraisal and reward systems must evaluate and reward candor and openness (the core ideology must also support these qualities). The makix structure entails a balance between the function and the project, a balance that depends on how candidly and openly people in the functional units and the projects communicate with each other. If either side conceals information from the other, or does not raise issues of concern, or fails to explore problems that arise, then the matrix literally loses its balance. As a consequence, the characteristics of the lateral structure are lost. Finally, appropriate performance appraisal and reward systems must evaluate and reward risk willingness. As discussed in the prior chapter, lateral structure is more effectiveunder conditions of high uncertainty, ambiguity, and rapid change, conditions in which risk willingness is crucial to success. For this reason, people in R&D must be rewarded for taking risks, even if the results are poor. (Poor results are different from poor judgment, which should never be rewarded.) If the result is success, then these systems must ensure wide visibility for those who took the risks. Again, the core ideology must support this value. 3

Decision-making and approval systems

Interestingly, a truly lateral structure requires very few formal decision-making and approval systems. Usually, however, the R&D organization is encumbered by rules and standard operating procedures that belie the intelligence of the people involved. Assuming that the R&D budget is decided in the context of overall strategy (see Chapter VI) and that all have a basic understanding of that strategy, then the primary decision rule is: ”Does this activity or investment advance the organization more effectively towards the desired goals than another option?” If the structure is truly lateral, and if the core ideology supports the values and qualities detailed above, then decisions will be assessed on the basis of their fit with the chosen strategic direction. Decisions on how fast to advance a com-

Organizational system 165

pound, or how much to invest in a new research area, or when to acquire capacity in a new technology are all strategc decisions and must be made in the context of corporate strategy. Within that context, project decisions should be made by those closest to the issues. If communication is candid and open, those who should know what is being decided and why will know. Decisions on acquiring supplies and small equipment can be readily covered by a few, simple, common-sense rules. Other decisions in R&D are governed by external safety and other regulations. And always, honesty and integrity are paramount. 4

Information systems

In order to be effective,the matrix structure depends on the effectiveness of the organization’s information systems. As described in Chapter 111, drug discovery and development are extremely complex tasks involving many disciplines. Moreover, the scientific and technical uncertainty and economic risk facing the company are high. Under these circumstances, it is crucial that the right information be available at the right time, which implies very sophisticated hardware and software (and the appropriate resources to support them.) As Jorgensen, Jensen and Edwards contended (1993): Information technology is a strategic issue or ”critical success factor” ... In most organizations information is traditionally distributed on a declared ”need-to-know” basis. This approach presupposes that “someone” is able to define this need, although in practice it is often indirectly implied through organizational placing and filtering by middle managers in the chain of command. In the turbulent environment (of the pharmaceutical industry), “need” cannot be constrained or defined by (chain of command or middle management) because both these niechanisms, by their very nature, are retrospective. Information, therefore, needs to be proactively available on a ”want-to-know” basis. Making information available on a ”want-to-know” basis will also facilitate flatter and more flexible organizations.

As a minimum requirement/ scientists must be electronicallylinked with each other throughout R&Dand be able to contact scientists outside the organization easily. The software must allow wide distribution of such material as notes on work-in-progress and permit ready access to useful databases. Expert systems (formerly, ”artificialintelligence” systems) that scan relevant dimensions of the environment and compile and distribute concise summaries and provide weak signal issue information (Ansoff 1984) define an appropriately sophisticated information system for the successful pharmaceutical company. And, appointing an expert as chief Information Officer to oversee training and investment in, and continual upgrading of, the information technology will provide clear competitive advantage to the firm.

166 Managingfor innovation

D Organizational structures and actions As already pointed out, managing for innovation is driven by the perception of opportunities and the achievement of goals, the definitions of which are based on mutual adjustments and integrated commitments in a field of high uncertainty, high change and low predictability. In contrast, managing an established business entails the administration of ongoing established operations and that neither desires nor expects considerable change. Thus, the uncertainty is low and the predictability high. Both modes of management are necessary for an innovative company and have to be in balance to secure innovation as well as efficiency (Figure VIIVlO). However, any domination by one type can be dangerous: The prevalence of an innovative mode of management can lower efficiency Figure V111110. The balance between the innovative and business modes of management secures the present and the future economic success.

I innovative mode

I

I

business mode

I

- high uncertainty

- low uncertainty

- low predictibility - mutual adjustments

-high probability command system

- new products - new technologies - long-term return on investment

-

I

i

I

I I

- high actual profit - short-term return on investment

in business, so that sufficient financial resources for R&D are not earned. On the other hand, domination by administration will inevitably strangle and stifle innovation which, as a matter of principle, makes all R&D investments unsuccessful. Stifling of innovation often results from a focus on maintenance of the ongoing business. Such a focus is essential for business management and concentrates on avoidance or reduction of uncertainties and risks. Risk-taking,

Organizational structures and actions 167

however, is vital to innovation; it represents the main, if not the only, chance for R&D to be successful. In consequence, the intention of avoiding high uncertainties in R&D automatically leads to inhibition of innovation (Figure VIIYll). Figure Vllllll. Forces by which business management can inhibit innovation

avoidance of high uncertainties

Request for extremely detailed analysis of resource commitments

Call for short-term return on investment

r

Requirement of high turnover potential of R&D projects (concentration on unrealistic "blockbusters" at an embryonic stage of research)

Inflexibility (detailed plans that have to be followed without deviation)

+

Concentration on sure projects only Narrowing of R&D focus and preference for homogeneity and orthodoxy

Business management, operating under conditions of low uncertainties and high predictability, can be effectively carried out by a hierarchic command system, which uses written directions, instructions, standard operation procedures, and other impersonal carriers of information to g v e orders. But this command system is largely unable to manage R&D, because of its sheer inability to cover the whole spectrum of actions and reactions necessary in R&D. In addition to this principal limitation in competence and expertise of any command system, the mode of operation by orders cuts down responsibility and represses motivation and creativity (Figure VIIUl2). To succeed within the hierarchy, people must adhere to a career system that honors carrying out of

168 Managing for innovation

orders, subordination, and obedience and rewards promotability more than achievements, work and results (Figure VIIV13). In the extreme case, this can result in a dramatic increase in interdepartmental rivalry and individual opportunism, concomitant with an abrogation of constructive discussions and arguing out of differences. Reciprocal and interactive processes between functional units and disciplines become more or less impossible. Figure V111112. Forces by which business management can inhibit innovation .~

-

command system for management

I 1 I

I) Inhibition of the R&D process by directions and orders that cannot cover the whole spectrum of actions and reactions necessary in R&D

I) Reward for carrying out orders instead of for achievements of work and results

I) Reward for subordination and obedience instead of constructive discussions and arguing out of differences

I) Inhibition of reciprocal and interactive processes of communication among functional units or disciplines

I) Centralizationof decisions for the allocation of resources I)Restriction of individual responsibilities and activities, repression of creativity and motivation

In this type of situation innovation as well as the caliber of scientific work in R&D deteriorate. R&D projects are not selected on the basis of scientific data and best possible project evaluation but rather with the intention of being prized by the top business management. Preliminary scientific data are often taken as proven data or even modified or excessively exaggerated to push the project into the range of excellence and to justify a high priority setting.

Organizational structures and actioizs 169 Figure V111113. Forces by which business management can inhibit innovation career system rewarding appearances and formalities more than work and results ~-~

I

~~~~-

Bureaucratic allocation of managers and scientists without regard to their degree of competence in science and innovative management

Loss of competence through regular change (i.e., promotion) of managers and scientists Misuse of scientists (involved in projects) for reports and analyses for upper management

Stimulation of interdepartmental rivalry and competition instead of cooperation Inhibition of constructive, interdisciplinary discussions, resulting in underground sabotage

Encouragement of subordination, obedience, and opportunism

Indeed, nearly every company needs, to a certain degree, the command system for managing the established business. However, the fact that maintenance of this business requires product improvement must not be overlooked. Measures to be taken include proof of efficacy of marketed products for new indications, improved galenic formulations and application systems, reduction of production costs, and improvement of the marketing and sale system. It is obvious that the command system is not able to stimulate and manage such innovations. There are many examples in which negligence of product improvement caused by a dominating command system very quickly pushed pharmaceutical companies into a non-competitive market position. In consequence, the necessity of product improvement for the established business requires a shift from the exclusive command system to the mutual adjustment mode (Figure VIIv14). Companies that are successful innovators in the pharmaceutical market utilize the integrative principle of management by

170 Managing for innovation Figure V111114. The management of established business with drugs needs a n appropriate mixture of command and mutual adjustment mode.

command system

system of mutual adjustment

~- -~~~

+++ +++ +++ -, +, +++ = negative or (low, high) positive influence

mutual adjustment rather than the segmentalist principle of management by command (Kanter 1985). Of course, integration requires structural changes. The matrix system, in which management of innovation and project management on the one hand and the business management on the other are equally empowered, can secure to a high degree the necessary balance between the mutual adjustment and the command systems. Many big companies have a dominating administrative command system (despite the matrix system, and usually caused by their size and culture). Under such conditions, innovations may necessitate a separate system running side by side with management of the established business. This system can be a parallel organization or a participative organization (like task forces or project groups) within the company (Kanter 1985). Huge research organizations should be broken down into smaller, semi-autonomous units to generate new ideas, discover new drugs and provide a credible proof of concept within a given area of research in a given therapeutic area (Drews 1995). Another possibility would be establishing a separate venture subsidiary that could operate on principles different from those of the parent company which runs the established business (Figure VIIU15). Such structural and organizational measures are necessary but not sufficient to stimulate innovation.

Oyanizatioizal stmctuucs and actions 171 Figure Vlllll5. Support of innovation in companies

, 1

~~

-

~

essential structural requirements

I ,Separate organization for innovation * parallel organization within the company * participative organization (task forces, project groups) subsidiaries (venture units)

I ,Balance between administrative command system and management by mutual adjustment * matrix system of equally empowered business management and innovativelproject management facilitating conditions ~

~

~~

~

~~

~

I )Rewarding of results to be achieved rather than rules or procedures to be followed

I , Clear definition of goals but loose definition of jobs I )Working teams or venture teams that have budgetary authority and are functionally complete and not too big

I , Respect for people and in this sense celebration of rewards for high level of achievements

I , Support of the exchange of information across all important unit and level boundaries

I , Removal of all levels of hierarchy that do not "add value" to activities but simply slow them down

I , Leaving a portion of budget and time to be used on projects of the scientist's own selection

I , Selection of top management who devote more time to caring for innovation than to controlling ongoing activities

As already discussed in detail in preceding chapters, facilitating conditions for innovation (Figure VIIV15) include a clear definition of goals and a very broad definition of jobs. Any narrowing down of a job description reduces the flexibility necessary to solve problems and to respond creatively to new conditions. Moreover, i t precludes delegating responsibility. The worlung teams should be functionally complete (every necessary function should be represented), not too big (all members should be closely linked in the innovation

0+

i

level of responsibility

lCCO3(

0 0

- many useless levels -the "working" level has no responsibility - information flow is mainly vertical

F

steep hierarchic system

,

but offers several hierarchic levels for careers

,

in responsibility - informationflow is mainly horizontal

- no useless level

- the "working" level participates

flat hierarchic system

but has to offer a research associated reward system

-1

Figure Vlllll6. A flat hierarchic system in R&D favours an unhindered and quick exchange of information and mutual adjustments across the unit borders

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Figure V111117. Innovation can be managed. Innovation can even be preserved in big companies.

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174 Managing for innovation process) and should have their own budgetary responsibility. Freedom should be given to the individual scientist to use a portion of the budget and working time on projects of his or her own selection. Again, rewards have to be given for results achieved, not for rules or procedures followed. Such rewards should be made public with ceremonies to demonstrate the company’s recognition of performance. These or other similar structural and organizational measures help remove useless or even obstructive levels of hierarchy and allow a direct delegation of responsibilities and an effective, unhindered and quick exchange of information and mutual adjustments across the unit and level boundaries (Figure VIIV16). Top management that reduces unnecessary bureaucracy, encourages integration across departmental and functional boundaries, delegates responsibilities, and signifies appreciation of high levels of achievements and results will automatically increase self-confidence, performance orientation and efficiency and create a “culture of pride” (Kanter 1985),w h c h is the best recipe for success R&D. Unfortunately, the formation of such a culture is extremely difficult in big multinational companies. Because of their size, their innovation potential is often inhibited (Figure VIIV17). Figure V111118. Strategic planning of R&D should preferably be done by a bottom-up approach Efficiency of approaches for strategic planning of R&D top-down

bottom-up

. _

Scientific timeliness and competence Objectivity of SWOT analysis Conception of visions Definition of realizable goals Formulation and continuous suitable adaptation of research and technology strategies Definition and execution of the most effective measures Estimation of costs and time ~.

___ _

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fa< >lz#zZBa high degree of efficiency

low

~~~

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Ovgaiiizntioiial stvuctuvcs aizd ncttoiis 175

Isolation and ignorance of top management; intolerance of individualism, dedication and enthusiasm; short-term horizons and cost explosion by hierarchic decisions; and bureaucracy and excessive rationalism can kill nearly all willingness to take risks. To stay innovative, large multinational companies have to behave like small entrepreneurial venture companies (Quinn 1985). Such a strategy starts with the decision of top management to delegate responsibility, to form small and flat innovative organizations, to honor achievements rather than appearances and formalities, to reward risk-talung even if it results in failure, to support exploratory research (Figure VIIV17) and to place confidence in human creativity, flexibility, and productivity. Then, project evaluation, SWOT analysis, conception of visions, definition of goals, formulation of research and technology strategies and definition of measures should be made by a bottom-up approach, which promotes and even ensures the scientific quality, up-to-dateness and the objectivity of strategic planning (Figure VIIVl8). Such objectivity is essential to the technical, and thus economic, long-term survival of the company.

