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Helsinki University of Technology

Laboratory of Industrial Management

Report 2004/1

RISK MANAGEMENT IN DRUG DEVELOPMENT PROJECTS

Hanna-Leena Saari

Espoo 2004


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Helsinki University of Technology

Laboratory of Industrial Management

P.O.Box 9500

FIN-02015 HUT

Finland

Phone: +358 9 451 2846

Fax: +358 9 451 3665

Internet http://www.tuta.hut.fi/

ISBN 951-22-7105-2 Printed

ISBN 951-22-7106-0 Electronic

ISSN 1459-806X Printed

Monikko OyEspoo 2004


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Helsinki University of TechnologyRisk Management in Drug Development Projects i

Hanna-Leena Saari

TABLE OF CONTENTS

SUMMARY .............. .............. ................ ............... ................ ............... ................ ............... ............... ................ ........ I

1. INTRODUCTION...........................................................................................................................................1

1.1. BACKGROUND AND MOTIVATION..............................................................................................................................1

1.2. RESEARCH QUESTION AND OBJECTIVES.................................................................................................................... 1

1.3. RESEARCH SCOPE.......................................................................................................................................................3

1.4. RESEARCH APPROACH AND METHODS ...................................................................................................................... 3

1.5. STRUCTURE AND CONTENT OF THE STUDY ............................................................................................................... 5

2. PHARMACEUTICAL INDUSTRY AND ITS NEW PRODUCT DEVELOPMENT PROJECTS .....7

2.1. DESCRIPTION OF THE PHARMACEUTICAL INDUSTRY................................................................................................. 7

2.2. DRUG DEVELOPMENT:PROCESS AND SPECIAL CHARACTERISTICS ........................................................................ 12

2.3. PROJECT MANAGEMENT IN THE PHARMACEUTICAL INDUSTRY..............................................................................21

3. PROJECT RISK MANAGEMENT............................................................................................................29

3.1. RISKS AND RISK MANAGEMENT ..............................................................................................................................293.2. RISK MANAGEMENT PROCESS .................................................................................................................................34

3.3. ORGANISING AND IMPLEMENTING RISK MANAGEMENT.........................................................................................48

3.4. STUDIES ON THE PRESENT STATE OF RISK MANAGEMENT IMPLEMENTATIONS IN COMPANIES ............................ 55

4. PROJECT RISK MANAGEMENT IN DRUG DEVELOPMENT PROJECTS ..................................57

4.1. LITERATURE VIEW ON RISK MANAGEMENT IN DRUG DEVELOPMENT PROJECTS .................................................. 57

4.2. RISK TYPES IN DRUG DEVELOPMENT PROJECTS .....................................................................................................59

4.3. RISK MANAGEMENT PROCESS .................................................................................................................................60

4.4. RISK MANAGEMENT TOOLS.....................................................................................................................................62

4.5. ORGANISING AND IMPLEMENTING RISK MANAGEMENT IN DRUG DEVELOPMENT PROJECTS ............................... 66

5. CASE COMPANY AND METHODOLOGY............................................................................................70

5.2. RESEARCH AND DEVELOPMENT PROJECTS IN THE CASE COMPANY....................................................................... 70

5.3. PROJECT RISK MANAGEMENT IN THE CASE COMPANY........................................................................................... 73

5.4. METHODOLOGY OF THE EMPIRICAL STUDY ............................................................................................................ 74

6. EMPIRICAL ANALYSIS............................................................................................................................76

6.1. FIRST-STAGE INTERVIEWS:DEFINING THE RISK MANAGEMENT PROCESS ............................................................76

6.2. SUGGESTION FOR THE RISK MANAGEMENT PROCESS IN ONE CORE THERAPY AREA............................................87

6.3. SECOND-STAGE INTERVIEWS:GENERALISING THE PROCESS TO COMPRISE OTHER CORE THERAPY AREAS........ 95

6.4. WORKSHOP:REFINING THE RISK MANAGEMENT TOOLS........................................................................................98

6.5. SUMMARY OF THE EMPIRICAL STUDY ................................................................................................................... 104

7. DISCUSSION AND CONTRIBUTIONS OF THE STUDY ..................................................................106

7.1. DISCUSSION ............................................................................................................................................................ 106

7.2. CONTRIBUTIONS,CONCLUSIONS AND MANAGERIAL IMPLICATIONS.................................................................... 110

7.3. RELIABILITY AND VALIDITY OF THE RESEARCH AND GENERALISABILITY OF THE RESULTS ............................... 113

7.4. RECOMMENDATIONS FOR FURTHER RESEARCH ....................................................................................................114


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REFERENCES.......................................................................................................................................................117

APPENDICES ........................................................................................................................................................125

APPENDIX 1.STRUCTURE OF THE INTERVIEWS

APPENDIX 2.OCCUPATIONAL TITLES AND DEPARTMENTAL PROFILES OF THE INTERVIEWEES

APPENDIX 3.DIFFERENT RISK IDENTIFICATION METHODS AND THEIR ADVANTAGES AND DISADVANTAGES

APPENDIX 4.EXAMPLES OF QUALITATIVE PROBABILITY AND IMPACT SCALES

APPENDIX 5.PROBABILITY-IMPACT MATRICES

APPENDIX 6.DIFFERENT RISK ASSESSMENT METHODS AND THEIR ADVANTAGES AND DISADVANTAGES

APPENDIX 7.DESCRIPTION OF A PREVIOUS INDEPENDENT STUDY BY THE AUTHOR CONCERNING PRESENT STATE OF

PROJECT RISK MANAGEMENT IN THE CASE COMPANY

APPENDIX 8.FURTHER ILLUSTRATIONS ON THE RESULTS OF THE FIRST-STAGE INTERVIEWS


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SUMMARY

Pharmaceutical industry is changing rapidly: markets are growing and consolidating with

constant mergers of big conglomerates. In order to remain competitive, companies have

to be specialised, fast and flexible. Therefore, project management in new product

development must be efficient and effective. This emphasises the importance of risk

management. The original motivation for developing a structured risk management

process in this study is based on the awareness that effective risk management enables

proactive project management. Project risk management literature has focused much on

delivery projects in different industries, of which construction industry is widely

represented. This study posed a challenge for the risk management literature by

attempting to apply it to research and development projects in a highly regulated and

volatile pharmaceutical industry, in which projects are extremely long, complex, costly

and prone to failure. The gap in the existing knowledge was addressed by the use of

various sources of literature and empirical evidence from a case company in the

pharmaceutical industry.

The research question of this study is: how risks should be managed in practice in drug

development projects. The research question is addressed by first conducting a literature

study aiming at identifying distinctive characteristics of the pharmaceutical industry and

drug development projects. Furthermore, the literature study consists of defining the

concepts of risk and risk management and describing risk management processes,

approaches, tools, and techniques. On the basis of the literature review, anticipated best

practices for risk management in drug development projects are defined. The practical

applicability of this model is then assessed in a case company. The case company is a

North European pharmaceutical company focusing on developing drugs in threetherapeutic areas. The research approach of this study is a combination of constructive

and case study research.

In the first phase of the literature study the pharmaceutical industry, drug development

projects and their management were characterised. It was concluded that the industry is

fragmented and the consumer of drugs is usually separated from the purchaser and the

eventual decision maker. Patents and regulations also play an important role.

