Correspondence: Grant H. Skrepnek,, Center for Health Outcomes and Pharmacoeconomic Research, The University of Arizona College of Pharmacy, 1295 North Martin, Drachman Hall, Pulido Center, Tucson, Arizona 85721, USA. Tel: +1 520 626 3930; Fax: +1 520 626 5518; E-mail: skrepnek@pharmacy.arizona.edu

¹is an assistant professor at the University of Arizona College of Pharmacy and an investigator within the Center for Health Outcomes and Pharmacoeconomic Research. His research interests involve pharmaceutical economics, policy, and outcomes, focusing particularly upon innovation and technological change, asset valuation, mergers and acquisitions, and comparative cost-effectiveness analyses of drug therapies.

²is currently a fellow at the University of Michigan and Amgen Inc. At the time of this research, he was a PharmD candidate at the University of Arizona College of Pharmacy. His research interests involve venture capital formation, strategic management, and sales and marketing efforts.

Received 1 November 2006; Revised 1 November 2006.

Abstract

This research investigated the issues and methods of analysis considered by executives when managing biotechnology drug candidates within the research and development (R&D) pipeline. A mail survey was developed to assess: (1) factors considered during clinical trials; (2) sources of funding for R&D; (3) analytic tools used in decision-making; and (4) the use and application of pharmacoeconomics, and targeted primarily Chief Financial Officers (CFO) within 396 biotechnology firms in the United States (US). Consistent with prior research on CFOs, a response rate of 7.5 per cent was achieved and respondents generally represented smaller biotechnology companies valued below US$100m. Findings indicated that regulatory and capital requirements as well as investor expectations were important factors throughout clinical phase trials. Venture capital and capital/securities markets were the most commonly used sources of R&D capital. The most frequently cited decision-making techniques used included prior experience/intuition/human judgment, net present value (NPV), and internal rate of return (IRR). Pharmacoeconomic methods were utilised at every stage of R&D and applied to the management of R&D pipelines in addition to aspects of product pricing and reimbursement. Overall, these results reflect the nature of risk and uncertainty associated with pharmaceutical and biotechnology R&D. Although the use of past experience/intuition/human judgment was most common for decision-making, methods based upon discounted cash flow (DCF) approaches were also employed frequently, as was the use of pharmacoeconomics. The implications of this work should seek to catalyse the development and utilisation of robust methods to manage drug pipelines such that senior executives are afforded optimal recommendations when attempting to hedge risk and maximise return.