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER I X

Social and political bearing on innovation

A Background

F

ROM a social and political perspective, innovations in drug research and

development can raise several controversial issues. For instance, there is still a need for new drugs to treat or to prevent diseases that are insufficiently, inadequately or not treatable yet. Innovations are the essential basis for such new drugs. They not only improve medical treatment for patients but also ensure the cash flow necessary for the company to finance research on further improving drug therapy and to provide jobs and economic well-being. On the other hand, the costs of present drug therapy and of treatment with future new drugs are critical and will continue to cause cost containment problems within the health care system. Social and political acceptance of high prices for existing drugs as well as for expenditure on research and development of new drugs is decreasing and may be further eroded, if the potential but uncertain future success in drug research does not soon provide help for patients with unbeatable diseases. There is also the general realization that creation of any new technology has a measurable impact on the environment, which needs to be protected. Even the manufacture of drugs has a very low, but nevertheless existing, potential to be harmful. These dilemmas have led to social and political pressures that may be quite different with respect to drug research in various countries. Worldwide, it is accepted that an ethical obligation exists to find improved or new drugs for treatment of diseases that are not yet treatable. The need for

178 Social and political bearing on innovation

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Comtrazniiig pressures 179

drug innovation is growing with the increased aging of many populations. To mention only the most common diseases, cancer, mental deterioration, chronic inflammatory and cardiovascular diseases have their incidence peak in people older than 50 years and are currently more or less incurable. Each patient desires to be cured of his or her disease, or at least to have the disease made manageable to an extent that the span and the quality of life is not shortened or reduced. Such hopes and expectations of patients and healthy people shape a worldwide social pressure that supports drug research and demands and honors the adequate therapeutic innovation. To measure the level of therapeutic innovation is difficult when the advantage of the innovation for the patient is small. An indirect parameter for the therapeutic success of a drug may be its global registration. It can be assumed that market registration of a drug in at least two territories of the triad USA, Europe, and Japan is only possible if the drug exhibits a significant and indisputable therapeutic effect. These products have been termed ”major global drugs,” [registered in at least 6 OF the worlds 7 leading markets (USA,Japan, Germany, France, Italy, UK, and Spain)] and are differentiated from ”internationally accepted drugs,” registered in at least 4 of the world’s 7 leading markets (Redwood 1993.) As shown in Figure V3, altogether 453 ”internationally accepted drugs” were developed between 1970 and 1992of which 265 compounds were “major global drugs” that significantly contributed to therapeutic achievements in various diseases like bacterial infections, cancer, rheumatism and arthritis, asthma and bronchitis, gastrointestinal and cardiovascular diseases. The USA and Western Europe were the main orignating countries for such drugs (Figure Wl). This success of drug research in the past gves rise to optimism that investment in R&D will result in future innovative drugs for the treatment of hitherto unmet medical needs. As stated earlier, social pressure for such innovations is considerable and this promotes drug research and development.

B Constraining pressures Situations, however, can develop in which such social pressures diminish and even operate in reverse: It is evident that many hopes and expectations for treatment of hitherto untreatable disease conditions cannot be quickly fulfilled in by mid- and long-term scheduled scientific approaches. In consequence, a considerable number of patients are tempted to abandon recognized medicine and try their luck with other alternative approaches. In countries where the scientific standard of the governmental drug administration authorities is questionable, or where their legal control function is cut down by political measures and

180 Social and political bearing on innovation

pressures, outright charlatanism and quack remedies can become tolerated or even accepted. There is a danger that patients who could benefit from treatment by recognized medicine are enticed into refusing such treatment and turning instead to charlatanism as a result of the influence of the media and journalism, involved industries, political parties, and even medical doctors who have renounced their scientific education and ethical obligations. Acceptance of charlatanism in its different varieties may be augmented if all partners in health care (in particular, pharmaceutical companies) fail in their responsibility accurately and adequately to inform the public. An unrealistic public sentiment can emerge that effective alternative treatments are available for nearly all disease conditions that have been diagnosed as untreatable by recognized medicine. The resulting emotional denial of still existing medical needs can significantly reduce the social pressure for new innovative drugs and may even lower public acceptance of the high investments and risk-taking necessary for drug research. This dependence of the public on adequate information makes it clear that a high scientific standard of the drug administration authority and its independence from political parties and influences are needed for innovation. The drug administration authority must ensure that the requirements for registering or re-registering a drug meet international scientific standards and are, in principle, similar for all compounds irrespective of their type and origin. Thus, the active substance has to be characterized, its purity guaranteed, and its efficacy and benefits proven by adequately controlled preclinical and clinical studies performed according to internationally accepted standards. No exception to that rule should be tolerated. The scientific expertise of the drug administration authority, however, should also permit the necessary flexibility to adapt the requirements to the characteristics of each new drug. Under such conditions, new and alternative treatments have the chance to prove their benefits according to international scientific standards, but there is no room for quackery to be accepted by the governmental authorities. Such a procedure would inspire the confidence of the public in the drug administration authority, would be a driving force towards recognized medicine, would support medical progress and, last but not least, would make a considerable contribution to stimulating pharmaceutical companies to develop worldwide accepted innovative drugs (Figure IW2). If the trustworthiness of the health authority is in question, and if accurate and adequate information by all health care partners is lacking, the public increasingly becomes susceptible to emotional and dubious messages and communication. Radical minorities may use such susceptibility to stimulate fear of the potential risks of drug therapy and innovations. Based on such emotions,

evaluation

patient's position

D

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- special laws allow registration of

efficacy is proven according to international standards - drug registration authority is completely

- only efficient drugs can be registered:

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registration authority

compounds without proven efficacy

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- retrogression of medical treatment, technologies

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no acceptance of risks and costs

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solved by alternative treatments

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- no therapeutic benefit

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drug therapy - medical progress (scientific knowledge, technologies)

I

I

- potential of worldwide benefit by new

innovations - support of drug R&D, acceptance of risks and costs

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recognized medicine

medical needs

Figure 1x12. Governments have the choice to support or to inhibit R&D by their policy for the registration of new drugs.

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Japan

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.

European Union

USA

total number of major global drugs

Figure IW3. The R&D success (expressed in % of major global drugs) was more or less constant in the USA but is decreasing in Europe and increasing in Japan.

Coizstraiiiiiig prcssures 183 Figure IW4. The USA dominates in new drugs based on recombinant DNA technologies proportion of recombinant drugs in relation to origin USA

European Union

other countries in Western Europe

Eastern European countries

Japan

70%

,

9 % , 0%

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for details see Figure 1/14

people may engage in activities that jeopardize the therapeutic value of drugs used in recognized medicine, the sense and purpose of drug research and the creation of new technologies to produce new drugs. Even today such radical minorities try by means of psychologcal and physical pressure to induce collective perceptions of ques tionable plausibilities and to exercise an influence on legislation as well as jurisdiction. When major political parties tolerate or even support such behavior, are swayed by public emotions to placate radical groups among them and/or become the political partner of radical minorities to obtain the parliamentary majority, the democratic decision process can be undermined by the influence of the radical minority on its major political partner. In consequence, if the minority opposes innovation, the political decision-making process to stimulate innovation is significantly impaired. Moreover, if the main media are influenced by such major political parties, radical minorities are able, on a large scale, to manipulate information and to reduce public acceptance of innovations. To some extent, symptoms for such a development can be seen in some countries in Europe and may have at least contributed to the considerable relative decrease of the number of major global drugs originating from Europe

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Economic constraints 185

in the period between 1990 and 1992 (Figure IW3). The decrease is really dramatic, if we look at those major global drugs produced by the new gene technology (Figure IW4). Indeed, the granting of production licenses for drugs made by recombinant DNA technology has been seriously obstructed in some countries in Europe, in spite of the fact that in nearly all cases launching of such drugs in Europe took place at the same time or even earlier than in the USA (Figure IW5). It is unfortunate that the environmentalists, who should be interested in improving the potential risk of chemical production technology, have been the main hindrance to the use of gene technology. Ironically, the latter is in fact the natural means to achieve large scale production of large proteins. An additional and significant reason for the minor position of gene technology in Europe is the leading role of the USA. This results from the close cooperation between public and academic research institutions and industrial organizations. Such cooperation receives broad support and promotion by the public, the government, and, last but not least, by the banks. The organization of the venture capital company illustrates the involvement of banks in the support of innovation in the USA (Gassen et al. 1994).

C Economic constraints Social and political pressure for innovation leading to new drugs is counterbalanced by social and political concern for the amount of expenditure on drugs resulting from drug price and the degree of drug utilization. Drug revenues result in cash flow to the company, which has to cover not only production and sale costs and the profit necessary to keep the company alive but also the R&D expenditure required for innovation. On average, a relatively high proportion (about 13.5%)of total drug revenues flow into R&D (Halliday et al. 1991).Thus, the pharmaceutical industry is in the top group of R&D-driven industries (Figure IW6).However, pharmaceutical costs represent a not inconsiderable burden on the public as well as the private health care systems. The relative size of the public sector is different in the various countries. In the USA, the self-help philosophy is prominent. Consequently, public and private health care systems take up only a small proportion of total pharmaceutical expenditure. In stark contrast, in Europe and Japan the solidarity philosophy is strong and, consequently, the public health care systems cover the major part of pharmaceutical expenditure (Figure IW7). In line with the country-specific self-help or solidarity philosophy, the cost of pharmaceuticals as a proportion of total health care costs (as well as a

186 Social and political bearing o n innovation Figure IW6. The pharmaceutical industry is in the top group of R&D driven industries

R&D investment 1989*)

industries ~

-

~~

total (yoof turnover) aerospace pharmaceuticals electrotechnology chemicals precision mechanics/ optical instruments cars engineering steel mining

-

in-house financing of investment (% of R&D investment)

30.9 13.9 9.3 6.3 5.8

23.4 100 91 98.3 89.4

4.1 3.6 0.6 0.6

98.2 95.2 84.6 80.8

*) BPI 1993,Germany

Figure IW7. The public sector’s proportion of total pharmaceuticalexpenditure is far lower in the USA than elsewhere in the industrializedworld.

USA

European Union (mean)

Japan

81 % 64%

self-help philosophy Redwood 1993

solidarity

Economic coizstraiizts 187

proportion of public health care expenditure) is lowest in the USA and highest in Japan (Figure IW8). Figure IW8. In the USA a much lower proportion of health care is spent on drugs than in any other country in the industrialized world. USA cost of pharmaceuticals

8.6%

Canada

European Union (mean)

Japan

8.2yo

- as % of total health care costs 25 4%

- as % of public health care

,,6%

2.1%

p3m-Fzq

Redwood 1993

It is understandable that countries with a dominant solidarity type of heath care system have started very early to limit their public health care expenditure through drug price and/or utilization controls (see Chapter VC and D). The resulting restriction on overall sales should by definition reduce the amount of money for R&D investments. The question is, whether strict drug price control and/or reduction of R&D expenditure may have contributed to the decrease in innovations and R&D achievement. According to the analysis of Redwood (1993) covering the period between 1970 and 1992, the majority of internationally accepted drugs (303of 453 = 67%) and of major global drugs (191 of 265 = 72%)were developed in countries that had no regulated pricing system at the time of the market introduction of the respective drug (Figure IW9). Such countries, however, represented only about 40% of the world market. Consequently, countries with price freedom served the large majority of the world market with their innovations (Figure IW10). It is tempting to conclude that price control is an essential factor bloclung innovation and success in R&D. Expenditure in R&D and degree of innovation, however, do not clearly correlate with each other. The best example of this is

188 Social and political bearing on innovation

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Economic cotzstraints 189 Figure I x I l O . About 70% of major global drugs originated in countries with free pricing. Such countries represented about 40% of the world market. countries with

major global drugs

size of domestic market in relation to world market 100%

(1970 - 1992) 265 100%

.................................. non-regulated prices') (USA, DK, D, NL, UK, CH)