Furthermore, the industry has faced a number of changes during the recent years: in the

industrialised countries population is ageing and lifestyle expectations have risen; there

are pressures for price reductions; generic drugs are used more; there is a constant flow

of mergers and acquisitions in the industry; and technology and science advance with

huge leaps. Drug development was found to be complex, long, resource-intensive and

risky, especially for small firms. Thus, it is important to detect problems early to avoid

waste of time and resources. Drug development projects consist of several sub-projects

and the project organisation is multi-layered. The industry has been slow to implement

project management, and the maturity of project management is at a low level. The


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project teams also create easily a strong sense of ownership for their projects.

Furthermore, in many pharmaceutical companies project managers have only an

influencing role.

In the second phase of the literature study risks and risk management were defined, and

the benefits of risk management were outlined. Several processes were illustrated and ageneric risk management process was proposed. The generic process made the feedback

loop from monitoring and control to risk management planning explicit, and we also

introduced a phase for risk management closing as a part of this process. Several tools

were presented for each phase. Finally, important aspects for risk management were

presented, such as hard and soft risk management, risk knowledge management and risk

management as team work.

The reviewed literature discussing risk management and drug development projects

focused mainly on business level or portfolio level risks. Thus, a new framework for

managing risks in drug development projects was developed together with a

categorisation of pharmaceutical risks as based on the reviewed literature. It was

concluded that initial risk analysis should be performed already before starting project

planning. Project planning in itself is a laborious task in the industry. In addition,

communication and knowledge management together with team-based working were

seen to be important. Qualitative risk management methods should suit the industrys

needs also for companies with a rather low level of project management maturity.

The risk management framework derived from the literature analysis was applied in the

case company. The proposed process was first refined to suit the needs of one therapy

area. The generalisation of the process to other therapy areas of the case company was

rather straightforward. However, the adoption of the literature-based suggestion of aproposed set of tools proved to be somewhat more difficult. The tools were considered

as applicable, but the use of the whole tool set may be too resource-intensive to be

implemented as such. This occurs even though the suggestion was focused on the use of

rather qualitative methods with regard to available literature.

This study contributes to the present theoretical risk management knowledge by adding

one application to one new empirical application area. In addition, the study provides a

starting point for additional studies of the subject and highlights the need for further

studies in the risk management field of research. As a conclusion, we stated that risk

management in drug development projects is somewhat different than in other

industries. This occurs because of the special characteristics of the industry and its

projects. To account for these, risk management should be rather qualitative, team-

based and much focus should be placed on communication and knowledge

management.

This study suggests further research to test the developed risk management framework

in practice. The general risk management theory needs to be studied further: the long-


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term applicability and effectiveness of the methods and tools presented in literature

should be studied in different application areas. The purpose would be to recognise

which methods and tools would suit best in which application areas.

Several implications for managers of pharmaceutical companies can be derived from the

study. First, there is a challenge for the entire industry to promote and implementsystematic risk management in drug development projects with top management being

the main change agent. Communication, openness and interproject learning must also

be fostered throughout the pharmaceutical companies, which may relate to changes in

organisational culture and climate.


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Helsinki University of TechnologyRisk Management in Drug Development Projects 1

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1. INTRODUCTION

1.1. Background and Motivation

Pharmaceutical industry is changing rapidly. Markets are growing and consolidating with

constant mergers of big conglomerates. To be able to respond to the changing

requirements and increasing competition, networking is essential for survival.

Biotechnology is growing in importance. Thus, research and development needs to

increase its productivity because markets are becoming more price-sensitive. Also,

legislation imposes new challenges for the industry. To remain competitive, companies

have to be specialised, fast and flexible. Therefore, project management in new product

development must be efficient and effective, and risk management can no longer be

forgotten.

Research and development activities are by nature very risky: when the objective of

work is to develop something new there are always a number of uncertainties present.Even though risk management cannot guarantee the successful launch of new products,

it is widely recognised as an essential tool to manage research and development projects.

Risk management has also been identified as a knowledge area of project management

further emphasising the importance of taking risks into account in all endeavours.

The motivation for developing a structured risk management process is based on the

awareness that effective risk management enables proactive project management. It

would be possible to tackle problems already before they materialise and thus avoid or

minimise their negative consequences for project progress and outcomes. However, to

gain full potential of managing risks, the process has to fit the organisational context

and the special requirements of the pharmaceutical industry. Additionally, effective tools

must be developed that suit the process and enable its implementation.

Project risk management literature has focused much on delivery projects in different

industries of which construction industry is widely represented. This study poses a

challenge for the risk management literature by attempting to apply it to research and

development projects in a highly regulated and volatile industry in which projects are

extremely long, complex, costly and probability of failure is high. The gap in the existing

knowledge is addressed by the use of various sources of literature and empirical

evidence from a case company in the pharmaceutical industry.

1.2. Research Question and Objectives

The research question in this study is:

How should risks be managed in practice in drug development projects?


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The aim of this study is to investigate project risk management in drug development

projects from a very practical viewpoint. Thus, it is considered what kind of activities

should be conducted when managing risks, i.e. the risk management process, and what

kinds of tools and techniques exist to support risk management. Both of these aspects

are discussed in the context of drug development projects.

To be able to answer the research question, several objectives need to be fulfilled. The

objective of the study is to:

Identify the distinctive characteristics of the pharmaceutical industry and drug

development projects.

Define the concepts project risk and project risk management.

Describe different risk management processes, approaches, and assisting tools and

techniques.

On the basis of the previous objectives, define the best practices of managing risks

in drug development projects.

Apply this knowledge in drug development projects of a case company by creating a

risk management framework consisting of a risk management process description

and tools and techniques customised for the case companys requirements.

The main focus of this study is to develop the risk management process for drug

development projects. Risk management tools to be used with the process need to be

identified to enable the implementation of the process.

Figure 1 illustrates the logical flow of research objectives that aim at solving the research

problem presented at the top of the figure.

Definition of project risks

and risk management

Risk managementprocesses, approaches,

and tools

and techniques

Distinctive

characteristics of

pharmaceutical industry

and drug development

projects Best practises for

managing risks in

drug development

projects

Risk management

framework for the

case companys drug

development projects

How should risks be managed in practise in drug development projects?

Figure 1. Research problem and objectives of the study


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1.3. Research Scope

As already specified by the research question, this study concentrates on drug

development projects, i.e. pharmaceutical research and development projects. For

example, product support projects and further development of formulations are

excluded from the study.

Both risks and risk management are in the focus of the study in the context of the drug

development project. However, to understand the projects, organisation, company and

environment must be analysed in proper detail. Concentrating on projects means that

risk management at subproject, program or portfolio-levels will not be fully addressed in

this study.

In addition, it should be noted that risk management tools stand for those methods and

techniques that can be used to implement the risk management process. Software tools

may thus be a part of or a way to implement these techniques, but software programs as

such are out of the scope of this study.

In this study, a project point-of-view for risk management is taken thus ruling out

investment and financing-based risk management. Some other issues, such as project

portfolio management and knowledge management are introduced in conjunction with

risk management. It is assumed that the reader is familiar with these concepts and they

are not explored in detail. Additionally, new product development and project

management are introduced very briefly in chapter 2 with the intention to only define

the setting in which the research is located.

