Introduction
On 18 October 2007, Pfizer announced the withdrawal of its inhaled insulin brand Exubera
® from the market. Just a few months earlier, the company predicted the drug would be a US$2 billion-a-year product. Yet, at the time the withdrawal decision was taken, Exubera had barely reached sales of US$12 million, and it had cost Pfizer over US$2.8 billion [
1]. It is not uncommon for pharmaceutical companies to terminate drugs and write off substantial investments during clinical trials (and occasionally after market launch) owing to safety concerns. But what really made Exubera stand out as one of the most unprecedented and stunning failures in the history of the pharmaceutical industry [
1] was the fact that the withdrawal decision was entirely based on disappointing sales, rather than any safety or efficacy concerns [
2].
One unique feature of the pharmaceutical industry is that the patient who receives the drug is rarely the person who decides on that treatment or even pays for it. Instead, prescribing decisions in developed healthcare markets are typically made by physicians, and the payments are often made by insurance companies, government, or other organizations, with little or no payment directly from the patient. This creates a unique environment in which a successful commercialization strategy has to meet not only the regulatory requirements of the Food and Drug Administration (FDA) or European Medicines Agency (EMA) but also the requirements of the three end customers: the patient, physician, and payer. The term “payer” broadly refers to the healthcare budget holder and can include, e.g., Medicare in the USA. A high profile European organization, which reviews therapies from a cost perspective and provides guidance, is the UK National Institute for Health and Care Excellence (NICE). Traditionally, pharmaceutical companies have launched blockbuster drugs by just focusing on patients and physicians. This is no longer the case: given the ever rising reimbursement hurdle, a successful commercialization strategy relies on a sound understanding of the payer’s needs and priorities. This aspect has been overlooked in the existing academic literature. In this article, we develop a framework to address this gap and enable organizations to better align their drug development process with the expectations of the end customer, and more specifically, the payer.
Consider again the case of Exubera, a drug that faced significant opposition from payers. In the USA, many insurance companies refused to cover treatment because Exubera was more expensive than existing treatments: US$5 compared with US$2–3 for injectable insulin [
3]. In the UK, NICE argued that Exubera should only be approved for diabetics who had a proven fear of needles, as it offered no advantage over existing treatments [
3]. The Exubera story is by no means unique. In recent years, there have been several drugs that met regulatory safety and efficacy hurdles, but failed to meet payer hurdles, e.g., Avastin
® [
4] and Zaltrap
® [
5].
Executives in pharmaceutical companies are well aware of the increasing role of the payer, and the fact that regulatory approval can no longer be considered a guarantee for market success and profitability. According to Harrison [
6], 24% of drug failures in phase II and phase III can be attributed to commercial and strategy reasons. Given that the average development cost for a new drug is estimated at US$1.4 billion (out-of-pocket) and US$2.55 billion (capitalized) dollars [
7], anticipating and avoiding such market failures earlier in the process could potentially save companies hundreds of millions of dollars in research and development (R&D) costs. However, to achieve this, close collaboration between the R&D and commercial teams is critical. Such a collaboration requires that the project initiation and continuation decisions are made using the best possible information, rather than subjective and biased estimates. Numerous academic studies have shown how better communication between the commercial and R&D teams can lead to projects with a higher success rate, a greater percentage of sales coming from new products, and a higher likelihood of successfully delivering the company’s strategic goals (see [
8] and the references therein). As a result, the extant academic literature highlights the importance of having a cross-functional team that brings together experts from various departments and ensuring that the project progresses to meet both the technical and commercial requirements [
9,
10].
However, for most pharmaceutical companies, and despite the growing realization about the importance of the payer, the flow of information between the R&D and commercial teams is not always optimized. For example, development teams might not always include appropriate comparators (e.g., existing standards of care) in the clinical trials, but rather rely on placebos. This might be acceptable for regulatory approval by the FDA or EMA, but it is often not sufficient for the payer, who is likely to require evidence of direct comparison with the existing standards of care (when applicable). As a result, a number of projects that are unlikely to meet the customer’s expectations continue to consume valuable resources as a result of biased information and organizational inefficiencies. By its very nature, developing new drugs will remain a highly risky and complex process. Expensive failures are an inherent part of medical discoveries, and that is why it is so critical for organizations to identify these failures as fast and efficiently as possible. This is precisely why maintaining a focus on the patients’ and broader societies’ true needs becomes even more important. This challenge is equally critical for drugs that are developed in-house (by the internal R&D team of the organization) or are in-licensed from external organizations (e.g., through various types of partnerships).
The goal of this study was to develop a framework that would enable a better communication flow, and develop tangible suggestions on how to make the drug development process more customer-focused. The first step was to identify key barriers to cross-functional collaboration that have traditionally prevented an integrated development process in the pharmaceutical industry. To better understand the underlying causes of these barriers, they were categorized into those driven by economical, behavioral, or organizational reasons. For each category, an extensive literature review was conducted to identify the most effective management practices to overcome the specific challenges. This review covered a number of academic papers that spanned a wide spectrum of research (from organizational and behavioral economics to innovation management and organizational theory). For each literature-based solution, specific examples on how the proposed solution can be applied to the drug development process are provided. The central proposition of this work is that overcoming these barriers will allow pharmaceutical companies to prioritize projects that are more customer-focused and, therefore, generate more value (both for the companies and the patients). This article does not contain any new studies with human or animal subjects performed by any of the authors.