USA

USA

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Figure lWl1. R & D investment by multinational companies as a proportion of sales of branded products is not very different between the USA and Europe. ~

~~~

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Percentage of sales of branded products invested into R&D in 1993 (1994) European Union

USA

Glaxo Hoechst Bayer RPR Wellcome Schering AG 8.-lngelheim Zeneca

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the USA. Total pharmaceutical R&D spending in the USA is equivalent to about one-third of the world's total amount (in 1990: 20,000 million US $ current spending and 4,000 million US $ capital investment, Redwood 1993).Moreover,

190 Social and political bearing on innovation

taken as a proportion of sales of branded products, there is no significant difference between the investment in R&Dby the largest companies in the USA and Europe (Figure IX/ll). But the USA's share of the 265 major global drugs developed between 1970and 1992was 43%,significantlyhigher than one-third. And, in the new field of recombinant DNA technology, the USA's share of major global drugs is 70% (Figure IX/4). Thus, it is not only the total amount of the R&Dbudget which is decisive for the degree of innovation and success of R&D but also the innovative potency and general creative atmosphere in the country. This potency and atmosphere can be destroyed as well as created by governmental policy (Figure IX/12). If innovations are supported by reducing bureaucracy, removing impediments, restrictions and laws, and preventing anti-innovative ideology, the negative impact of a reduced R&Dbudget caused by price and utilization control measures can be absorbed. If the price and utilization control system encourages innovation by granting high prices to new drugs for treatment of hitherto untreatable diseases, it may even stimulate R&D. Consequently, Japan has switched its governmental policy and price control system and is now providing conditions that promote innovative drugs, support R&D and put me-too's and imitations at a disadvantage (Figure V16).

Figure IW12. The quality of the governmental regulation of and intervention in the pharmacehical market is decisive for the degre!e of innoiation in medical treatment innovative

anti-innovative

- internationally accepted standards

- low standards for drug registration - support of destructive ideologies

for drug registration - reduction of bureaucracy and ideological hurdles - honoring innovations by high prices for new drugs

- new drugs - new technologies - new therapeutic benefit on an international scale

- tolerance of charlatanism

- no price advantage for innovative drugs

- retrogression of local medical

- deception of patients - economic losses (jobs, earnings)

The role of indust y 191

There are, in fact, good reasons to believe that over the medium-term the European unification process as well as the future central European agency for the authorization of medicinal products (European Medicines Evaluation Agency, EMEA) will directly and indirectly contribute to reducing bureaucracy as a whole and to promote innovation in drug research (Harvey 1993, Maddox 1995).The current situation, however, in the countries of the European Union seems to support just the opposite. The number of laws regulating drug research and production has considerably increased in recent years. And the present overall impression is that the bureaucracy and restrictions are still increasing, while the tolerance for risk-talung and costs is decreasing (Albach 1994, Wenninger 1994). In some countries, minority parties or radical groups are able to exercise an influence on the governmental administration so effectively that they hinder drug research (for instance, via excessive, unpredictable interpretation and application of the laws for the protection of animals or the laws for gene technology), These conditions, in some European countries, has led to a kind of anti-innovative atmosphere, which has certainly contributed to the considerable reduction in the number of major global drugs in recent years.

D The role of industry The question remains in which way and to which degree the pharmaceutical industry is able to prevent social and political developments leading to undesirable, anti-innovative pressures. The pharmaceutical company is only one, although an important, entity within the health care system. But all partners have to pull together to stimulate innovation. Several possibilities exist (Figure IW13). One essential measure is that the pharmaceutical industry understand its role and appreciate its obligation (together with its partners in the health care system) to inform the public as accurately, adequately and exhaustively as possible about its drug and R&D activities. When such information is available, the public has an opportunity to estimate the therapeutic value of current drugs, to understand the potential advantage of new drugs in the future treatment of untreatable conditions. People may then agree to high investments in research and development and may even accept new technologies and the dilemma of animal experimentation necessary to discover and produce new drugs. Without such information, the public remains susceptible to ideologies and unjustified fears, which can develop into considerable social and political pressures against innovation. In conclusion, governmental policy is one of the most decisive factors for innovation. Restriction of R&D activity reduces the chance of finding new drugs for treatment of unbeatable disease. From this perspective, a policy that hinders and reduces innovation and drug research is deeply unethical. Support

192 Social and political bearing on innovation Figure lxll3. Possibilities for non-governmental partners in health care to stimulate innovations

measures

0 continuous, accurate and adequate information for the public

0 support of cooperation and technology transfer

0 rejection of charlatanism, quackery and related practices

0 honoring of innovation 0 support of risk-taking

organizations

I)all partners in health care (pharmaceuticalcompanies, public and academic research institutions, medical professionals, health insurance) I)- public and academic research institutions - pharmaceuticalcompanies - medical professionals - investmentfundslbanks

I) all partners in health care I) all partners in health care I) - pharmaceuticalcompanies - investmentfundslbanks

and stimulation of innovation can be given by removal of bureaucratic, administrative, ideological, and egoistic hurdles; by ensuring the best possible and scientifically based registration procedure; by supporting cooperation between academic and industrial research institutions; and by encouraging innovation with the possibility of high pricing of new, innovative drugs (Figure IX/ll). In countries with a solidarity-based health care system, the degree of necessary price and utilization control should be balanced by the cost structure of drugs, so that the required expenditures for R&D can be covered by the contribution margin earned by the sales. Essential is the mission, with which the government entrusts the drug administration authority. This mission should oblige the authority to promote as well as to protect the health of the people (Figure IW14). If such an obligation is adequately transformed into regulations (i.e., independence in the decision making process, continuous adaptation to the best scientific standard and knowledge) as well as scrupulously considered in the daily work of a qualified, efficient, motivated authority, one of the main steps to encourage innovation has been taken. That this can be successfully achieved has recently been shown in a review describing the impressive performance data of the British Drug Administration Authority (Scrip 2045,1995).

The role of industry 193 Figure IW14. Mission of the governmental drug administration authority Promote and protect the health of the people by facilitating the timely availability of safe and effective products that benefit the public encouraging the efficient development of new products taking prompt and appropriate action where post-marketing surveillance demonstrates that products present a health risk to the public ensuring that human drug and biological products are tested and manufactured consistent with the goal of harmonization of international standards facilitating the flow of information to educate health professionals and the public enforcing the applicable statutes and regulations in a timely, fair, and decisive manner depicted from the New Drug Regulatory Improvement Act of 1995. proposed to the US Congress (Scrip 2040, 1995)

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

CHAPTER X

Ethical obligation

A Autonomy of patients

A

or self-determination is a human right. It refers to the right of individuals to make decisions on matters affecting their own lives. On the other hand and in contrast to autonomy, paternalism has been the paradigm of decision-malung in medical care since antiquity: it is thought that patients are unable to make health care decisions for themselves because of lack of knowledge or understanding (Sade 1994). Starting with the early 196Os, however, the primacy of respect for the autonomy of patients has grown in importance for decisions related to medical care. In consequence, and based on ethical considerations, the concept of informed consent has been developed, as well as (for patients with limited knowledge and understanding) the role of the independent advisor as the patient’s advocate (Figure Wl). Without exception, respect for the patient requires that the physician be competent to give the patient advice without arrogance and with best possible knowledge and consideration of the psychic condition of the patient and his or her relatives. Recently, problems arising from the explosion of health care costs as well as from social health policy have induced a pendular swing away from the primacy of autonomy towards new varieties of paternalism in some medical matters. One is named “beneficence,” which means that the physician should do what is medically best for an individual instead of following, or even in spite of, the patient’s own wishes (Pellegrino and Thomasma 1988). An additional variety of paternalism is the idea that communities and health care organizations rather than individuals should make many medical decisions (Emanuel 1991). UTONOMY,

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primacy of respect for autonomy of patient

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diagnostic procedures medical treatment

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clinical research use of information

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ethical obligation

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of hitherto untreatable diseases

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5 risk for health care personnellsociety

ethical obligation to find treatment for hitherto untreatable diseases

C:> ethical values of society

I

E> rejection of effective treatment

c:>rejection of effective treatment

'L> rejection of effective treatment

C> hereditary transmission of disease

C ) . risk for health care personnellsociety

I

I

Figure x12. Primacy of respect for the autonomy of the patient may induce conflicts with ethical values of equal rank

T?-.

2

198 Ethical obligation Such new varieties of paternalism carry the danger of questionable and doubtful effects that can be best avoided, when as many members of a society as possible are informed as comprehensibly as possible of the necessity of using the appropriate drug, or applying the most suitable medical treatment. This information should aim at increasing confidence in the competence of the physician, but should also prevent any arbitrary measure in medical care for the patient. Nevertheless, it is commonly understood that the primacy of respect for the autonomy of patients is the ethical core of any decision of the physician to apply a diagnostic procedure or treatment to the patient. It is obvious that the ethical value of the primacy of the autonomy of the patient is in conflict with other ethical values of equal rank (Figure W2). Examples are the right of health care providers to be informed of the kind and the origin of an infection (for their protection), or the mandatory screening of children for indications of the future development of a severe genetic disease that can be prevented, if a suitable treatment can be applied. Even the right of all people to the best possible treatment can limit the right of autonomy of individual patients e.g., to decide on a very expensive, but not much superior, treatment at the cost of others in view of the limited health care budget.

Figure W3. The human right of access to the best possible medical treatment and new drugs may be in conflict with other ehtical values and interests human rights new effective non-toxic drugs for hitherto untreatable diseases

animal rights

information accuracy from drug companies, health care organizations

best possible medical treatment

--governmental influence on the scientific level and independence of drug administration authority I _

protection of the environment cost containment of health care system

Ex~~erimeizts 071 arid protection of aiiimals 199

It is also commonly understood that clinical research activities to find new drugs or new treatment modalities are ethical values of lower rank than patient autonomy. Consequently, no patient can be forced to participate in a clinical study. Consent based on comprehensive information is an essential prerequisite for participation, and independent advisors acting as the patient’s advocate are necessary in the case of a patient’s mental inability. The decision to take part in a clinical study has to be made of one’s own free will. Very often, this decision depends on the responsibility and conscience of the individual, because the primacy of the autonomy of the patient is not in confhct with social responsibility, just the opposite. Human rights require that every person has access to medical care as needed. Moreover, it is an ethical obligation to search for new drugs and treatment modalities for hitherto unbeatable diseases. Both these ethical values may cause conflicts with other ethical values (Figure W3).Some of them are of lower rank than human rights. Nevertheless, the decision, for instance, in favor of or against a planned research activity has to be based on the principle of choice between conflicting rights or, in short, on the balance of ethical values, to adequately solve the dilemma between conficting ethical values.

B Experiments on and protection of animals Our behavior towards animals has been shaped by the dogmas and ethical positions of the various religons and philosophies that have contributed to the development of cultures and civilizations (Figure W4) as well as to the present legal regulation of animal experimentation (Figure W5). One of the most important motivating influences on our relationship to animals is the advantages we derive from them. Animals are used as sources for food and technical material; they accomplish physical services; substitute or complement missing or insufficient human partnerships; and are used for research experiments, including pre-testing of chemicals, drugs and toxins, to name only some examples. Utilization of animals has been controlled in nearly all cultures by ethical rules. Such ethical rules mostly acknowledge to different degrees the dignity of animals, their sense of pain and the special responsibility of humans for the well-being of animals (Figure W6).By the same token, these rules are thought to teach charity; indeed, it is a common experience that cruelty to animals can brutalize people. The reverse, however, is not true. The Nazi period has taught us that care for animals in an exemplary manner (the first law in the world for general protection of animals was been passed by the Nazi regime at the express wish of Hitler) does not prevent human cruelty (Lorz 1984, Spaemann 1984).

- 510

580-495

school of Pythagoras (prohibition of injuries to all animals)

Buddhism, Jainism (transmigration of souls and attentive preservation of and compassion for all nature)

560-483

i

reincarnation doctrine of Hinduism (prohibition to kill animals)

~

~~

__

codex (Talion) of Hammurabi (advice for care of and charity for domestic animals)

animal deities of Egyptian dynasties based on mythical ideas of the incarnation of divine forces and authority (Anubis=jackal; Apis=bull, Thot=baboon, Hathor=cow)

promotion of protection species-specific . _~____

Genesis 2 (care and charity for all creatures, expressed by the pictures of garden of Eden, Noah's ark and the preservation of the town of Ninive)

- ~.

non-species-specific

800

1792-1 750

2000-1225

3000

B.C.

milestones

Figure W4. History of the protection of animals

I

~

~~~~

-

Roman law (animals are objects without rights)

Genesis 1 and 9 (humans should dominate all life on earth; nature should serve for food)

non-species-specific

limitations ~~~

3

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0

~~

1724-1 804

1681-1726

1561-1626

1181-1226

129-199

45-125

A.D.

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,

~

i

~

~

~~

~

Francis of Assisi (transcendental conception of ethic of fraternity requires care and charity to all creatures)

Plutarch (charity to animals teaches chanty to humans)

~

non-species-specific

~~~

~

-

~~

speciec-specific

promotion of protection -~

Figure W4 (continued). History of the protection of animals

~~

~

~~~~

-

Emanuel Kant (anthropocentric designation of all life on earth: life on earth is only useful for humans)

Francis Bacon (conception for testing medicines and poisons in animals before applying to humans)

Thomas Aquinos (anthropocentric theology: animals have no soul, are not persons, are not carriers of legal or charitable duties)

Galenos of Pergamon (first examples of experiments with animals)

-

-~

Roman law (animals are objects without rights)

~

limitations non-species-specific

~

~

v1

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w.

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SL

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~~~~

1st general animal protection law in the world (permission for experiments with animals only if they are irreplaceable and performed under obligation to exercise due care and to limit them to the lowest possible number of animals)

1st general animal protection law in the world (general prohibition of painful or harmful experiments with animals - in Germany by the Nazi regime, in contrast to criminal and murderous policy and actions against humans)

1933

cruelty to animals act in UK 1st legislation in the world to regulate use of animals in research (permission for experiments, but license for premises and individuals involved, specification of tests, review by ethical committee)

"Reichsstrafgesetzbuch"in Germany (permission of scientific and non-scientific experiments with animals)

__-___-

non-species-specific

legislation to regulate animal experimentation in Denmark

cruelty to animals act in UK (special provisions for protection of horses, dogs, cats and primates)

1876

~~~~

limitations

1891

'Reichsstrafgesetzbuch" in Germany (prohibition of public exhibition of experiments with animals)

~~~~

1871

species-specific

Albert Knapp (first animal protection society in Germany)

A. Schopenhauer (unlimited charity to all life on earth is the best security for moral behaviour)

~~

non-species-specific

-

Dromotion of Drotection

1837

1788-1 860

A.D.

milestones

Figure x14 (continued). History of the protection of animals

~

limitations

F. Bockle (Only a human is an adequate partner for another human, not an animal. Permission to immolate animals for saving, protecting or promoting human life, but only under the condition of minimizing pain and the obligation to exercise principle of choice between conflicting rights)

F. Bockle (Life has to be protected. Standard of value should be respect and charity. Non-human life has its own dignity).

K.M. Mayer-Abich (principle of equality in the community of law and nature; animals are not equal to humans but have equal rights)

1984

1984

directive 86/609 of the European Union (animal experiments shall not be performed, if another scientifically satisfactory way of obtaining the results sought is reasonable and practically available)

act to regulate animal experimentation in Japan (procedures using animals should be performed painlessly)

1973

1986

first guidelines of the American Physiological Society in the USA (animal experiments are under review of an ethical committee; but use and care of animals are essential for science and medicine)

1953

non-species-specific Albert Schweitzer ethic of respect for life allows animal experiments only if they are essential to secure life and health of humankind)

species-specific

promotion of protection

non-species-specific

1951

A.D.

milestones

Figure x14 (continued). History of the protection of animals

W

0

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w

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s.

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7

w

9

v,

3

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2.

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204 Ethical obligation Figure W5. Present legal regulation of animal experimentation 1967

Australia

national code of practice for animal experiments

1980

Japan

voluntary guidelines for animal experimentation (Japanese Association for Laboratory Animal Science)

1986

Finland

recommendations, based on resolution of Council of Europe

1986

Germany

animal protection law (update of the law issued 1933; includes the EU directive requirements)

1986

UK

Animals Act (update of the law issued 1876)

1987

Denmark

animal protection law (update of the laws issued since 1891)

1992

USA

Animal Enterprise Protection Act (update of the Animal Welfare Act)

Scrip Report 1994

Figure W6. Common experiences and rules in the relationship between human and animal human

animal

Humans are superior to animals.

Animals need human protection and care for survival.

Humans are responsible for animals and have to respect them.

Animals have their own dignity and sense of pain.

Humans need animals to secure, protect and promote human life.

To fulfill human needs animals have to be deprived of their rights, injured or killed.

Humans can be brutalized by cruelty to animals; kindness to animals, however, does not prevent cruelty to humans.

Interference with the rights of animals are only acceptable, if the decisions are based on the principle of choice between conflicting rights and if pain is minimized.

Sedlacek 1986

Ethical rules guide whether or not we are allowed to deprive animals of their rights, to injure them or even to kill them. Currently, two essential ethical positions exist, which are mutually opposed.