1.4. Research Approach and Methods

The research approach of this study is a combination of constructive and case study

research. A construct is formed on the basis of literature study. However, within this

study, the construct is not implemented in practice and thus empirical validation will not

be obtained. The practical applicability of the construct is still assessed with empirical

information from a case company operating in the target industry and thus case study

research is used (Uusitalo 1991: 75, and Jrvenp and Kosonen 1999: 19). The aim of

this study is not so much on creating new scientific knowledge but rather on forming a

construct that is applicable in practice and at the same time increasing theoretical

understanding on the research subject.

The research will use a combination of literature study and an empirical case study as

research methods. Literature is first reviewed to form a thorough picture of the problem

area. The aim of the literature study is to gain understanding of current practices of

project risk management with their advantages and disadvantages and form hypothesis

on what kind of process and tools should be used in the specific context of drug

development projects. After that, this knowledge is applied in practice in a case


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company operating in the pharmaceutical industry. The case company represents a

volatile industry that is dependent on its environment. The competitive situation is

difficult and governments regulate the industry tightly. Additionally, drug development

projects are longer, more complex and regulated than the projects on which most risk

management research focuses. The pharmaceutical industry and drug development

projects thus pose a challenge for traditional risk management theory and are a valuableobject of study.

Literature used in gaining proper understanding of the existing theory will represent

several different knowledge areas. First, general project management literature will be

reviewed to comprehend the status and importance of risk management in project

management and in managing business by projects. Literature concerning project risk

management will be the main source of information to solve the research problem and

the objectives of the study. To understand the special features of drug development

projects, literature describing them will be studied, too. This clarifies the challenges that

risk management in this kind of projects has to cope with. Last, internal documents of

the case company will be used to gain insight of the special environment of the

organisation for which the process requirements and tools were designed.

Figure 2 presents a view of the research methods used in the study. It illustrates in detail

what kind of information was gathered with different methods to fulfil the objectives of

the study and through them answer the research problem.

Literature study will provide answers to the first three study objectives, i.e. identifying

distinctive characteristics of pharmaceutical industry and drug development projects,

defining the concepts of project risks and risk management, and outlining risk

management processes, tools and techniques.

The requirements of the risk management process for the case company will be

developed with the help of two-staged interviews. The first interviews will aim at

scanning the process requirements and formulating the process for one specific set of

projects. These interviews will be semi-structured. The issues discussed during the

interviews are presented in Appendix 1. The next interviews will elaborate the suitability

of the process to other project settings and will be performed as open-ended interviews.

In formulating and refining the process at first, a workshop with all the interviewees is

needed. Risk management tools will be developed with the help of a workshop with

program leaders and project managers. However, initial selection of risk management

tools will be done on the basis of the literature study.


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and risk managementLiterature

Risk management processes,

and tools and techniquesLiterature

Distinctive characteristics of

pharmaceutical industry and

drug development projects

Literature

Risk management framework

for the case companys drug


Risk management

process descriptionInterviews Requirements of the process

WorkshopFinalising the process

description, validation

Risk management

tools and techniques

Literature

Workshop

Initial tool selection

Final selection and

development of tools

How should risks be managed in practice in drug development projects?

Best practices for risk

management in drug


Figure 2. Role of research methods in answering to the research problem

In this study sampling for the interviews and workshops is purposive to guarantee that

all relevant parties have representation in data gathering. Interviews will be focused. In

total 22 interviews and two workshops will be held. The purpose of the two-staged

interviews is to guarantee that at least one project setting is studied in proper detail. The

interviewees at the first stage include business unit head, program leader, project

managers, and project team members of most important line organisations representing

the selected project setting. At the second stage program leaders and project managers

of other project sets are interviewed. A more detailed description of the interviewees

and workshop participants is provided in Appendix 2.

1.5. Structure and Content of the Study

The study objectives and their relation to the chapters of this study are presented in

Figure 3. After this introductory chapter, chapter two concentrates on presenting the

overall setting of this study by exploring innovation management and new product

development together with project management. The chapter aims at answering the first

study objective, i.e. defining the distinctive characteristics of pharmaceutical industry

and drug development projects. Furthermore, project management and role of project

managers are explored.

Chapter three focuses on risk management and aims at fulfilling the next two study

objectives. The concepts of risk and risk management are first defined. Additionally,

benefits of risk management are outlined. Next, several risk management processes are

presented and a generic risk management process is developed. On the basis of that, all

phases of the generic risk management process are discussed outlining their content and

tools that can be used in the phase. Risk management is also examined at different


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project life-cycle stages. Important different views to risk management are then

presented to deepen the understanding of the practice. These views comprise of issues

such as risk management at different organisational levels, hard and soft risk

management, the role of risk knowledge management and risk management as team

work. The chapter ends with a review of results from studies describing how risks are

actually managed in companies.

Chapter four concludes the literature study of the previous chapters by presenting a

synthesis of these two literature streams as a recommendation for best practices of risk

management for drug development projects. Additionally, a risk categorisation model

for drug development projects is presented. This chapter also aims at fulfilling the

fourth study objective.

Chapter five begins the empirical part of this study by presenting the case company and

its drug development projects. In chapter six, the results of the interviews and

workshops are reported and the best practice model is developed to suit the case

company and its projects. The literature study and empirical study are compared in

chapter seven and their differences are examined. Conclusions are also drawn and

managerial implications of the study presented. Furthermore, the theoretical and

empirical contribution of the study is assessed together with the validity, reliability and

generalizability of the research approach and results. Finally, recommendations for

further studies are presented.


and risk management

Risk management

processes, approaches,

and tools

and techniques

Distinctive

characteristics of



projectsBest practises for

managing risks in

drug development

projects

Risk management

framework for the

case companys drug



Chapter 3

Chapter 2

Chapter 4 Chapters 5 and 6

Chapter 7


and risk management

Risk management

processes, approaches,

and tools

and techniques

Distinctive

characteristics of



projectsBest practises for

managing risks in

drug development

projects

Risk management

framework for the

case companys drug



Chapter 3

Chapter 2

Chapter 4 Chapters 5 and 6

Chapter 7

Figure 3. The structure of the study in comparison with study objectives


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2. PHARMACEUTICAL INDUSTRY AND ITS NEW PRODUCT

DEVELOPMENT PROJECTS

Innovation is the life-blood of organisations: only by renewing themselves and

developing new products organisations can stay competitive in the ever-changing

business environment. Projects are often used to implement new product development.

Both of these concepts are highly future-oriented and thus they are both uncertain in

nature. At present, also the pharmaceutical industry is facing a period of changes both in

structural and competitive aspects. Thus, more pressures are imposed on drug

development projects: their project and risk management must be of good quality to be

able to compete successfully.

This chapter is devoted to presenting the pharmaceutical industry and its new product

development projects. It also aims at setting the ground for the rest of this study by

presenting the concepts of innovation management, new product development, and

project management. The role of risk management is highlighted both in new productdevelopment and project management discussions. Furthermore, project management

practices in pharmaceutical projects are discussed considering their relationship to

general project management practices. The emphasis of this chapter is to outline the

distinctive characteristics of the pharmaceutical industry and drug development projects

that have to be taken into account when developing risk management practices, i.e. to

fulfil the first study objective. Each section of this chapter is concluded with a table

gathering the main distinctive features discussed in the section.

