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Pharmaceutical Portfolio Management: Global Disease Burden and Corporate Performance Metrics

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Author Info

  • Rutger P. Daems PhD

    (Planet Strategy Group, Brussels, Belgium)

  • Edith L. Maes DBA

    (Maastricht School of Management, PO Box 1203, 6201 BE Maastricht, The Netherlands)

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    Abstract

    BACKGROUND Consistent with good corporate citizenship and the role of multinational pharmaceutical corporations in producing social goods, there is a need to clarify the concept of global burden of disease (GBD) and create performance metrics that measure a firm’s contribution to ‘saving lives’ through its current portfolio as well as identify future opportunities for enhanced product/service offering. OBJECTIVE The purpose is to develop besides a conceptual framework an analytic decision-making tool to assess and enhance a firm’s contribution to reducing the burden of disease, and to propose pathways on how this can be accomplished by optimizing the social and business returns on investment thereby maximizing the outcome for all stakeholders (i.e. patient, government, payer and firm). METHODOLOGY Product development and financial parameters are connected in an analytic decision model in combination with disease burden metrics. Through event study methodology, we subsequently explore solutions to a number of market, technology, and system issues leading to a disparity between socially and privately appropriable benefits. This is examined through a series of case studies. The GBD-based theoretical framework provides a general overview and at the same time an assessment of the social return on investment (SRI) as well as the contribution made by any specific compound or project that together constitute the company’s portfolio – now and in the future. The social outcome (SRI) is commonly expressed as Disability Adjusted Life Years (DALYs) averted and the preferred indicator of how successful the burden of disease has been reduced. Simultaneously, the business return on investment (BRI) is computed, capturing the R&D costs and risks in a modular fashion, allowing executives to calculate the profitability index for each product or project. CONCLUSION This paper contributes to the burgeoning literature on medical innovation and the ambition to broaden access to medicines. The relationship between a firm’s product outcomes and its corporate social responsibility is examined in the context of a globalizing world still dominated by different national economies and healthcare needs. To better accommodate these needs a holistic framework is required that captures the demands of those living in high, middle and low-income countries. We believe the suggested framework is able to accomplish this goal and essentially provides a more holistic product portfolio management tool that links the social and business returns of pharmaceutical innovation into a coherent analytic and decision framework, while also providing a dynamic view on how the results obtained along each of the core axes can be improved or optimized.

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    File URL: http://web2.msm.nl/RePEc/msm/wpaper/MSM-WP2013-07.pdf
    File Function: First version, 2013
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    Bibliographic Info

    Paper provided by Maastricht School of Management in its series Working Papers with number 2013/07.

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    Length: 29 pages
    Date of creation: Feb 2013
    Date of revision:
    Handle: RePEc:msm:wpaper:2013/07

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    Related research

    Keywords: pharmaceutical R&D; neglected diseases; push mechanism; pull mechanism; innovation; investment risk incentive;

    This paper has been announced in the following NEP Reports:

    References

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    1. Daron Acemoglu & Joshua Linn, 2003. "Market Size in Innovation: Theory and Evidence From the Pharmaceutical Industry," NBER Working Papers 10038, National Bureau of Economic Research, Inc.
    2. Daems, Rutger & Maes, Edith & Ramani, Shyama V., 2011. "Global Framework for Differential Pricing of Pharmaceuticals," MERIT Working Papers 054, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
    4. Murray, Christopher J. L. & Acharya, Arnab K., 1997. "Understanding DALYs," Journal of Health Economics, Elsevier, vol. 16(6), pages 703-730, December.
    5. Henry G. Grabowski, 1968. "The Determinants of Industrial Research and Development: A Study of the Chemical, Drug, and Petroleum Industries," Journal of Political Economy, University of Chicago Press, vol. 76, pages 292.
    6. Yin, Wesley, 2008. "Market incentives and pharmaceutical innovation," Journal of Health Economics, Elsevier, vol. 27(4), pages 1060-1077, July.
    7. Henry Grabowski & John Vernon, 2000. "The determinants of pharmaceutical research and development expenditures," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 201-215.
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