>

not allowed

consequences

- negligence of dogma due to human survival instinct and rationalism - disorder of ethical standards

n\I

I

position ethical

right of animal to live with freedom from injury by humans

animals and humans are equal in rights, although different in nature

technical materials - disinfestation - services for human needs and hobbies - substitution for human partnerships - experiments for medical research

I>n

dogma

-

humans and rights of animals is possible

- balance between fulfillment of needs of

allowed, under the provision of - minimizing of pain - decisions based on principle of choice between conflicting rights

use of animals to secure, protect and promote human life

animals and humans are different in rights, but animals have their own dignity and sense of pain

Figure Xn. Experiments with animals can be ethically justified only under the provision of decisions based on balance of ethical values.

: I

I

206 Ethical obligation One position is based on the dogma that animals and humans have different rights. Superior human rights allow us to use animals to secure, protect and promote human life, but our superiority and the dependence of animals on us also obliges us to care for and to be charitable to animals. Recognizing the individual dignity of each animal and its sense of pain, decisions on the kind and degree of injuries have to be based on the principle of choice between conflicting rights or, in short, on the balance of ethical values (Schweitzer 1951, Bockle 1984). This ethical rule offers the possibility of establishing a balance between the fulfillment of human needs and the rights of animals (Figure W7). The other ethical position, in its extreme version, is based on the dogma that animals and humans have equal rights, although different in nature (MayerAbich 1984). The difference in our nature obliges us to carefully preserve and show lundness and compassion to all animals. Equality of rights should enable animals to live in freedom and should not allow injury or killing of any animals unless the same would apply to a human in a p e n situation (Figure W7). The ethical position of equal rights is not generally accepted. The will to survive, human dominance and rationalism have limited this ethical position to special situations and groups. Nevertheless, in nearly every country a mixture of at least those two opposing ethical standards has emerged, which sometimes leads to severe conflicts of interests between the different followers and supporters within a society. A conflict of interest can even arise within an individual person, as the following illustrates: Figure N8.Intensive partnership between persons and individual animals may lead to extrapolation of the human partner's view of that partnership to animals of related type.

partnership

from injury by man

I race of that animal

related species of that animal

1 1

I

make the results of your experiments with animals public

make the basis of your decision public

D

injuring and killing animals is only allowed to secure, protect or promote human life

strictly adhere to the ethical rule

the morbidity and mortality of the disease

3

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and development of a given new drug and what is the therapeutic benefit of that drug? -c to what degree have animal experiments decisively contributed to the discovery 2

+

research and development project the kind and the amount of information that can only be obtained by experiments on animals the kind and the degree of injury and pain that can be expected for the animals during experimentation the approaches which limit pain for animals and the number of animals used

I ,the therapeutical benefit that is anticipated as a result of the specific

* * *

choice between conflicting rights:

animals and humans have different rights, but animals have their own dignity and sense of pain

cleary profess the basic dogma

Figure W9. How can animal experiments be accepted by the public?

208 Ethical obligation Many people enjoy an intensive partnership with an individual animal, which often substitutes for or supplements another human person. Consequently, this animal is considered and treated by the human partner as having equal rights; i.e., i t is protected against any injury. Any use that would harm this specific animal, even if it were to secure, protect, and promote human life, is condemned (Figure W8). The human partner’s attitude in that personal relationship is very often extended beyond the individual animal to include animals of the same or related species. Only to those preferred animals does the dogma of equal rights apply. On the other hand, the human partner may recognize that he or she (as well as society) benefits from the fact that animals of the preferred species are used, injured or killed to fulfill his or her needs. One such need can be animal experiments undertaken as part of research for an improved therapy to treat disease. If the human partner is well-informed about the potential benefit of such specific experiments, he or she can tolerate the dilemma and concur with injury to animals in the course of experiments. If the individual is unaware of this benefit, he or she will refuse and even may become aggressive in condemning animal experimentation. This conflict, which concerns most of the countries and societies of the industrialized world, can only be resolved by clarifying the ethical rules with detailed information to the public. In principle, the ethical position of equal animal and human rights cannot be based on individual or group specific preferences for selected animal species. By definition, ethical rules have to rely on and provide parameters of general validity. Personal preferences can form an individual partnership between human and animal but cannot determine the general ethical rule. In consequence, if equal rights are p e n to animals, such rights have to be p e n to all animals including parasites, insects, wild rats or worms. Exclusion of any species from those rights is ethically unjustified. If a species is excluded, the action must be substantiated with reasons. But giving reasons violates the equal rights position and instead conforms to the position of balance of ethical values. In view of the mixture and conflicts of ethical positions in our society, the best possible public acceptance of animal experimentation for drug research and development arises out of public confidence in the persons and the organizations performing animal experiments. This confidence, in turn, depends on the frankness and the absolute honesty and authenticity of those people and organizations (Figure W9). Consequently, the ethical position which enables animal experimentation (i.e., the lund of dogma and ethical rule which the company follows) should

Experimeizts on atid protection ofnizimals 209

clearly be professed. No false compromise should be made, because that would only contradict and undermine the ethical grounds and position. Whenever possible and suitable, the real impediments to future improvement of medical treatment resulting from following another dogma and ethical rule should clearly be demonstrated. The different arguments that finally lead to the decision to perform an experiment on animals should be published in detail. Description of the goal of the research project (the aspired improvement in the treatment of a disease) and information on why and how the experiments on animals have to be performed, help to make apparent the choice between conflicting rights which has been made. Moreover, the public should be informed of the results, failures or successes that have been experienced with animal experiments performed when developing a given drug. Such information allows the public to understand and to agree with the decision for defined animal experiments and to acknowledge the decisive role of these experiments in the discovery and development of new drugs. As long there is a need for new drugs for the treatment of untreatable or insufficiently treatable human diseases, and as long as animals are the only organisms to preselect ineffective or toxic test compounds prior to evaluating them in human beings, such animal experiments are justified. It would be unethical to omit or to forbid them, without an equivalent alternative test system. It would also be unethical to study test compounds in human beings, without having them adequately preselected in living organisms. And, it would be unethical to stop research and development of new drugs. Figure WIO. Future goals in animal experimentation working parties of governmental authorities of Europe (CPMP), Japan (MHW) and USA (FDA) and

international harmonization of laws

representatives of Pharmaceutical Manufacturers Association in Europe (EFPIA), Japan (JPMA) and USA (PMA) (started: 1991) reduction of possible pain, suffering and stress without compromising the outcome of the experiments

,

=?I#"

improvement

0

replacement:

Zbinden 1988, DArcy et al. 1992

*

reduction in the numbers of animals required to carry outthe test by improving the experimental design and using statistical advice replacement of animal models by alternative, tested, validated procedures

210 Ethical obligation On the other hand, it would be unethical not to make every effort to improve the predictability of animal models for human untreatable conditions nor to reduce the pain of the animals and their number needed for the experiments. It would likewise be unethical not to continuously try to replace specific animal models by alternative equivalent methods. Consequently, working parties consisting of members of governmental authorities and of representatives of Pharmaceutical Manufacturers Associations have started to harmonize animal experimentation worldwide (DArcy 1992). The goals of these groups are to improve the quality of the individual animal experiment (refinement), to reduce the number of animals, and to replace animal experiments wherever possible (Figure WlO).

C Clinical trials Clinical trials are designed to prove the efficacy of a drug in a given disease, to demonstrate its advantages over standard treatments and to reveal its maximal tolerable dose and main side effects (Figure Wll).

Figure W11. Clinical development of a drug

IPHASE I1 - optimal pharmacologicallyeffective dose

- maximal tolerated dose - main toxic effects

I , - recommendationof phase II dose (PHASE II I - kind and degree of activity against a given disease - most effective application schedule - tolerability of treatment - selection of subset of patients

I ,recommendation of dose, application schedule and subset of patients for phase Ill study

PHASEIII - kind and degree of activity against a given disease in comparison to standard treatment

.

Clinical trials 211 Figure W12. Phase I clinical trial major objective:

- determination of the recommended phase I I dose of a new drug

* optimal pharmacologically effective dose without toxicity * maximal tolerated dose

approaches:

I ,- estimation problem rather than the testing of a hypothesis * dose escalation starting with a dose that is believed to be non-toxic “up and down” design by adjusting the dose of each patient either higher or lower than the dose applied before continual reassessment method based on assumed end points and an educated guess mixture of different methods

ethical issues

- ethical conflict between

* scientific goal of defining toxicity, recommended dosage and clinical pharmacology * therapeutic goal for the individual patient Bolognese 1983, Grieshaber et al. 1986, Collins et at. 1990, Edler 1990, OQuigley et al. 1990, Penta et al. 1992, Ratain et al. 1993

Figure W13. Phase II clinical trial major objective:

I ,- test the hyopthesis: is the new drug active against a given disease?

approaches:

ethical issues:

* *

definition of kind and degree of activity * selection of subset of patients with a defined disease condition - t o test the hypothesis, it is necessary to know * the recommended dose (result of the phase I study) * the number of patients to be treated (dependent on kind and degree of activity to be expected) * the underlying treatment with standard drugs

- ethical conflict between * scientific goal of defining therapeutic activity, but with the high risk of failure andlor toxicity * therapeutic goal for the individual patient

Prior to starting clinical trials, ineffective and/or toxic compounds have already been rejected in adequate preclinical test systems. Consequently, test compounds for clinical studies have already shown their efficacy in the case of

212 Ethical obligation specific diseases in animal models. Moreover, the potential toxicity and mutagenicity should be known from animal studies. Based on this information, the riskbenefit ratio of a test compound for a given disease and the order of magnitude of the optimal effective dose have been estimated. These experimental data are essential, but are no substitute for clinical data. Clinical studies start with phase I (Figure X/12). The major objective of this initial clinical trial is to define the optimal, i.e., the recommended dose of a compound being studied, its toxic dose and its toxic effects in human beings. Thus, phase I trials address an estimation problem rather than testing a hypothesis (Ratain et al. 1993). The theoretically optimal dose for any individual patient is the dose resulting in the highest pharmacological response with no or an acceptable level of toxicity. In practice, the optimal individual dose is either the pharmacologically effective dose that does not cause toxicity or (if determination of the pharmac o l o g d effect needs a long observation period and cannot be diagnosed simultaneously with acute toxicity) the maximal non-toxic dose. Knowledge of the optimal individual dose allows the estimation of the optimal (recommended) dose for a population. Of course, as there is a considerable variability in the individual responses towards a drug, the recommended dose for a population can only be an imprecise estimate based on the optimal dose for the individual patient (Edler 1990). Whether the phase I study can be performed with healthy volunteers or should be done in patients is dependent on the disease to be treated and has to be decided on the basis of the pharmacological action of the test compound and its riskbenefit ratio estimated from animal experiments. To determine the recommended dose for a population, test persons are treated first with a dose that is considered to be non-toxic but pharmacologically effectiveand then escalating the dose in successive groups until defined grades of toxic effects are observed. Several modifications of this approach exist. One modification uses an “up and down” design, in which the dose for each test person is adjusted either higher or lower than the last dose applied (Bolognese 1993). Another improvement uses the continual assessment method, which takes all available data to assume the main end points and to make an educated guess regarding the dose toxicity curve and the recommended phase I1 dose (O’Quigley et al. 1990). Whatever the design of the phase I study, its main goal is to define the qualitative and quantitative aspects of toxicity of a drug in correlation with its pharmacologcal efficacy, if the last parameter can be tested at the same time. Phase I1 trials are generally studies to test the hypothesis of whether a new agent is clinically effective in a particular condition (Figure X/13)., based on the

case reports

Dalen et al. 1986

I

no sufficient proof

no sufficient proof

no sufficient proof

non-randomized, simultaneous control (phase 11)

non-randomized historical controls (phase II)

several studies with similar results give values of high certainty

prospective, randomized, open evaluation (phase I I )

level of evidence for efficacy

end points give values of high certainty

>

stages

of proof

prospective, double blind, controlled randomized, blind evaluation (phase Ill)

design of clinical study

Figure W14. Stages to prove efficacy in clinical studies

214 Ethical obligation

preclinical pharmacologcal data. The recommended dose used in the phase I1 study is the result of the phase I experiment. Because this recommended dose is an imprecise estimate of the optimal dose for the individual patient,,intrapatient dose modification can be made within phase I1 studies to treat each patient at the optimal dose (Ratain et al. 1993). Prerequisite for the phase I1 study is the qualitative and quantitative definition of the activity of the test compound. On the basis of that definition, the number of patients to be treated (sample size) is calculated. The inclusion of a control group is dependent on the disease condition to be treated with the test compound and the underlying treatment of this disease condition by standard drugs. If no treatment with standard drugs is available, control groups are not necessarily needed at this stage of development. Phase I as well as phase I1 trials are not sufficient to prove the therapeutic advantage of a test compound. Such proof can only be given by prospective, double blind, randomized studies (Figure W14) performed in phase I11 on the basis of the information gained from the phase I and phase I1 studies.

Figure W15. Management of ethical conflicts in clinical studies investigator's obligation

test person's right ~

~

~~

-~

~

appropriate selection of compounds (based on preclinical data)

informed consent of healthy persons and patients

+ superiority to standard drugs in

+ awareness of being treated with an

efficacy I) new treatment I) significant reduction of toxicity

ineffective or even toxic dose * available information on all actual experience with the new compound

+ freedom to refuse a toxic dose

consultation with a non-investigator as the patient's advocate

0 minimizing number of patients treated

+ at ineffective doses

+ at toxic doses

0 technical performance according to the best scientific knowledge

realistic chance of patient's benefiting from treatment I) I)

+

Fox 1981, Markman 1986, Freedman et al. 1992, Freedman 1990

testing of new drug with potential therapeutic advantage intrapatient dose escalation switch to alternative treatment

patients with neurological diseases

women of reproductive age

chi Idre n

elderly persons (over 65)

test persons ~

~

~~

the patient's advocate

+ informed consent by an independent advisor as

I)special pharmacokinetic studies

sex-specific pharmacokinetic and pharmacomimetic profile mental deterioration

I) properly conducted postmarketing surveillance

sensitivity of gonads and/or embryo

+ parent's consent

I) properly conducted postmarketing surveillance

0 life expectancy > 50 years

0 undeveloped capability of making an informed decision

I) special pharmacokinetic and clinical phase 1/11 studies

0 pharmacokinetic and pharmacomimetic profile may be different from adult

+ special pharmacokinetic screening

measures

I) informed consent, witnessed by an independent advisor

~

0 mild mental deterioration

0 altered pharmacokinetic profiles (due to changes in renal and hepatic function, receptor expression)

special conditions

Figure N16.Additional considerations for performing clinical studies in special subgroups

0,

E.