2.1. Description of the Pharmaceutical Industry

Pharmaceutical industry differs from most other industries in its structure, intellectual

property rights, regulations and R&D intensiveness. Recent changes have also affected

all of the abovementioned topics thus reforming the entire industry and and making it

even more challenging as an environment, see Figure 4. These issues and their

significance is discussed next.


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Special characteristics of the


Industry structure R&D intensiveness

Intellectual

property rights

Regulations

Recent changes

Special characteristics of the


Industry structure R&D intensiveness

Intellectual

property rights

Regulations

Recent changes

Figure 4. Special characterictics of the pharmaceutical industry

2.1.1. Industry StructureThe pharmaceutical industry is highly fragmented. There are hundreds of companiescompeting in the industry that has been divided into more than twenty therapeutic

areas. (Fagan and Hayes 1998: 2). These form separate sub-markets that are dominated

by only few products and their manufacturers. This domination enables the

manufacturers to set high prices for their products and gain above-normal profits.

(Craig and Malek 1995: 319). Many companies have spread their business risk between

drugs and also between therapeutic areas (Senn 1998: 253). Companies are very

vulnerable, however, because even the top companies rely on the sales of only five

products (Craig and Malek 1995: 319).

The main feature of the demand for pharmaceutical products is the separation of the

consumer, purchaser and decision-maker. Drugs can be purchased either directly by the

patient or the physician prescribes them. The physicians make the decision regarding

what drugs they prescribe usually on the basis of the drugs safety, efficacy and quality.

In the end most drugs are paid by insurance companies or governments. The end result

of this separation is that the demand is price-inelastic, i.e. the price of the product does

not affect the purchasing decisions much. (Craig and Malek 1995: 311-313 and Trott

2002: 401).

Price controls imposed by the governments for the pharmaceutical industry have

restricted the pricing of drugs, however. Price controls have been established during a

change of healthcare policies all around the world. (Halliday et al. 1997: 64). One formof price control is generic substitution that allows a pharmacy to sell to the patient an

equivalent but cheaper drug than the one that the physician prescribed (Sosiaali- ja

terveysministeri 2002: 8-10).


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2.1.2. Recent Changes in the IndustryAn ageing population with a greater emphasis on quality of life and higher lifestyle

expectations create new opportunities for the pharmaceutical industry. Also, in the

future there will be more diseases that require treatment. (Arlington 2000: 76). On the

other hand, there are pressures to reduce the healthcare costs and thus the use of

generic drugs has increased, because the generic drug usually costs 30-90% less than thepatented drug (Jacob and Kwak 2003: 292 and Fagan and Hayes 1998: 2).

Simultaneously, also the time to develop new drugs has increased contributing to the

shortening of the drugs patent-life. This is mainly due to increased regulations that have

been formed to respond to the changing medication usage, e.g. the increased treatment

of chronic diseases. (Agnew 2000: 1953). Additionally, many people use several different

drugs at the same time forcing the new drugs to be tested to eliminate harmful drug

interactions. It is also more difficult to get the sales permission nowadays: many drugs

that were sold twenty years ago would not be acceptable anymore. (Jacob and Kwak

2003: 292).

As a response to the longer development times, increased costs, shortened patent lives

and increased competition, pharmaceutical companies realised that they must do more

and better research, and the company with the biggest investment possibilities was

considered to perform best (Jacob and Kwak 2003: 292-293). Because the fastest way to

achieve more drug development capacity is to merge, the industry has witnessed a

constant flow of acquisitions and mergers during the past years (Agnew 2000: 1952). At

present there are four pharmaceutical companies in the list of twenty biggest companies

in the world (Katajamki 2003).

As the new conglomerates undoubtedly have more resources to spend in drugdevelopment they have the opportunity to be faster and more effective in bringing new

drugs into markets. The challenge lies in being able to move quickly and exploit the

rapidly advancing technologies, such as combinatorial chemistry, high throughput

screening, molecular genetics, and stem cells. Also, to sustain acceptable growth the new

conglomerates need to launch at least four or five new drugs each year. So far many of

the companies have fallen behind of this target. (Jacob and Kwak 2003: 292-293). In

addition to mergers facilitating drug development also other kinds of partnering

agreements have become common. New technologies are sought through licensing,

joint ventures, R&D contracts etc. (Fagan and Hayes 1998: 5, 8).

2.1.3. Intellectual Property Rights and RegulationsAs described in the previous sections, the patent system of the pharmaceutical industry

is a major distinction from other industries. This issue is also under lot of change

pressures. The patent gives an exclusivity to sell a certain product for a specific amount

of time, but other products treating the same disease can also be on the market. Thus,


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the industry representatives state that the manufacturer of the patented drug does not

enjoy a monopoly position. (PhRMA 2002: 31). Even though the patent-time for new

products is 20 years in the USA, the effective life of the patent is only eleven or twelve

years, because of the lengthy drug development process (PhRMA 2003: 58).

Critics of the patent system state, however, that drug manufacturers charge monopolyprices for their new products (Trott 2002: 398). In fact, the congress of the USA has

proposed weakening the patent protection of pharmaceuticals. This poses a requirement

for the industry to convince the governments of its pricing decisions. Furthermore, it

must show how R&D in pharmaceuticals is different from other industries where

competition is the main driver of innovation and price cuts. (Trott 2002: 399, 401).

The industrys will to defend the current patent system is understandable. Sales diminish

after patent expiration, while the drugs market share falls typically approximately 85%.

At present, the principal forms of protection from the attack of generic drugs are brand

development, i.e. extensive marketing, and further research to develop the product

enough to get a new patent. (Blau et al. 2000: 660 and Trott 2002: 384-385).

In addition to intellectual property rights, the tight regulations distinguish the

pharmaceutical industry from other industries. Government authorities control the

development and sales of drugs in order to avoid hazards in which drugs have proved to

be dangerous when used. All companies must apply for a marketing authorisation for

each new pharmaceutical product they want to launch. To get this authorisation, certain

trials have had to be done with certain results. At present, in addition to safety and

efficacy, the drug must also be cost-effective to get the marketing authorisation. (Craig

and Malek 1995: 331, 333). A delay in the marketing authorisation is expensive: it has

been calculated that a one day delay may cost as much as one million USD in lost salesfor a blockbuster drug (Fagan and Hayes 1998: 4).

2.1.4. Importance of Research and DevelopmentResearch and development is vital for success also in the pharmaceutical industry, where

innovation is said to be the major factor of economic growth (Craig and Malek 1995:

313). Trott (2002: 72) categorises the pharmaceutical companies to be science-based

firms where science and technology developed in own R&D departments have proved

to be a major contributor to the companys growth and success. Additionally,

pharmaceutical industry is one of the few sectors still often following the classical

technology-push model of innovation where innovation starts from scientific research

(Trott 2002: 339). This has now started to change, however, because of the more

demanding competitive requirements.

Investments in drug development have increased steadily and have almost doubled,

being 17 billion USD in 1996 and 32 billion USD in 2002 (PhRMA 2003: 13). Anyhow,

some critics have questioned the innovativeness of pharmaceutical companies. For


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example, Angell (2000: 1903) argued that nowadays too many companies develop so-

called me-too drugs that imitate a product already on markets but are different enough

to be patentable. The rest of the differentiation is done with extensive marketing. It has

also been argued that pharmaceutical companies spend more on marketing than on

research: the less important the drug, the more it needs advertising (Angell 2000: 1903).

For example, GlaxoSmithKline employs 10 000 scientists and 40 000 salespeople (Trott2002: 401).

2.1.5. Summary: Special Characteristics of Pharmaceutical IndustryThe pharmaceutical industry is characterised by its structure, demand patterns, patent

system, stringent regulations, and importance of innovation together with the changes

that have occurred recently. These special characteristics are summarised in Table 1. It is

clear that the industry is different from other industries thus stressing the need to take

these issues into account when developing risk management practices.


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Table 1. Special characteristics of the pharmaceutical industry

Characteristic

Industry structure Fragmented industry: dominance in distinct therapy areas.

Vulnerable, multinational companies.

Extremely profitable compared to other industries.

Price controls, differential pricing, barriers to entry.

Demand pattern Separation of the consumer, purchaser and decision-maker.

Derived and directed demand.

Price-inelastic demand.

Patent system Enables monopoly pricing.

Stringent regulations Safety, efficacy and cost-effectiveness requirements for marketingauthorisation.

Importance of innovation Science-based firms.

Firms still use classical technology-push model of innovation.

Recent changes Ageing population, great emphasis on quality of life, high lifestyleexpectations.

Price reduction pressures, pressures to reduce healthcare costs.

Increased use of generic drugs, easier introduction of generic drugs.

Increased regulatory requirements: drugs developed for chronicdiseases for patients using many drugs at the same time.

More difficult to get marketing authorisation.

Increased development times.

Reduced patent protection time.

Consolidation, increased amount of partnering agreements.

Technological and scientific advances.

2.2. Drug Development: Process and Special Characteristics

In this section, the process of drug development is presented and the general statement

of drug development being risky, long and costly is examined. New pharmaceutical

products can be divided into four groups: new chemical entities, i.e. unique new

products, duplicated products, compound products and alternative dosage forms ofproducts. Most of the development investments are used in the development of new

chemical entities. (Craig and Malek 1995: 323). This is also the product this study

focuses on. Thus, drug development should henceforth be understood as the

development of new chemical entities. However, innovation management and new

product development are studied first at a general level to create the basis for further

discussions concentrating on drug development.


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2.2.1. Innovation Management and New Product DevelopmentAt present innovation is considered to be an important component of company success.

Adapting to constantly changing business environment contributes to creating

competitive advantage and is a factor of company survival (Tidd et al. 2001 and Trott

2002). In most industries dominant companies have been able to innovate. Innovations

have also lead industrial revolutions and they contribute to the growth of companiesand also entire economies. Interestingly, innovation can provide growth nearly

regardless of the larger economic conditions. (Trott 2002: 4-5). Several different kinds

of strategic advantages can be reached through innovation. For example, by developing

a novel product or service, a company can offer something no one else can and be the

first-mover. Also, with a novel process, operations can be more effective than

competitors: faster, with lower costs, more customised etc. Sometimes innovation leads

to rewriting the rules of competition making old products and services redundant. (Tidd

et al. 2001: 7).

Trott (2002: 12) defines innovation to be the management of all the activities involvedin the process of idea generation, technology development, manufacturing and

marketing of a new (or improved) product or manufacturing process or equipment.

Thus, innovation is a management process with the output of a new product or process.

There are also other types of innovations, such as organisational innovation,

management innovation, production innovation, commercial/marketing innovation and

service innovation (Trott 2002: 14). Innovations can be major, i.e. radical, or minor, i.e.

incremental technological advances (Trott 2002: 13). Figure 5 presents Tidd et al.s

(2001: 8) view of dimensions of innovation that captures the same idea.

Product Service Process

Incremental

Radical

Transformation

What is changed

Perceivedextentofchange

Figure 5. Dimensions of innovation space (Tidd et al. 2001: 8)

Traditionally, innovation was thought to be a linear process beginning from research

and development, then going into manufacturing and ending at marketing the product.

This is referred to as technology-push model. Also, a view of the process starting from

marketing and then going through research and development to manufacturing and end


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users has been presented. This, on the other hand, is referred to as market-pull model.

However, these models do not explain how innovation happens but they rather

concentrate on what is innovations point of initiation. (Trott 2002: 17-18). The current

understanding is that innovation takes place when organisations capabilities interact

with science base and marketplace. Figure 6 presents the interactive model of

innovation presented by Trott (2002: 19). The information flow is not necessarily linearand the marketplace and the science base interact with all functions and not just with

R&D or marketing. Innovation can originate from any point in the model.

Idea R & D Manufacturing MarketingCommercial

product

Needs in society

and the marketplace

Latest sciences and technology

Advances in society

MARKET

PULL

TECHNOLOGY

PUSH

Figure 6. Interactive model of innovation (Trott 2002: 19)

The relationship between the terms innovation management and new product

development is examined in the following. Trott (2002: 200) describes new product

development to be an important part of innovation management. Innovation

management concentrates on developing necessary conditions where innovation can

occur while new product development is about transforming business opportunities into

tangible products. On the other hand, the basic motivation for research is to generate

these opportunities either in-house or by acquiring new technologies from external

sources (Trott 2002: 291). There are many differences between the nature of research

and new product development. Research is more risky and radical, and there are more

projects and more freedom in strategic and operative terms. In new product

development the technologies are more mature, objectives are clear and measurable,

projects are bigger and methods more formal. (Martinsuo et al. 2003: 24-25).

New product development provides the ground for long-term economic success,

because it is the only way a firm can guarantee that its products are continuously better

than its competitors products (Trott 2002: 201). Several different models have beendeveloped for new product development. The simplest and oldest of these is the so-

called departmental-stage model in which all departments, e.g. R&D, manufacturing and

marketing, do their part of the work in isolation and then pass the project forward to

the next department. Nowadays it is clear that this kind of a process hinders new

product development with its restricted amount of communication and market input.

Also activity-stage models are frequently discussed. These are quite similar to


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departmental-stage models but focus more on activities and also facilitate iteration

between activities. More recent developments of this model are concurrent engineering

models where some activities are performed in parallel. The representative of most

recent thinking is the network model of new product development. This model views

new product development as a knowledge accumulation process where new knowledge

is acquired from different departments and also from external sources. (Trott 2002: 215-219).

Innovation management poses a major challenge for managers: they need to create a

balance between creativity and efficiency. Companies need to perform daily activities

efficiently in order to be competitive today. On the other hand, to be competitive in the

future they need to create new products and thus foster a creative environment enabling

free flow of ideas. (Trott 2002: 65-66). Projects are often used as a way to structure new

product development efforts to provide a solution for the dilemma. Project

characteristics such as definitive start, objectives and end together with a restricted

duration help the monitoring, managing and rewarding of new product development

efforts. Projects also provide a flexible structure to cope with tough competition and

changing business environment. (Martinsuo et al. 2003: 47).

Certain factors have been presented in the literature that affect the success of new

product development projects. Brown and Eisenhardt (1995) summarised earlier

research conducted on the subject and concluded that process performance, i.e. speed

and productivity of product development, is influenced by project team, project leader,

senior management and suppliers. Product performance, i.e. products fit with

companys competencies and market needs, is affected by project leader, customers and

senior management. Furthermore, product and process performance in combination

with a market that is large and growing and has low competition contribute to thefinancial success of the product. (Brown and Eisenhardt 1995: 366-372).