-+

3.

216 Ethical obligation

In phase 111, the efficacy of the test compound on a defined disease is compared to a standard treatment (or to placebo treatment if no standard treatment exists). The end points of this study should give values of high certainty and, thus, provide a h g h level of evidence for the therapeutic advantage of the test compound in comparison to the control treatment. Clinical studies designed with less stringent methods provide less evidence for efficacy or even no sufficient proof (Figure W14). The clinical development of drugs raises several ethical questions, which are either common to all stages of clinical development (Figure W15) or are very specific to the different types of clinical studies or to subgroups of test persons (Figure W16). In phase I it must be decided whether healthy volunteers or patients should be included. This decision is based on the pharmacomimetic action of the test compound, its risk/benefit ratio and the clinical disease condition that should be treated. Test persons may enroll in clinical trials for altruistic reasons, but patients do so primarily in the hope of therapeutic benefit (Lynoe et al. 1991). Consequently, the decision to enroll test persons in a clinical trial should include an assessment of the probability of both incremental benefit and harm and should be based on the informed consent of the patient. The complexity of the consent process could lead to the exclusion of those patients intellectually or emotionally unable to participate in phase I or phase I1 studies. Healthy volunteers can be included only when the risk of adverse effects by the test compound is minimal and negligible. If patients are included, they should have a hitherto insufficiently or untreatable disease, and their chance of reaping therapeutic benefit from the test compound should be substantial. In addition to such more general ethical obligations, several specific ethical problems have to be considered: Both the toxicity and the benefit of the new compound for human beings are unknown, although it is selected on the basis of its (at least) superior preclinical pharmacological and toxicological profile and a favorable riskbenefit estimation. Consequently, test persons could be adversely affectedby the test compound and as a result of the tests patients could suffer without having any benefit. Common to all designs of phase I studies is the procedure of dose escalation. When patients have to be included in phase I studies, some patients will be treated at ineffectivedoses and some at toxic doses. Thus, the number of such patients should be as small as possible. In the case of healthy volunteers, the number treated with toxic doses should be as small as possible and dose escalation has to be stopped as soon as the minimal toxic dose has been reached.

Clinical trials 217

In the past, the majority of test compounds failed to meet the therapeutic target at a non-toxic dose. In other words no ”therapeutic window” could be determined. Consequently, the chance of any new drug showing a therapeutic advantage is rather low. If patients are enrolled in phase I studies, they have to be aware of that low chance of a therapeutic advantage and that they may be treated with an ineffective or even toxic dose. To obtain a truly informed consent in vulnerable patient populations is complicated and difficult. Patients should have the freedom to refuse a toxic dose, to decide for an intrapatient dose escalation or to switch to an alternative treatment. For that decision, consultation with a non-investigator as the patient’s advocate should be possible. The inclusion of test persons to enter a phase I trial ”for the benefit of research and future patients” is only acceptable with the truly informed consent of the test person and the concurrence of a consultant third party (a non-investigator) as the test person’s advocate. Ethical issues in phase I1 trials are less obvious than in phase I trials and therefore have received little attention in the past. The ethical conflict, however, is very similar to phase I studies (Figure W13). In general, patients are included in phase I1 studies to prove the efficacy of the test compound. Therefore, they are expecting a therapeutic benefit. But, as stated above, most clinical test compounds failed to exhibit a “therapeutic window” and to show a therapeutic advantage in the past. I’atients have to be made aware that they can be treated in a phase I1 study with a toxic dose. If the maximal tolerated dose, evaluated in phase 1studies, is the recommended dose in phase 11, the number of patients at risk of suffering from the toxicity of the test compound is even higher in phase I1 than in phase 1. Patients included in phase I1 studies should be aware of this enhanced risk. Moreover, they should know that the phase I1 study includes the testing of the null hypothesis (in other words, the activity of the test compound can be lower than expected). Additional considerations (Figure N16) are necessary for special subgroups of test persons or patients who might have a different pharmacokinetic and/or pharmacomimetic profile for test compounds (elderly persons, children, women of reproductive age); in whom mental deterioration (elderly persons, patients with neurologcal diseases) of different degrees might be present; or whose capability of making an informed decision is as yet undeveloped (children). For clinical trials involving women of reproductive age, the risk of toxic damage to the gonads and/or to the embryo should be scrupulously considered. Moreover, postmarketing surveillance studies should be properly conducted to control the occurrence of toxic effects on the embryo or on children, which may appear only late in their individual life.

218 Ethical obligation Ethical problems specific to phase I11 studies concern achieving the best possible information with the lowest number of patients. Instead of performing less decisive studies, prospective, double blind, randomized phase I11 trials should be performed. These trials reduce the overall number of test persons for proving the therapeutic benefit of a drug and lower the risk of treating more patients than necessary with an ineffective or even toxic drug. One ethical consideration common to all clinical trials is the issue of payment. In view of the complexity of clinical research programs and the increasingly demanding regulatory requirements for such research, it is generally justified and accepted that the pharmaceutical industry will offer some financial rewards to investigators, researchers and patients. Sponsorship of investigators and researchers can include a block grant or per capita payments related to the number of patients recruited into the study. It is, however, essential ”that the payments are reasonable and not large enough to induce subjects to take risks which they would not otherwise take.” This applies to patients as well as to healthy volunteers (Scrip 1994). In addition, companies must not use payments to induce research work to be carried out that would not be justified on its own merits. Some have recommended that payment to the institution be made on a reimbursement basis only (Wald 1994, Hone 1994) Another general ethical consideration is the publication of clinical trial results. Selective reporting or withholding of negative clinical data is unethical. To prevent such attempts, publication terms should be agreed upon in advance with all participating clinicians. Figure W17. Codes of medical ethics relevant for drug research and development 440 BC

Oath of Hippokrates

ethical rules for physicians

300 BC

Corpus Hippokratikum (NOMOS)

prerequisites for becoming a physician

1947

Code of Nuremberg

code of ethics on human experimentation

1948

Declaration of Geneva

ethical rules of world medical association (with reference to oath of Hippokrates)

1964

Declaration of Helsinki

code of ethics on human experimentation

1975

- 1st amendment (Tokyo)

1983

- 2nd amendment (Venice)

1989

- 3rd amendment (Hong Kong)

Clinical tiials 219

In summary, clinical trials are designed to prove the therapeutic benefit of a drug. Without such trials, there can be no new drugs for hitherto insufficiently or untreatable disease conditions. These studies provide therapeutic benefit to patients but may also cause adverse effects to them or healthy volunteers. The overall success rate-in other words, proving by clinical trials that a test compound is superior to a standard treatment-is moderate. In consequence, the chance of the patient reaping therapeutic benefit (which exceeds the one achieved with a standard treatment) by inclusion in clinical studies is generally equal to or even lower than the risk. This obvious ethical conflict can only be solved by scrupulously considering the rights of the test persons, be they healthy volunteers or patients. The decision in favor of a clinical study has to be based on the principle of choice between conflicting rights, and the ethical rules for medical treatment must be closely followed. The ethical rules for medical treatment originate from ancient Greek medicine (Figure W17).They were first written down by Hippocrates (Figure W18) confirmed in the declaration of Geneva (Figure W19) and precisely formulated for the performance of clinical studies for drug research in the declaration of Helsinki (Figure W20). Based on such codes and declarations, directives on good clinical practice for trials of medicinal products and on the role of ethical review bodies (Figure X/21) were issued. It is the responsibility of these ethics committees to judge whether a trial is justified, by weighing its contribution to the advancement of biomedical knowledge and the usefulness of expected results against the welfare of the volunteers, investigators and others affected by the research (Hone 1994). Ethics committees also ensure that good clinical practice regulations are followed; that payments and fees are appropriate and properly apportioned; that conflict of interests are minimized; and that trials do not involve unnecessary risk to the volunteer. It is common to all ethics committees to include both men and women and, to avoid conflict of interests, to include non-scientist lay members as well as members associated with different institutions. Figure W18. The oath of Hippokrates I swear by Apollo Physician and Asclepius and Hygieia and Panaceia and all the gods and goddesses, making them my witnesses, that I will fulfill according to my ability and judgement this oath and this covenant: To hold him who has taught me this art as equal to my parents and to live my life in partnership with him, and if he is in need of money to give him a share of mine, and to regard his offspring as equal to my brothers in male lineage and to teach them this art - if they desire to learn it - without fee and covenant.

220 Ethical obligation To give a share of precepts and oral instruction and all the other learning to my sons and to the sons of him who has instructed me and to pupils who have signed the covenant and have taken an oath according to the medical law, but no one else.

I will apply dietetic measures for the benefit of the sick according to my ability and judgement; I will keep them from harm and injustice. I will neither give a deadly drug to anybody if asked for it, nor will I make a suggestion to this effect. Similarly I will not give to a woman an abortive remedy. In purity and holiness I will guard my life and my art. I will not use the knife, not even on sufferers from stone, but will withdraw in favor of such men as are engaged in this work. Whatever houses I may visit, I will come for the benefit of the sick, remaining free of all intentional injustice, of all mischief and in particular of sexual relations with both female and male persons, be they free or slaves. What I may see or hear in the course of the treatment or even outside of the treatment in regard to the life of men, which on no account one must spread abroad, I will keep to myself holding such things shameful to be spoken out. If I fulfil this oath and do not violate it, may it be granted to me to enjoy life and art, being honored with fame among all men for all time to come; if I transgress it and swear falsely, may the opposite of all this be my lot. Tolle-Kastenbein 1985

Figure W19. Declaration of Geneva I solemnly pledge myself to consecrate my life to the service of humanity. I will give to my teachers the respect and gratitude which is their due. I will practice my profession with conscience and dignity. The health of my patient will be my first consideration. I will respect the secrets which are confided in me. I will maintain by all the means in my power the honor and the noble traditions of the medical profession. My colleagues will be my brothers. I will not permit considerations of religion, nationality, race, party politics or social standing to intervene between my duty and my patient.

I will maintain the utmost respect for human life from the time of conception. Even under threat I will not use my medical knowledge contrary to the laws of humanity. I make these promises solemnly, freely and upon my honor. Tolle-Kastenbein 1985

Clinical trials 221 Figure W20.Declaration of Helsinki (revised, Venice 1983)

I)

Basic Principles

1. Biomedical research involving human subjects must conform to generally accepted scientific principles and should be based on adequately performed laboratory and animal experimentation and on a thorough knowledge of the scientific literature. 2. The design and performance of each experimental procedure involving human subjects should be clearly formulated in an experimental protocol which should be transmitted to a specially appointed independent committee for consideration, comment and guidance. 3. Biomedical research involving human subjects should be conducted only by scientifically qualified persons and under the supervision of a clinically competent medical person. The responsibility for the human subject must always rest with the medically qualified person and never rest on the subject of the research, even though the subject has given his or her consent. 4. Biomedical research involving human subjects cannot legitimately be carried out unless the importance of the objective is in proportion to the inherent risk to the subject. 5. Every biomedical research project involving human subjects should be preceded by careful assessment of predictable risks in comparison with foreseeable benefits to the subject or to others. Concern for the interests of the subject must always prevail over the interests of science and society. 6. The right of the research subject to safeguard his or her integrity must always be respected. Every precaution should be taken to respect the privacy of the subject and to minimize the impact of the study on the subject’s physical and mental integrity and on the personality of the subject. 7 . Physicians should abstain from engaging the research projects involving human subjects unless they are satisfied that the hazards involved are believed to be predictable. Physicians should cease any investigation if the hazards are found to outweigh the potential benefits. 8. In publication of the results of his or her research, the physician is obliged to preserve the accuracy of the results. Reports of experimentation not in accordance with the principles laid down in the Declaration should not be accepted for publication. 9. In any research on human beings, each potential subject must be adequately informed of the aims, methods, anticipated benefits and potential hazards of the study and the discomfort it may entail. He or she should be informed that he or she is at liberty to abstain from participation in the study and that he or she is free to withdraw his or her consent to participation at any time. The physician should then obtain the subject’s freely-given informed consent, preferably in writing. 10. When obtaining informed consent for the research project the physician should be particularly cautious if the subject is in a dependent relationship to him or her or may consent under duress. In that case the informed consent should be obtained by a physician who is not engaged in the investigation and who is completely independent of this official relationship.

222 Ethical obligation 11. In case of legal incompetence, informed consent should be obtained from the legal guardian in accordance with national legislation. Where physical or mental incapacity makes it impossible to obtain informed consent, or when the subject is a minor, permission from the responsible relative replaces that of the subject in accordance with national legislation. Whenever the minor child is in fact able to give a consent, the minor’s consent must be obtained in addition to the consent of the minor’s legal guardian. 12. The research protocol should always contain a statement of the ethical considerations involved and should indicate that the principles enunciated in the present Declaration are complied with. 11)

Medical research combined with professionalcare (clinical research)

In the treatment of the sick person, the physician must be free to use a new diagnostic and therapeutic measure, if in his or her judgement it offers hope of saving life, re-establishing health or alleviating suffering. 2. The potential benefits, hazards and discomfort of a new method should be weighed against the advantages of the best current diagnostic and therapeutic methods. 3. In any medical study, every patient-including those of a control group, if any should be assured of the best proven diagnostic and therapeutic method. 4. The refusal of the patient to participate in a study must never interfere with the physician-patient relationship. 5. If the physician considers it essential not to obtain informed consent, the specific reasons for this proposal should be stated in the experimental protocol for transmission to the independent committee (see I). 6. The physician can combine medical research with professional care, the objective being the acquisition of new medical knowledge, only to the extent that medical research is justified by its potential diagnostic or therapeutic value for the patient. 1.