Innovation is by nature risky business. It is a complex process that is highly oriented

towards the future. Its essential objective is to develop new products with the results

being always somewhat uncertain (Keizer et al. 2002: 213). Thus, a right attitude for risk

is pivotal for successful innovation. Risks must be accepted in a sense that the company

must be able to make risk-assessment decisions, and take calculated risks in a balanced

manner. (Trott 2002: 66, 71). Risk management is also a determinant of successful new

product development. In fact, one of the main tasks of new product development is to

decrease the uncertainties in technologies and markets. (Martinsuo et al. 2003: 69-70).Early risk diagnosis and management is also essential to launch new products

successfully (Keizer et al. 2002: 213). Nowadays, risk management is perceived as an

important part of product innovation because of tough competition and severe

consequences of failures (Halman and Keizer 1997: 204).


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It can be concluded that innovation is a critical process for companies and that new

product development can be managed by projects. For the new product development

projects to be successful a good project team is needed with senior management

support and supplier and customer involvement. Also, risk management is an essential

contributor to new product development project success. However, before projects and

risk management are examined in more detail, drug development and its specialcharacteristics are presented based on this sections discussions.

2.2.2. Drug Development ProcessThere are three major steps in the life cycle of the pharmaceutical products: discovery,

development and launch. The activities in the discovery step are so creative and

complex that it is extremely hard to define all its stages. In this step the aim is to select

the most promising compounds from the vast set of screened compounds. The selected

compound is the one that best affects the target and has no obvious toxicological

features. (Blau et al. 2000: 660). Regulations have such a huge impact on the next step,

i.e. development, that different activities can be more easily described.

Figure 7 depicts the drug development process starting from discovery. The description

of different stages is combined from several sources (Blau 2000: 660, Halliday et al.

1997: 77, Kutzbach 1998: 54, PhRMA 2003: 3, Trott 2002: 339-342). It should be noted,

however, that the model is an ideal and rather theoretical description of the situation.

Normally, the phases are done somewhat concurrently and the complexity is increased

by conducting several projects in parallel. Preclinical testing focuses on the preparation

of the first human administration of the compound. Several studies are conducted in

laboratories and with animals to predict what are the effects and side effects of the

compound when it is given to humans. In addition, patent applications are important atthis point to secure exclusivity when the drug reaches markets. When authorities grant

the approval to treat first humans, clinical trials can begin, i.e. the drug can be given to

humans.

In Phase I studies the drug is given to approximately 20 to 80 healthy volunteers to test

the drugs safety at a given dose level and to see how the human body reacts to the drug.

Animal testing is also continued. If unacceptable behaviour is detected, the study may

have to be terminated.

In Phase II the drug is given to few hundreds of patients having the targeted disease. In

these studies evidence for the drugs efficacy is looked for together with the

determination of effective dosage and administration frequency. Animal testing

continues with long-term toxicology studies. Pilot plant studies are conducted to be

prepared to produce the drug in big enough quantities for the Phase III studies. Market

research is also initiated. If the drug does not treat the disease or is inferior to

competing products the development is frozen or the compound is taken back to


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0 4 8 12 16

Years

Discovery/Preclinical Testing

Laboratory and animal testing

Phase I

20-80 volunteers used to

determine safety and dosage

Phase II

100-300 patient volunteers used to

look for efficacy and side effects

Phase III1000-5000 patient volunteers used to

monitor adverse reactions to long-term use

Regulatory review/

approval

Additional

postmarketing

testing

Figure 7. Drug development process (PhRMA 2003: 3)

2.2.3. Risk Level of Drug DevelopmentAs already discussed in section 2.1.3 the pharmaceutical industry justifies the patent

system by stating that it is the only way that pharmaceutical companies can engage in the

risky investment of developing new drugs. In this section the risk level of drug

development is examined.

The drug development process presented above is a stage-based process in which

authorities determine in several points whether the development project can go on. At

present it is somewhat difficult to get one product onto markets: of 5000 screened

compounds at the discovery stage 250 move to preclinical tests. Only 5 of thesecompounds get into clinical testing and one gets the marketing approval from

authorities. Thus, only 1 of 5000 screened compounds never reaches the markets. To

make things even more complicated, only 30% of launched products ever achieve

enough profits to pay back their development investment. Half of the money spent in

development is spent in those products that never reach markets. (PhRMA 2003: 3-4

and Fagan and Hayes 1998: 3).

Still, Angell (2000: 1902-1903) argues that for big companies drug development is not

that risky because they have enough drugs in their pipeline to launch the needed amount

of products. For smaller companies that can afford only few concurrent developmentprojects, the development risks are considerably larger. To avoid major losses and delays

back-up strategies and fallback options should always be planned. During the early

stages of development it is also possible to do parallel research e.g. for different

indications. (Kennedy 1998b: 11, 14). Toxicological and clinical studies have the biggest

risk of undesired outcomes. While clinical studies account for approximately 40% of


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total R&D costs it is important that all projects with poor prospects are eliminated as

early as possible (Trott 2002: 341).

2.2.4. Complexity, Length and Cost of Drug DevelopmentAs one of the characteristics of drug development projects referred to very often, i.e. its

riskiness, was already examined, in this section the statements that drug development is

complex, long and costly are examined. Basically, drug development is more complex

than new product development in other industries because there are many projects

being conducted in parallel, the development is highly regulated, it takes an extremely

long time to develop a product and a large amount of monetary and intellectual

resources are involved.

As outlined in section 2.2.2 in addition to the clinical studies there are also other studies

and development efforts going on simultaneously. Animal testing continues throughout

the development period. The drug must be developed into a form that is effective to

manufacture and production plants must be designed and even built. Marketingstrategies and campaigns must be planned already during development. Specialists of

regulatory affairs must be continuously involved in the development effort, too.

The time to bring a pharmaceutical product into markets has become longer mainly due

to the transfer of developing drugs for chronic diseases requiring more clinical trials,

more patients, and thus more time (PhRMA 2002: 18). As can be seen from Figure 8

especially the length of clinical trials has increased. PhRMA (2003: 2) estimates that the

development of a new drug takes 10 to 15 years which is significantly longer than in

many other industries.


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0

2

4

6

8

10

12

14

16

3,2

2,5

2,4

8,1

5,1

4,4

2,1

11,6

5,9

5,5

2,8

14,2

6,1

6,3

1,8

14,2

1960s 1970s 1980s 1990s

Approval Phase

Clinical Phase

Preclinical Phase

Development

Time (Years)

Figure 8. Total drug development time from synthesis to marketing approval (PhRMA 2002: 19)

Drug development has increased in complexity because the tools used and target

diseases have become more complex (PhRMA 2003: 3). This complexity and increased

time used in development has induced a rise in costs. According to Arlington (2000: 80)

the amount of clinical studies has risen from 36 in 1991 to 68 in 1995. Furthermore,

average number of assessments per trial has doubled and so has the needed amount of

patients.

The risk of failure has also an effect on costs: the R&D costs of failed developmentprojects must be covered by a few very successful products (PhRMA 2002: 20). When

expenses of project failures have been included, the cost of developing a new drug was

calculated to be 802 MUSD in 2000 while in 1987 the figure was 231 MUSD and 54

MUSD in 1976 (PhRMA 2002: 21). The amount spent in drug development has also

risen significantly: during 1993-2000 top 20 companies increased R&D investments on

average by 10% a year in nominal terms. Partly this rise comes from the fact that there

are more drugs in the pipelines at the moment. Still, output is less than one new drug

per company per year. (Arlington 2000: 74). The pharmaceutical industry is thus facing a

challenge to increase the quality and amount of new products to sustain growth. For

example, developing me-too drugs, see section 2.1.4, can be regarded as ineffective use

of resources (Craig and Malek 1995: 314). Moreover, intellectual resources are a critical

part of drug development: staff costs account for a significant portion of R&D costs.

One critical task is also to obtain and retain high quality staff and make sure that their

knowledge is up-to-date. (Halliday et al. 1997: 73).


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2.2.5. Summary: Special Characteristics of Drug DevelopmentThe drug development projects are characterised by the level of risk, complexity, length,

costs and intellectual resources required in developing new products. These special

characteristics are summarised in Table 2. Some of these are the same as the industry

characteristics outlined before. These issues highlight the need for effective risk

management and must be taken into account during its development.

Table 2. Special characteristics of drug development projects

Characteristic

Risk level Of 5000 screened compounds one product is launched.

Of all launched products only 30% pay back the R&D investment of the project.

Big companies have enough products in their pipeline to recover R&D costs.

Smaller companies cannot afford to develop many drugs simultaneously, thusrisks are higher.

Complexity

Many parallel projects.

Highly regulated development.

Length of development.

Amount of resources needed.

More complex tools and target diseases.

Length It takes 10 to 15 years to develop a new drug.

Resources The cost of developing a new drug has risen from 54 MUSD in 1976 and 231MUSD in 1987 to 802 MUSD in 2000.

Increased R&D spending of 10% a year in top twenty companies.

Output less than one completely new drug per year. Ineffective use of resources because of the development of me-too drugs.

Cost of being late 1 billion USD per day.

Staff costs account for a significant portion of R&D costs.

2.3. Project Management in the Pharmaceutical Industry

Regarding the complex nature of drug development projects and the high cost of being

late or failing, it would seem intuitive that project management would flourish in the

pharmaceutical companies. However, the industry has been slow to implement project

management practices and is thus behind other industries in this area (Jacob and Kwak

2003: 291 and Kennedy 1998a: iii). Still, the importance of project management is

recognised: it is seen as a pivotal contributor to getting products on market and

achieving excellence in drug development (Kennedy 1998a: iii and Elliott 2000: 42) and

more emphasis is being placed on the application and development of project

management practices. As in the previous section, projects and project management are


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discussed at a general level first before concentrating on the special characteristics of

project management in the pharmaceutical industry.

2.3.1. Projects and Project ManagementA project is a temporary endeavour undertaken to create a unique product or service

(Project Management Institute 2000: 4). Projects have a definitive start and end and

their end products should be different from other products and services. Many

organisations use projects to do those activities that cannot be performed with normal

operations or processes. (Project Management Institute 2000: 4). By definition, as

projects are unique, there is more uncertainty and thus also risk in project-oriented work

compared to normal operations. Turner (1999: 35) states that organisations use projects

when their business objectives are achieved more effectively by projects i.e. when

benefits are bigger than the risk associated with the work.

Changes in business environment have promoted the use of projects. Rapid

technological change has made the future of businesses unpredictable, globalisation haschanged market structures and deregulation has transformed industry structures (Artto

2001: 14). Organisational structures need to be flexible to enable fast responses to

changes and projects are one popular way to create flexibility in organisations.

(Martinsuo et al. 2003: 10). In addition, in a networked business environment, projects

support knowledge-intensive operations that nowadays form the core of many

organisations (Artto 2001: 5).

Projects can be divided roughly into two groups: external and internal projects. For

example, R&D, internal development, change and reengineering projects represent

internal projects while external customer delivery projects are external projects. (Artto2001: 6). All these projects are different in nature and their special features must be

taken into account when managing projects. For example, Turner (1999: 25-26) has

presented a classification that distinguishes four project types according to how well

project goals are defined and how well the working methods used for reaching the goals

are defined, see Figure 9. Turner also suggests that when goals and methods are well

defined the chance of success increases while the chance of success is smaller when

goals and methods are not well defined. New product development projects are located

in the upper left quadrant while research projects are situated in the upper right corner

of the figure.


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Type 2 Projects

Type 1 Projects

Type 4 Projects

Type 3 Projects

Product

development

Research and

organisational

change

Engineering Systems

development

Water Air

Earth Fire

Project goals well defined

Work methods

well defined

Yes

Yes

No

No

Greater

chan

ce

ofsu

cces

s

Greater

chan

ce

offailu

re

Figure 9. Goals and methods matrix (Turner 1999: 26)

Projects can be defined to consist of four stages: proposal and initiation, design and

appraisal, execution and control, and finalisation and closing (Turner 1999: 11). On the

other hand Project Management Institute (2000: 30) defines these steps to be also

management process groups that appear at all project life-cycle stages. After each stage a

tangible product should be completed, for example feasibility study or prototype. All

stages start with initiation and planning and move through execution and control to

closing. After each stage there is a review of project performance and deliverables, and it

is determined whether the project should continue to the next stage. (Project

Management Institute 2000: 11).

Project management is the application of knowledge, skills, tools, and techniques to

project activities to meet project requirements. (Project Management Institute 2000: 6).

A project manager must concentrate on the special feature of projects, on managingpeople, and on the desired results (Turner 1999: 4-7). Project management can be seen

to consist of different knowledge areas and processes, see Table 3. They are all highly

interconnected, some dealing with performing project work and some supporting the

work. (Project Management Institute 2000: 8).


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Table 3. Project management knowledge areas (Project Management Institute 2000: 8)

Project management knowledge areas

Project integration management

Project scope management

Project time management

Project cost management

Project quality management

Project human resource management

Project communications management

Project risk management

Project procurement management

Risk management is one of the knowledge areas, but its importance is great incompleting projects successfully mainly because of the inherent uncertainty prevalent in

them. Turner (1999: 229) states that risk management is the essence of project

management. Also, in Arttos (2001: 14) opinion risk management is a vital function of

project management. The importance of risk management has grown lately, because of

the increased uncertainty in doing business and risk managements potential value for

business.

Programs and their management represent a further consideration of project

management. A program is defined to be a group of related projects managed in a

coordinated way. Programs usually include an element of ongoing work. (Project

Management Institute 2000: 204). Many methods and tools that are used in project

management are also used when managing programs. There are, however, slight

differences in the focus areas and importance of the methods.

2.3.2. Drug Development as a ProjectPharmaceutical projects are huge in terms of money and time consumed, and human

resources required. In fact, a drug development project constitutes of managing many

sub-projects performed by different line organisations such as the preclinical studies,

clinical studies, process development, and marketing planning. Even most of single

studies would be regarded as big projects in other industries. Thus, the drugdevelopment project could also be viewed as a program. (Lead 2000: 149).

Features of drug development projects are examined with the help of project problems,

i.e. by discussing what are the main reasons for difficulties in these projects. In fact, the

present understanding is that project problems should be detected as early as possible

and that it is an achievement and not a failure to terminate a project early (Kennedy


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1998b: 21). According to Lead (2000: 208-212) there are four main causes for project

problems: poor resource management, poor project management, insufficient scientific

experience, and unexpected and difficult technical issues.