111) Non-therapeuticbiomedicalresearch involving human subjects (non-clinical biomedical research)

In the purely scientific application of medical research carried out on a human being, it is the duty of the physician to remain the protector of life and health of that person on whom biomedical research is being carried out. 2. The subjects should be volunteers - either healthy persons or patients for whom the experiment design is not related to the patient’s illness. 3. The investigator or the investigating team should discontinue the research if in hidher or their judgement it may, if continued, be harmful to the individual. 4. In research on man, the interest of science and society should never take precedence over considerations related to the well-being of the subject. 1.

based on Spitzy et al. 1984

Institutional Review Boards committees for the protection of persons in biomedical research by law independent ethics commissions by law (corresponds to USA) ethical review committees according to directives on medical research by Swiss Academy of Medical Sciences governmental directions on good clinical trial practice (some parts different from Europe) guidelines for good clinical practice (European Directive 911507lEEC) opinion from the Group of Advisers on Ethical Implications of Biotechnology Local Research Ethics Committees according to governmental guidelines Central Scientific Committee overseeing 7 regional ethical committees by law

1983

1983

1987

1989

1990

1991

1994

1991

1992

USA

France

Germany

Switzerland

Japan

Europe

UK

Denmark

Scrip Report 1994; Archer et al. 1994

royal decreelministerial order: approval of clinical studies by local ethical committees

197811982

Spain

Figure W21. International ethical review bodies

224 Ethical obligation

D Technologies It appears to be a fundamental law of nature that the dynamic of natural evolution of organisms will never end. We all participate in that evolutionary process by living together with non-human organisms, living from non-human organisms and by being the victim of non-human organisms. The dynamic of natural evolution is caused by many factors, of which the most important is the continuous genetic change of all organisms. Natural catastrophes; the continuous intellectual change of human culture; and social, political, and technical alterations and disasters produced by humans also exert their influence on the evolutionary process. Mankind influences the natural evolutionary process in a very dominant way, not only by their needs and activities as living organisms but also (and more importantly) by their intellectual capacity and ingenuity to create and use innovations and new technologies. Because of the growing size of the human population, the dynamic of such changes has enormously increased and will continue to increase parallel with the expected explosion of the worlds population. The direction of this change, however, will remain unpredictable (Figure W22).

Figure W22. Human role in evolution

0 The dynamic of natural evolution of organisms, with which and from which we live and which live from us will never end due to I ,continuous genetic change of

all organisms human culture.

I ,continous intellectual change of

0 Human evolutionary success arises from intellectualcapacity and ingenuity. This offers

+ opportunity to influence the direction of evolution, but I+ refusal to participate does not stop evolution.

Our natural and social environment is of extreme complexity, and the direction of the continuous change of evolution is unpredictable. Examples of driving forces are

+ changes by natural catastrophes + social and political changes and disasters caused by humans

+ human innovations and new technologies.

The dynamic of change has enormously increased through the huge and growing human population. The causes of change, however, remain unaltered. Mark1 1994

Technologies 225 Figure W23. The big “ 5 environmental problems in industrial terms

I)

greenhouse effect

increase in the average global temperature caused by: Carbon dioxide chlorofluorinated hydrocarbons (CFC’s)

I)

air quality

pollution by emissions sulfur dioxide nitrous oxide others

I) I) I)

water quality volatile organic compounds; smells waste management

Bollin 1988. Good 1991

The recognition of the damage we have already caused to non-human life (Figure X/23), and the perception of both the growing rate of change and the unpredictability of its direction, has increased society’s fears. Increasingly anxious, politicians have already passed governmental legislation and introduced measures to reduce environmental pollution (Figure X/24). With regard to the innovation and utilization of new technologies, however, such fears have produced two controversial reactions (Figure W25). Proponents of the ”avoidance of risk” reaction (Jonas1979,1985,1988) argue that people have exercised their power over non-human life mainly through technology. Each new technology, through its known or hidden risks and its potential large-scale use, can turn out to have additional and increasingly uncontrollable and irreparably damaging effects on mankind and nature, irrespective of whether the primary objective of using this technology was ethically justified. The current state of nature is taken as a proof for the above view. The obvious failures to protect the environment are taken as a reason to mistrust human efforts, to restrict creativity and to inhibit innovation and the development of new technologes. The only new techniques that should be allowed, are those that have no or the lowest possible risk potential. Avoiding or minimizing potential risks should be the main parameter for decision on allowance of innovations. Their potential benefit for manlund and/or nature should be of inferior priority and therefore more or less neglected. Some believe that,

USA, Clean Air act

1990

Scrip Report 1994

USA, Environmental Policy Act and the Environmental Protection Agency

1989

I

Japan, White Paper of Jap. Governm. Environm. Agency

1988

agreement by the parties to the protocol

- Copenhagen, Montreal meeting

1992

regulation of the conduct of manufacturing based (chemical and) pharmaceutical firms

recommendations to reduce pollution caused by Japanese companies

objectives to preserve, protect and improve the quality of environment, to protect human health and to ensure rational utilization of natural resources

supplementation of list of chemicals, destroying ozone layer

- London, Revision of Montreal Protocol

1990

European Union, European Act

provisions for controlling supply of CFCs (but not their use)

- Montreal Protocol

1987

atmospheric pollution as a global problem protection of ozone layer by elimination of CFCs production by January Ist, 2000

United Nations Environment Program (UNEP)

target

- Vienna convention

~~

1985

~

1987

1972

milestones

Figure W24. Initiatives to reduce environmental pollution

terrifying outcome of human failures

- current situation is the frightening and

8

I

I

~

c ~~

~~

benefits - unknown risks of innovations

- unknown new risks generated by omitted

- omission of potential benefits

benefits for humans neglected

- risks to nature should be minimized,

-

harmony between human and non-human life

people must reduce their influence on 1 - the evolutionary process to bring about

~

will for passive change

~

~

I

I

potential negative influence on evolution

position for decisions on innovation

evolution

strategic position in view

w

~~~

~

~

2

- unknown risks of innovations

- known risks of innovations

should be maximized and risks minimized

- benefits for human and non-human life

evolutionary process to influence the direction of its change and to ensure survival ____

- people must actively participate in the

to recognize threats and opportunities for improvements

- current situation challenges people

will for active change

Figure W25. Participation in the natural process of evolution is the only way to ensure human survival and self-assertion

'

-tl

2

3.

w

?2 .

2

2

228 Ethical obligation through this measure, potential risks for the environment can be avoided and in the long run a harmonious relationship between non-human and human life can be restored. The realization of such goals, however, seems to be impossible for the following reasons: 0 Anti-innovative behavioral patterns of specific human groups do not inhibit the creativity and innovation of other human societies. Quite the opposite, such anti-innovative groups place themselves in a non-competitive position within the continuous cultural, social and economic evolution of humanity. 0 By their anti-innovative behavior, such groups inevitably preclude their chance of actively influencing the dynamic and the direction of change in evolution (by means of their specific creativity and innovation) towards elimination of threats and realization of opportunities for improvement. 0 On the other hand new, unknown risks for human and non-human nature may arise, which may not have appeared if such groups had used their potential. Their inactivity, for instance, could stimulate the creation of innovations with very high potential risks for all life by other human societies. 0 Their selection of new technologies is based on elimination or minimization of known risks. The degree of negative influence on nature of such known risks, however, may be low in comparison to the degree of negative influence of unknown hidden risks of their selected innovations and technology. Recognizing the fundamentally self-destructive impact of anti-innovative behavior, most societies continue to take part in the cultural, social and economic evolution. By creativity and innovations, they try to maintain or to improve their competitive position within human societies. But such societies also increasingly recognize that their activities have already destroyed nonhuman life to such a degree that our living space and provision of our fundamental needs are seriously endangered. (The expected dramatic growth of the human population will even increase such risks.) As it has become very clear that no new activity is undertaken without measurable environmental effect, the ethical position on technology has been re-evaluated (Hohlneicher 1989, Bockle 1990). The driving force for such re-evaluation has been the human will to survive in mutual harmony with non-human life, to use non-human life without destroying it, to preserve it and to reduce potential damage to society. The main reasons for re-evaluation of this position are the prominent influence and (as a result of this) the unique responsibihty of humans for nature and non-human life, the obligation to analyze the threats and the opportunities that the present situation of evolution offers, and

Technologies 229

the duty, by creating innovations, to reduce threats and to realize opportunities for the advantage of human as well as non-human life. Obviously, every innovation has its risk and its potential benefits. Some risks are known and have to be balanced carefully against the potential advantages to mankind and nature (Figure W26).To estimate the degree of risk, however, is very difficult. The degree of risk is defined as the extent of damage multiplied by the probability of its occurrence. Both parameters can be quantified very Inaccurately (if at all) at a time when no experience is available with an innovation. Consequently, the degree of known risk of an innovation can only be roughly estimated in the early stage. O n the other hand, innovations may carry risks that become obvious only when the innovation has been used for a longer period of time. Thus, it makes no sense to attempt to quantify in detail the degree of risk of an innovation when no experience is available. In contrast, the potential advantages of an innovation can be very clearly defined and quantified, even at a very early stage of development, because the problem for which the innovation has been created to solve is well known. Therefore, in the decision on whether to move forward with an innovation, the balance of values should be aimed at maximizing the advantages for human and non-human life and accepting the minimal possible risk. Even if the minimal possible risks are accepted, it is necessary and justified to take all possible measures to prevent any damage that may be caused by the risk factors that are known in the early stages of an innovation. With increasing experience the degree of known risk can be quantified and hidden risks may become apparent and also quantifiable. With such information, the advantages and disadvantages of an innovation should be weighed again, and the measures to prevent damage can be reconsidered and adapted. Repetition of this process at certain time intervals can protect against unforeseen or nonquantifiable risk, without bloclung innovations and without depriving human and non-human nature of opportunities and potential benefits. These ethical rules should also be applied in the evaluation of innovations and new technologies in medical treatment. In other words, the decision should be based on aiming at m a x i m i h g the therapeutic effect and accepting the minimal possible risk (Figure W26). In the field of drug research and development, new technologies should either be significantly safer for the environment than the existing ones or represent the only available technology by which hitherto untreatable serious diseases can be treated indirectly (through new drugs produced by this new technology e.g., proteins produced by recombinant DNA technology) or directly (through manipulation of patients e.g., somatic gene therapy).

230 Ethical obligation Figure W26. General conditions for the utilization of new technologies

I) New technologies are justified if they improve the safety of existing technology or offer substantial benefits for human andlor non-human life.

I) Decisions on new technologies have to be based on the principle of choice between conflicting rights. Parameters for decision should be maximalization of benefits and minimizing of potential risks.

I) Utilization of new technologies needs public acceptance. The public has to be informed to understand the technology and the decision process.

I)At the beginning of the utilization of an new technology, the potential known risks can only be estimated. At this stage all measures should be taken to prevent potential damage by known risks.

I)With increasing experience, the degree of known risks and of unconcealed formerly unknown risks can be quantified. Measures to prevent potential damage by risks should be continuously reconsidered.

To maximize the advantages of new medical treatment, such assessments must include a consideration of the inviolability of human dignity and human rights and should also attempt to determine limits and boundaries. Guidelines for environmental risk assessment for human medicinal products have already been published in the European Union by the various governmental administrations (e.g., the guidelines for human medicinal products, containing or consisting of genetically modified organisms (Figure X/27). Examples of classifying ethical aspects (benefits, risks, and conflicts of ethical values) of some new or discussed technologies in drug research and development and in medical care are briefly outlined in Figure W28. Innovations and technologies need public acceptance. The public generally accepts new technologies when the expected benefit for example, the gain in safety for the environment and/or the expected advantage for humans (e.g./the improvement of the efficacy of medical treatment) exceeds the potential risks. New technologies also have to have a better benefit versus risk relationship than existing ones. Thus, the higher the standard of technology existing in a country, the more difficult it is to prove the superiority of the new technology and gain public acceptance (Hohlneicher 1989). The public should be actively informed as soon as a new technology is in the process of being established. This allows people to understand the principle of

Tcclznologies 231 Figure W27. Environmental risk assessment for human medicinal products containing or consisting of genetically modified organisms (GMOs) (guideline for gene therapy 111/5507/94 of the European Union (EU)

D definition

0 GMO's:

- live vaccines (bacterial, viral) - viral vectors - modified somatic cells

D general procedure

0 Evaluate: 1) risk to human health (patients, medical staff, public) 2) measures to control those risks 3) risk to the environment on the basis that 2) is in place

Assess

- exposure to the hazards and consequences (negligible, low, mediumor severe) of that exposure - likelihood (negligible, low, moderate, high) that hazards will occur - level of risk (severity of adverse consequences x likelihood of occurrence) in worst case and normal case scenario - selection and assignment of appropriate control measures

the technology, its expected advantage for manlund and/or nature and its risks. The public can then follow the decision based on the principle of choice between conflicting rights and, in consequence, can rationally as well as emotionally accept or even support the company's R&D activities (Figure W29). An important prerequisite for this process of acceptance through information and consent is that all partners observe democratic rules: after the arguments of the minority are considered by the majority, minorities have to tolerate the decisions of majorities in the end. There is a danger if radical minorities are able both to manipulate the political decision process and to influence legislation as well as jurisdiction by means of psychologcal and physical pressures. As discussed earlier, if large political groups succumb to pressure to placate radical groups among them or agree to become the political partner of such radical minorities to get a parliamentary majority, then the decision process in favor of new technologes becomes questionable. Moreover (through political influence on the public), their public acceptance becomes difficult to achieve.

> >

-

microorganisms

persons

diagnosis of mono-/ polygenetic defects or mutations

gene sequencing (analysis of structure and character of genes)

technologies/projects

0

discrimination of infected people misuse of information

firm and quick diagnosis of viral or bacterial infections early prophylaxis or therapy

0

0

0

(none)

disease specific screening for new drugs

misuse of information

selection of humans based on genes discrimination of persons at risk

0

0

0

0

proof of genetic relationship identification of perpetrators

reliable genetic consulting early prophylaxis (gene) therapy

misuse of information

0

new diagnostic and therapeutic perspectives

0

0

0

0

potential risks

potential benefits

access to new prophylaxis/ therapy - versus protection of human rights protection of personal data

access to new prophylaxis/ therapy -versus protection of personal data

0

0

0

access to prophylaxisltherapy - versus protection of human rights protection of personal data

(none)

-

a safety policy right of children - versus 0 protection of personal data

0

0

0

conflict of ethical values

Figure N28. Ethical aspects of some new or discussed technologies in drug research and development

~~

~-

~

I

\

>

>

genetically modified (transgenic) animals in isolated cagesktables

genetically modified (transgenic) plants

(bacteria, yeast, mammalian cells) in isolated fermenters, disposal of waste

proteins, produced in

~

technologieslprojects

0

evaluation of function of human genes and proteins involved in diseases specific in vivo testing of new drugs improved testing for carcinogenicity of chemicals reduction and refinement of animal experimentation production of drugs

improved yield and quality of drugs from plants protection of environment (natural production method)

new drugs safe plasma proteins (virus contamination) protection of environment (natural production method) new disease-specific test systems to screen for synthetic drugs

potential benefits

0

~

(none)

-

pollution of the environment with artificial gene combinations

(none)

~~

potential risks

-

0

0

0