First, insufficient resources can lead to several problems in executing a project. For

example, poor resource management can cause inadequate planning, starting activitiestoo late, corner cutting leading to repetition of tasks, poor quality and mistakes under

too much pressure, and overwork resulting in reduced morale and personal

commitment. (Lead 2000: 208-210). Second, problems from poor project management

usually start from inadequate planning and communication. All project participants

should understand who is responsible for each activity. Communication is also

important between various departments engaged in the development so that no

unnecessary delays are passed on to other departments. To avoid delays in authorisation

processes, good knowledge of regulatory requirements is needed. Detection of early

warning signals of problems starting to occur should be one of the main tasks in project

management. (Lead 2000: 210-212).

Third, insufficient scientific expertise is a serious problem. Inexperienced team

members need proper support to plan trials adequately and interpret the results gained

from the trials right. A failure in either of the tasks may result in repetition of activities.

Fourth, unexpected technical problems can occur in every project no matter how well it

was planned. Still, a good project manager can minimise the effects of these problems

by early detection and good problem-solving skills. (Lead 2000: 212). On the other

hand, Kennedy (1998b: 12-13) outlines technical reasons for project failures. As much

as 46% of projects fail because of lack of efficacy. Animal toxicity and adverse effects in

man account for the second biggest reasons for project failures.

The reasons for project problems outlined above do not seem to be different from

problems occurring in other industries. Thus, it could be concluded that pharmaceutical

projects, even though long, risky and costly, do not differ too significantly from the

general understanding of project nature. The importance of scientific knowledge and

early detection of problems may be more significant, however, to avoid repeating

expensive and long trials, and to terminate poor performing projects as early as possible.

2.3.3. Project Management in Drug Development ProjectsCooke-Davies and Azymanow (2003) studied the differences between project

management maturity in the pharmaceutical industry and five other industries. Also, big

and medium-sized pharmaceutical companies were compared with each other. The

results showed that medium-sized companies perform better than bigger companies in

three dimensions: strength of project vs. functional matrix, strength of project culture

and organisational leadership. The main reason for this was stated as the closeness of

the project management to senior management and the proximity of the upper


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management, in time and hierarchy, to the management of drug development projects.

However, big pharmaceutical companies scored better in matching the project team to

project stage and type, and in the capability of project management staff.

When pharmaceutical companies were compared to the industries from which project

management practice once initiated, it was clear that these industries, i.e. defence andpetrochemicals, performed better. However, the defence industry scored lower than

medium-sized pharmaceutical companies in organisational leadership. (Cooke-Davies

and Azymanow 2003: 476-477).

Pharmaceutical companies were also compared to other industries with regard to project

management maturity. On average, engineering-based industries of the study, i.e.

telecommunications and construction, scored better than the pharmaceutical and

financial services industries. Pharmaceutical companies performed lowest of all in the

extent to which project information is centralised and under the projects control.

Moreover, big pharmaceutical companies scored extremely low on organisational

leadership compared to others. However, as the bright spots for the pharmaceutical

industry, medium-sized companies scored second highest, right after construction, in

the strength of the project matrix and the project culture. (Cooke-Davies and

Azymanow 2003: 477-478).

When thinking about the drug development projects as such, one of their major

milestones is to get the marketing authorisation. Thus, it can be said that in addition to

the drug itself a major end product of the project is the documentation for authorisation

application. The target is moving constantly during the development time and thus it is

difficult to make specific plans of how to reach the project objectives. Actually, the

project team must be prepared to cope with constant changes and failures. Therefore, itis fair to state that planning is at the same time an extremely important and difficult part

of project management in the pharmaceutical industry. A further complication is that

even though time to market is usually the main objective, many of the critical

development activities are incompressible. (Murphy 1989: 36-37). The opportunities to

decrease development time by planning are thus limited. Clinical and toxicology studies

are usually those determining the critical path of the project. On the other hand,

regulatory guidelines facilitate the planning significantly by giving specific instruction on

what studies need to be done and in which order to gain the required authorisations.

(Kutzbach 1998: 53, 68).

Rolling-wave planning principle is usually used so that only the next phase is planned in

detail and the rest of the phases are planned in outline. Before moving to the next

phase, detailed planning is conducted. Planning is a team effort with representatives

from all line organisations involved in the project. (Kutzbach 1998: 71). Development

strategies are directed by the target product profile determined at the beginning of the

project. The target product profile is the specification of the product that is going to be


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introduced into the market. It includes the required efficacy and side effect profile of

the drug, how it should be supplied and used, in which patient groups, for what

purpose, the time of market introduction and the cost of goods. (Kennedy 1998b: 2, 4).

The project manager needs to have very good interpersonal, leadership and

communication skills to manage the cross-functional project team. As the drugdevelopment projects last long, the project team develops a strong sense of ownership

for the project and thus it may become extremely hard for them to detect and admit

there are problems and to recommend project dropping. The project team is composed

of individuals with narrow speciality areas, which makes it more difficult for them to

communicate with each other and realise how the contributions of different line

organisations fit together. The gaps between team members are further enlarged by the

fact that historically R&D has been performed in an organisational structure based on

strong functional lines. (Murphy 1989: 35-36). However, nowadays companies attempt

to break down the functional barriers.

It can be concluded that the project management practices are not significantly different

from other industries. Project planning is perhaps somewhat different regarding its long

timelines, amount of changes during the project and the tight regulatory requirements

affecting the planning process. The technical uncertainty, however, poses a significant

challenge for planning and monitoring practices in drug development projects.

Furthermore, project management is less mature, especially in the big pharmaceutical

companies, than in other industries.

2.3.4. Role of Project ManagerBecause of the highly specialised skills required in the execution of project work, theproject manager is responsible only for making sure that the skills within the project

team are used and that a good plan for the project is developed (Kennedy 1998b: 3).

Anyhow, the project manager is not a direct authority for the project team members but

rather has an influencing role (Murphy 1989: 36).

Project Management Institutes Pharmaceutical Special Interest Group reports

interesting results regarding the role of project manager in a survey conducted within

the member companies. According to the results, experienced project managers are

mainly viewed as good technicians who can keep track of time and cost but who do not

provide the leadership skills of communication and risk management. Additionally,

experience in project management has mainly come from other industries. Practitioners

in the industry still continue to believe project management is different in the

pharmaceutical industry. (PMI Pharma SIG 2002: 6).

Considering the important role of innovation and new product development for

pharmaceutical companies and the risks inherent in the projects it seems surprising that

project managers do not enjoy a privileged and recognised position of leading the most


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vital long-term operations of the firm. Because of the great impact of drug development

project success and failure for the long and short-term health of the company project

managers could be empowered more to be able to ensure that enough suitable resources

and senior management support are given to the project.

2.3.5. Summary: Special Characteristics of Projects and ProjectManagement in Drug Development

The projects and project management in drug development are characterised by the

special features of projects, project management and the role of project manager. These

special characteristics are summarised in Table 4. It is clear that there is a lot to improve

for the entire industry in this respect. The fact that project management has not been

practised for long in the industry and that it is not that mature a discipline must be

accounted for when developing risk management for the industry.

Table 4. Special characteristics of projects and project management in drug development

Characteristic

Projects Consist of several sub-projects.

Technical uncertainty: lack of efficacy is the rea

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