~~~~~~~

protection of human health; access to new therapy - versus animal protection

~

access to improved or new therapy; protection of environment - versus pollution of environment

(none)

~

conflict of ethical values

Figure x128 (continued). Ethical aspects of some new or discussed technologies in drug research and development

N W

w

~~

~~

~~

~

I

germ line gene therapy

somatic gene

DNA-vaccines

D

~

technologieslprojects

~~

potential benefits

~

~~~

~

~~~

transmission to future generations of gene defects resulting in serious diseases

0 cure andlor prevention of

ment

0 reduction of cost for treat-

able diseases

0 therapy of hitherto untreat-

~~

unprotectable andlor untreatable diseases

0 prophylaxis against hitherto

~

potential risks

~~~

~~

~~~

~~~~

~

~

~

0 access to new treatment for hitherto untreatable diseases - versus 0 protection against health hazards

~~

hitherto untreatable diseases - versus protection against health hazards

0 access to new prophylaxis for

~~~

conflict of ethical values ~-

0 violation of human rights of sequences (tumors, other geprogeny 0 protection of the netic diseases) in the progeny progeny againstgenetic 0 recombination of viral vectors with damages induced bytreatment wild viruses to form infectious - versus viruses 0 treatment of genetic defect 0 misuse (benefit cannot be estimated 0 scientific basis and technical due to lack in knowledge) feasibility not established application to humans not ethically acceptable 0 mutagenicity of injected DNA-

with wild viruses to form infectious viruses

0 recombination of viral vectors

sequences

0 mutagenicity of injected DNA-

~~~

DNA-sequences

0 mutagenicity of injected

.~

~~

Figure x128 (continued). Ethical aspects of some new or discussed technologies in drug research and development

2.

3

z -.

0

I

I

>

xenografting of organsfrom humanized transgenic animals

>

transplantation of human fetal tissues

drug induced abortion

in vitro screening of fertilized human

genetic engineering

technologieslprojects

0 unknown zoo-anthroponosis

economic/scientific pressure for abortion

untreatable conditions

0 misuse

genes

0 selection of humans based on

0 new therapy for hitherto

unlimited source of organs for transplantation

conflict of ethical values

- versus -

- versus -

access to treatment - versus 0 animal rights

0 right of the embryo

- versus -

0 access to new treatment

~

0 right of the embryo

0 health of the mother

0 violation of human rights

0 health policy

mutagenicity of injected DNA0 protection of health hazards - versus sequences (tumors, other geprophylaxis or treatment of netic diseases) 0 recombination of viral vectors with minor diseases or improvewild viruses to form infectious ment of health conditions viruses (benefit questionable or cannot 0 misuse be estimated due to lack in 0 scientific basis and technical knowledge) feasibility not established .) apphcation to humans not ethically acceptable

potential risks

0 side effect by immune reaction

0 medical need of the mother

avoidance of monogenetic defects

0 improving desired characteristics (i.e., height or memory)

potential benefits

Figure W28 (continued). Ethical aspects of some new or discussed technologies in drug research and development

cn

N

w

236 Ethical obligation Figure W29. Utilization of new technologies in drug research and development

analyse the conflicting

.)Define the expected benefits of the new technology 0

0

increase in safety of production technology new therapeutic access to insufficiently or untreatable diseases

.)Estimate the potential risks the new technology may have for human and/or non-human life. Consider the violation of human rights. balance of values

.)Weigh the benefits against the risks. Decide on maximizing the advantages for human and/or non-human life. When starting to utilize a new technology take all measures to prevent any damage that may be caused by known risk factors.

get public acceptance

.)Reconsider such measures when experience with the innovation has been gainedand the degree of risks can be quantified. .)Inform the public as soon as the new technology is planned to be utilized 0 0

describe the expected benefits illustrate the potential risks and the measures taken to prevent damage

E Health care and information activities As discussed earlier in this book, actions to control health care costs include drug price reduction and reduction of drug utilization. Especially in the USA, managed care systems contract with pharmaceutical companies for substantial discounts on drugs and by selecting drugs on the basis of cost effectiveness. As a consequence, the profit can shrink significantly for drugs in crowded therapeutic areas, whereas innovative drugs can still receive high prices if they are found to be cost-effective. Nevertheless, the spending of pharmaceutical companies on marketing will decrease. These economic pressures are now dramatically changing the size and shape of the pharmaceutical industry. To maintain profitability, companies are entering into partnerships. Manufacturing of drugs is increasingly rationalized, and all provisions are taken to improve efficiency. Joint ventures are entered to share the risks and expenses of R&D, to obtain marketing experience or to globalize sales. Such moves are a direct response to the threats of various pressures in all areas of health care and are leading to a major consolidation of the pharmaceutical industry.

Health caye and infomattoiz activities 237

Cost containment measures are also heightening the roles in the drug decision process of political parties, health authorities and insurance companies, as well as of wholesalers, pharmacists, hospital executives and, last but not least, patients. This increasing involvement of numerous entities in the drug decision process has both direct and indirect influences on the decision of a physician to prescribe a drug for a patient to treat the disease with the best possible therapeutic outcome and the lowest risk of side effects (Figure X/30). Ethical conflicts can arise, if the physician’s freedom to prescribe the best possible drug is limited by health care cost control measures. One limitation may be caused by the economic involvement of the physician in the drug prescribing decision (for instance, by a fixed prescription budget). More importantly, insurance companies, managed care systems or hospital executives may exclude from their formularies expensive drugs with an unfavorable cost-effectiveness ratio. If by such actions the excluded drugs are not available for prescribing, the medical doctor’s prescribing freedom may be significantly limited to the disadvantage of the patient. Rising co-payments by patients will reduce the freedom of prescribing insofar as the physician needs the patient’s consent. The patient could simply not be able or willing to spend his or her share of payment and may refuse the doctor’s selection.

Figure W30. Measures to reduce health care costs induce questions of ethical relevance

question

problem

0

Doctors, patients, government and insurance companies are increasingly involved in the drug purchasing decision under economic terms.

I)

Is the best economic decision also an appropriate medical decision?

Managed care systems have increasing market shares (in the USA > 40%). Contract with companies will be based on granting substantial discounts.

I)

How can the selection of drugs and the distribution channel be controlled?

Co-payment for drugs will increase. Marketing and promotion of a drug will include not only the medical professionals but also the patient.

I)

To what degree can the patient be burdened? How can the quality of information given to the patient be controlled?

Balance between medical information and product promotion will become increasingly difficult.

I)

How can the medical profession and the public be appropriately informed by companies?

238 Ethical obligation In conclusion, ethical conflicts may arise between cost containment measures in health care and the right of the patient to be treated with the best possible drug. Such ethical confhcts have to be resolved by adequate control and regulatory mechanisms such that the price of a drug will not be the prominent decision parameter for its selection. The more cost containment measures influence the decision process for a drug, the greater the importance of information. The responsibility is with the pharmaceutical company to inform as accurately as possible. Moreover, through this information the company has to encourage all partners involved in the decision process to identify, prescribe, use and buy a certain type of drug. Hence, it is important for a company to offer pharmacoeconomic studies and to make clear the therapeutic and the socioeconomic advantages of a particular drug. The more the patient participates in the decision process for prescribing a drug ( e g , by co-payment), the more the patient will become a target of medical information and product promotion activities of pharmaceutical companies. But, any publicity involving medication has its dangers, because patients are lay consumers. Many people are impressionable where health matters are concerned, and caution should be exercised when describing a drug’s side effects, as this may induce emotional and even psychosomatic effects in the patients (Pulazzini 1994). In addition, inappropriate and extreme promotional activities may sustain the general prejudice that the pharmaceutical industry’s profit is too large and may even induce the suspicion that the company tries to tempt their customers. The result would be a loss of patient esteem for the company, which would negatively influence the decision for a drug. The opposite reaction would be that the patient perceives the promotional activities as being medical information. Growing confidence in these promotional activities can positively influence a patient’s decision for a drug. An ethical problem arises, however, if this emotional reaction restricts the willingness of the patient to follow the advice of the physician, which additionally limits the physician’s freedom to prescribe the best possible drug. Providing accurate medical information to health care professionals and the public by appropriate product promotion can be a difficult undertalung for a pharmaceutical company and requires special knowledge and slulls. In view of the company’s responsibility to ensure that the information on the therapeutic, socioeconomic and cost benefits of the new product is correctly transmitted, a liaison between marketing and medical functions is recommended (Gunson et al. 1993).

Health care atid iilformation activities 239 Figure W31. Regulation of requirements for good practice in marketing and advertising to health professionals

D D world

WHO ethical criteria

Europe

Council Directive 92/28 EEC on the advertising of medicinal products for human use code of practice for the promotion of medicines produced by the European Federation of Pharmaceutical Industries Associations (EFPIA, 1993) FDA guidelines for continuing medical education

regulation of

0 Adverse Drug Reaction (ADR) reporting requirements

0 representative activities and claims use of the summary of product characteristics installation of scientific service

Scrip Report 1994

In conclusion, medical information and product promotion directly and indirectly influence the selection and the choice of a drug by different customers. In view of the possibility of conflicts between the interest of customers and those of companies, the quality of the information is of considerable ethical significance.Accordingly, the requirements for good practice in marketing and advertising of drugs to health professionals have been regulated by governmental authorities (Figure W31). Medical information and product promotion constitute the most visible face of a company to health care professionals and the public (Figure W32).Their Figure W32. Significance of information activities for pharmaceutical companies

.)

Most visible face of a company.

.)

Influences customer's decision and choice of a drug. Consequently, accurate information is an ethical obligation

I)

Area of creativity in the use of medical information for marketing.

.)

Influences public esteem and public acceptance of company's R&D and technology; contributes to economic success.

240 Ethical obligation acceptance of the company is directly dependent on the image of the company shaped by the quality of its information activity. This includes, for instance, acceptance of the company’s R&D activities (like animal experiments or the exploitation and establishment of new technologies) or its marketing and pricing policy. The utmost reliability and accuracy of all information, as well as the creativity of the company’s information activity, safeguard its credibility and reputation, positively influence consumer and client choices and consequently contribute to the economic success of the company.

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

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251

Ways to Successful Strategies in Drug Research and Development Edited by H. Harald Sedlacek Alice, M. Sapienza Volker Eid Copyright 0 VCH Verlagsgesellschafl mbH,1996

Index

academic research institutions 185 access to medical care 199 action theories 148 activities and expenses till launching 57 aging 179 airquality 225 allocation of resources 101 alternative approaches 179 alternative equivalent methods 210 alternative treatment 46,217 alternative unproven treatment 36 ambiguity 135 American cons tik tion 41 analgesidantispasmolytics 93 analysis 167 animal experimentation 208 antagonism 101 anthropocentric theology 201 anti-innovative - atmosphere 191 -behavioral patterns 228 -ideology 190 antiinfective 93 appropriate selection of compounds 214 approval systems 164 arbitrary measure in medical care 198 archetype 123 - framework 124 arthritis 179

artificial intelligence systems 165 asthma 179 asymmetries 163 atmosphere 83 attractiveness 57,76 authenticity 208 authoritarian management 114 autocratic 127 autocrative style 132 au toimmune/rheumatological 93 average development time 92 avoidance of risk 225 bacterial infections 179 balance 199,206 banks 185 basic conditions for motivation in R&D 150 behavior 127,158 - towards animals 199 behavioral uncertainty 108 beliefs 158 beneficense 195 benefits 229 biochemistry 69 biology 69 biopharmaceuticals 91 biotechnology 20,95 block buster 22,99 block grant 218 bottom-up approach 62,87,175 bronchitis 179

254 lndex budget - for depreciation 74 - for exploratory research 52 budgetary responsibility 174 build-up stages 108 bureaucracy 142,190 bureaucratic style 127 buy choice 119 cancer 179 cannibalism of marketed products 101 capacity 14,82 capital investment 22 capitation 11 cardiovascular diseases 179 career system 169 cardiovascular 93 case reports 213 categories for classifying motivations 148 champions 57 chance of success 91 change over time 107 changes in moral values 29 changing opportunities 89 chaos 106 charisma 150 charismatic -leader 130 - leadership 130 charity to animals 201 charlatanism 36,180 children 215 classic theories of motivation 147 clinical development 69 - o f a d r u g 210 clinical pilot study 97 clinical studies in special subgroups 215

clinical trials 210 co-payments 237 codes of medical ethics 218 coexistence of vertical and lateral structures 136 cognitive theories 148 collaboration 105,114 collective - performance 140 -trends of view 29 collectively perceived plausibilities 30 command system 166,168,169 commercial value 80 commitment 52 common perceptions 32 communication 31,110,112,114 -styles 131 -theory 111 competence 68 -centre 107 competitive position 120,119,228 competitiveness 57,76 competitors 77,82,83 complementation/synergies 99 complex - products 103 - work processes 105 comprehensive information 199 conditions - for the utilization of new technologies 230 - of high uncertainty 135 - of turbulence 105 confidence 55,180 conflicts of ethical positions 208 conformity 162 conjugated vaccines 94 conscience 199 contribution margns 62

Index 255

control on utilization 10 controlled pilot study 97 controls on pricing 7 conviction 54 cooperation 185,192 core -beliefs 158,160 - element of morality 26 -fields 116 - ideology 158,164 cost - containment measures 4,237 - -effectiveness ratio 237 - explosion 175 -savings 98 costs 21,191 -forR&D 78 - of pharmaceuticals 185 - of treatment 62 creation of visions 86 creative - atmosphere 52,54,55,190 -people 113 -thinking 141,163 creativity 51,228 culture 100,112,134,156,160, 199,224 customers 23 cytolunes 95 dangers 101 decision-malung 164 decisions 105 Declaration - of Geneva 220 - of Helsinki 221 definition -of goals 86 - of main R&D areas 86 - of visions 86

degree of project completion 108 delegation of responsibilities 106 democratic - decision process 183 - social orders 30,45 -society 33 demotivation 87 department heads 140 Department of Veterans Affairs PA) 8 dependability 161 depotprice 8 dermatologcal 93 development - of a strategy 88 -stage 67,77 -time 80 differences between the sexes 152 dignity of animals 199,206 dilemma 208 diplomatic style 127 direction 145 directives on good clinical practise 219 discounts 8 disease management 12 dissolution 113 DNA vaccines 94 dogmas 199 dose escalation 216 dose per patient 62 drastic changes 89 driving forces 1,4,13 drug - administration authority 180, 192 -budgets 4 -hunter 51 -price 42 - price control 187

256 lndex - utilization - utilization

236 reviews 11

eccentric thinking 163 eccentricity 163 economic pressures 236 effective dose 212 effective medical care 45 elderly persons 215 emotion based theories 146 emotional reaction 238 energy 145 enthusiastic commitment 130 environment 229 environmental -factors 130 - pollution 225 - problems in industry terms 225 - risk assessment 230 environmentalists 185 essentials - for the right culture 161 - for the right organizational system 162 established business 166 ethic - of fraternity 201 - of respect for life 203 ethical aspects - of financial resources 39 - of technologies in drug research 231 ethical core of any decision 198 ethical obligations 216 ethical position of equal rights 206 ethical values of lower rank 199 ethics committee 41,219 evaluation of a project 57 evolutionary process 224 exchange

- of

information 174

- of knowledge 52 expansion of exploratory research 97 expectations of patients 179 experiences and rules in the relationship between human and animal 204 experimental explorations 49 expert -functions 33 -systems 165 expertise 68,69,77,83 expertocracy 31 faciliators 143 fair prices 46 false hopes 36 fast follower 115 financial capacity 98 financial resources 38,43 fixed budget 8 flexibility 54,56,105,171 fluid structures 113 fluid cognitive structures 114 foregone conclusions 29,31 formation 113 -stages 108 formularies 237 formulations 69 formulation - of core strategy 49 - of strategies 87 free-rein style 127 freewill 199 freedom 26,174 French revolution 40 functional and discipline heads funding of R&D 99 future market size 93

140

Index 257

gastrointestinal diseases 179 generic substitution 11 generics 99 genetic change of all organisms 224 genetically oriented theories 146 genius loci 83 germ line gene therapy 42 global budget 8 global registration 179 globalized drugs 3 goal 82,175 goal-setting 149 goals - in animal experimentation 209 - of ethical relevance 43 good leader 141 good medical care 36 good practice in marketing 239 governmental -policy 191 - legislation 225 - regulations 82 Great Man Theory 127 greenhouse effect 225 head of the project management 140 -function 138 heads of functional units 138 health care 35,180 -budget 198 - costs 185,195 - decisions 195 - resources 45 healthy volunteers 212 hedonism 146,150 hierarchic - organizational structure 103 -system 172 high price 43

high uncertainty programs 123 history of the protection of animals 200 homogenization 161 honesty 208 hospitals 2 human - interactions 162 - motivation 130 -nature 130 -needs 206 - partnerships 199 - plasma proteins 95 - population 224 - resources 23 - rights 37,40, 195,230 - role in evolution 224 -touch 142 image 240 in-house capability 123 inappropriate pressures 143 incentive system 140 incidence 60 incongruities 163 independent advisor 195 individual performance 139 individual team members 137 ineffective matrix structure 106 inflexibility 167 informa tion 238 -culture 34 -flow 105 - processing activities 108 -systems 165 informed consent 195,214,216,217 initiatives to reduce environmental pollution 226 injury to animals 208 innovation process 51,53

258 lndex innovations 3,4,15,77,167,173, 179,180,183,224,228 innovative -drugs 3 - organizations 175 instinct theory 146 instincts 146 integrators 112 intellectual challenge 114,164 interdepartmental rivalry 169 interdisciplinary efforts 34,35 Internal Rate of Return (IRR) 79 in terna tional scientific standard 180 internationally accepted drugs 179,187 interpersonal relationships 153 intolerance 175 intrapatient dose - escalation 217 - modification 214 investments 180 - for depreciation 74 irrational public expectations 34 job - descriptions

56,151,171

-security 52 joint problem-solving 106,140,164 joint ventures 99,236 journalism 180 jurisdiction 183 justification for actions 156 knock-out parameter 68 knowledge 105,195 known risks 228 language 158 lateral structures 105,114,135

laws 190 - for gene technology 191 - for the protection of animals 191 lay consumers 238 leadership 127 - theories 127 leading edge of science 115 learning curve 51 legal regulation of animal experimentation 204 legislation 183 levels of hierarchy 174 license fees 99 life cycle models - of communication 104 - of growth 104,107 - models of technology 104 - of transfer 104 limitation in competence 167 limited lists 10,11 limitation of reimbursement 8 line of authority 103 line of communication 103 live attenuated vaccines 94 live recombinant vaccines 94 local driving forces 7 logo 156 long-term - commitment 52 horizons 54 - pattern of behavior 152 - return on investment 166 -survival 91 loss - of competence 169 - of contact with opinion leaders 101 - of credibility 101 - of identity 101 low price 43

liidcx 259

loyalty 88

- decisions

195 information 238 - need 57,60,78,82 - test mentality 41 - treatment 198 Medicare 8 medium sized company 15,98 membership 52 merit reward systems 53 metabolic/gastrointestinal 93 miljtary stratege 103 minority pressure groups 45 miracle -cures 36 -drugs 36 -1iealers 36 misjudgment 68 misuse of scientists 169 modern leadership theories 128 monoclonal antibodies 95 moral responsibility 33 morality 25 moral values 27,28 morbidity 60 mortality rate 60 motivation 48,145 motivation theories 146 motivational needs 154 multinational company 15,98 multiple functions 103 multiple goals 98 mutagenicity 212 mutual adjustments 54,170,174 -

mail order pharmacy 9 main side effects 210 major classic theories of leadership 130 major global drugs 3,179,187 make choice 119 managed care channels Y managed care plans 9 management - for innovation 49 -history 103 - of established business 170 - of objectives 127 - of the development project 49 management’s failure 89 manifestations 156 manufacturer’s sales price 62 market - entrance probability 92 - position 80, 81 - potential 95 marketed products 60,169 marketing 57,69 - capability 117 matching cultures 112 matrix - organization 106 - structure 106 -system 170 maximal non toxic dose 212 maximal tolerable dose 210 measures and expenses - after launch 73 - till launch 72 media 180 Medicaid 8 medical -care 195

natural evolution of organisms 224 need - for achievement 152,154 - for affiliation 152,154 -for power 152,154 negative lists 10

260 h d e x Net Present Value (NPV) 79 neurological 93 neutrality 58 new chemical entities (NCE) 19,91 new medical treatment 230 new technologies 224,229 niche -markets 14 -products 99 non-randomized, historical controls (phaseII) 213 non-randomized, simultaneous control (phaseII) 213 nonglobalized drugs 3 noninnovative drugs 3 null hypothesis 217 number - of patients treated 214 - of R&D compounds 7 objective analysis 44 objectivity 55,58,105 Offenheit 26 oncological 93 opinion leaders 30 opportunism 169 opportunities 44,82 opposition 88 optimal effective dose 212 options 87 organization structure 104 organizational -culture 156 -change 152 -rigidity 142 - theories 104 over all -costs 98 - effectiveness 105 - estimation of risks 67

-risk

78

paradox for management 88 paralysis 142 participative style 127,132 participative style of leadership 127 partnerships 98,99,208 patent rights 57,70,68 patents 7 paternalism 195 patients 212 patient’s advocate 195,217 patients with neurological diseases 215 pay back period (PBP) 79 pay for performance 140 payment 218 peer to peer 105 peptide hormones 95 peptides 95 per capita payments 218 perceived scientific uncertainty 121,122 perception of opportunities 54 performance appraisal 163 performance evaluation 135,137, 163 perseverance in the decision 88 persistence 56,145 personal -attitudes 150 - commitment 27 - communication 54 - role identity 109 pharmaceutical -company 238 -industry 185,191 - Manufacturers Associations 210 - R&D investment 19

-world market 2 pharmacies 2 pharmacoeconomic - pressures 18 -studies 238 pharmacologcal profile 57,59, 74/78 pharmacologcally effective dose 212 pharmacology 69 phase I clinical trial 211 phase I1 clinical trial 221 phase111 216 philosophy of enlightenment 40 physical services 199 physician’s freedom to prescribe 237,238 pilot clinical study phase VII 97 planning flexibility 52 plausibilities 183 political - measures 179 -parties 180 - pressures 83 portfolio 78 - procedures 76 potential turnover 95 preclinical development 69 predictiability 166,210 - of animal studies 91 prejudicial attitudes 58 prelaunch costs 79 prevalence 60 price 82 -freedom 187 - reduction 7,236 prices that cover all ethical aspects 43 primary data 80 principle of equality in the com-

munity of law and nature 203 probability 91, 166 - of a launch 92 product - improvement 169 - promotion 239 production 57,69 production -costs 62 - licenses 185 - technology 42 productive atmosphere 142 profit 43, 87, 166 project - evaluation 76,175 -groups 170 - management 49,103 manager 103,137 - planning 138 -success 140 -team 103 promulgation of information 87 propaganda 32 proportion of health care 187 public - acceptance 20,180,208,230 - confidence 208 - opinions 29,32 -

quack remedies 46,180 quackery 46,180 quality 82 -of life 27 - of SWOT-analysis 83 radical minority 183,231 randomized phase I11 trials rating of overall risk 68

R&D -

allocation decisions

115

218

262 lndex -costs 21 - expenditures 22,185 - pipeline 100 -success 182 realistic opportunities 36 reallocation of budget funds 56 receiver representatives 111 recognized medicine 46,179 recombinant - DNA technologes 183 -drugs 183 - plasma proteins 95 -proteins 94 recommended dose 212 recruitment 162 recruits 158 reduction 209 refinement 209 region 7 registration 57 regulated pricing system 187 regulation of margins 8 regulations 150 regulatory review 94 reinforced selection 96 relationsship 105 relevant therapeutic area 116 reliabilty 54,56 replacement 209 requirements for good practice in marketing and advertising 239 research - experiments 199 -topic 121 resource allocation 141 -process 77 respect for the patient 195 responsibility 199 -ofhumans 25

of humans for the well-being of animals 199 - of parliamentarians 45 - of social partners 44 restrictions 190 restrictive formularies 11 return of investment 77 reward systems 163 rheumatism 179 rights of animals 206 right of self-determination 37,41 rigid cognitive structures 113,114 risk 229 - aversion 114 -benefit ratio of a test compound 212 -capital 52 -factors 67 - of failure 97 - reduction 97 - reduction of turnover potential 84 -taking 166,180,191 -willingness 114,164 risks 26,57 rituals 156 role of science 33 royalties 99 -

scenarios 62 scientific - competence 54 - creativity 160 - expertise 180 -freedom 142 - incompetence 56 - standard 180 -work 33 scientists 32,33,141 scientist’s competence 151

lndcx 263

segmentation of R&D 55 self-actualization 149 self determination 41,195 self-efficacy 149 self-help philosophy 186 self perceptions of humans 34 senders 111 sense of pain 199 sensitivity 55 setting -of prices 8 - of priorities 39/43, 81 share of responsibilities 54 shared responsibilities 106,141 short-term -horizons 175 - return on investment 166 sickness insurance funds 45 silos 114 situations 127 size - of the pharmaceutical market -restriction 137 slulled incompetence 151 skills of R&D and corporate management 88 small company 15,100 social and communicative actions 30 social -changes 29 - interactions 30 -justice 34 - pressures 45,179,180 - responsibility 199 -tasks 35 socialization 28,30 socio-political pressures 82 socioeconomic advantages 238 solidarity philosophy 186

2

somatic gene therapy 42/95 sponsorship of investigators 218 stable conditions 135 stage of research 58 standard operating procedure 103, 164 standard treatments 210,216 stifling of innovation 166 strategic - alliances 15,100 -business unit 107 - direction 164 - innovation 152 strategies for differently sized companies 15 strategy 82,175 strenghts 44,82 structure and order of needs 152 styles 156 styles of decision-making 127, 132 subordination 169 succes of marketing 74 S U C C ~ Srate 22 supportive atmosphere 53 surrogates 111 survival 158 SWOT-analysis 81,86,175 symbol of the company 156 symbolic social interactions 30 synthetic vaccines 94 taboo 41 target-specific research 94 targets for R&D of drugs 5 task forces 170 team building 109 team oriented worlung relationships 52 teams 141 teamwork 51,163

264 lndex technical aspects of personal competence 151 technical - equivocality 109 - expertise 139 - performance 138 -success 79 - uncertainty 108 technologic - capability 117 - competence 140 - expertise 141 - leadership 23 - mentality 32 technologies 82 technology - entrepreneurs 123 - manager domain 124 - managers 123 - pursuer domain 124 - pursuers 123 - strategy 115,123 - strategy archetypes 123 - strategy vector 117 -trajectory 117 termination stages 108 the oath of Hippokrates 219 the team 140 therapeutic - advantage 217 -benefit 216 - window 60,217 threats 82 top-down 87 -approach 62 - communiques 114 top selling pharmaceuticals 16 total costs for depreciation 74 toxic dose 212 toxicity 60,212

toxoids 94 traits 127 transactional leadership 132 transactive interpersonal communication 110 transfer of knowledge 111 transfers 109 transformational leadership 132 transplantation 41 triad 2 turnover potential 57/62/64! 65, 78,79 uncertainty 80,135 understanding of the decision process 87 unlimited charity to all life 202 unknown hidden risks 228 unknown risks 228 urogenital 93 utilization - controls 187 - of animals 199 variability in the individual responses 212 venture - capital company 185 - subsidiary 170 vertical structure 105,114,135 vision 82,87,175 visionary leadership 52 volatile organic compounds, smells 225 vulnerable patient 217 waste management 225 water quality 225 weaknessses 82 wholesaler’s price 9

liidcx 265

woman of reproductive age 215 work - experiences 152 - motivation 149

worlung team 52 world market for drugs 1 worldwide experience 22