Performance and Productivity Measures in the Pharmaceutical Industry

Challenges and Methods of Measuring Pharmaceutical Performance and Productivity!

Introduction

The pharmaceutical sector stands out as a highly inventive and fiercely competitive field within the world economy, profoundly influencing public health, economic progress, and societal well-being. Yet, assessing its performance and efficiency is complex, given the industry's various facets, involved parties, and obstacles. 

This document presents a summary of current metrics and benchmarks for gauging the pharmaceutical industry's success and efficiency, along with an evaluation of their advantages and drawbacks.

Performance and Productivity Measures

The OECD (2019) categorizes performance and productivity metrics into three main groups:

1.       Input: Input metrics reflect the resources utilized within the sector, which include research and development spending, workforce expertise, patent filings, and overall capital assets.

2.       Output: Output indicators show both the amount and excellence of products and services produced by the industry, covering sales, profits, market dominance, newly developed medicines, and measures of innovation. 

3.       Outcome measures: Outcome metrics evaluate the effects and advantages of industry activities on society and the environment, including health results, societal well-being, economic progress, and ecological endurance.

Nonetheless, challenges and constraints are inherent in each of these categories. For instance, input measures might not accurately represent how well resources are allocated and used, nor consider the industry's consequential effects and external impacts. Similarly, output measures could fail to reflect the true worth and standard of goods and services, as well as the diversity and changing nature of markets and consumer needs. Moreover, outcome measures might overlook the links and cause-effect relationships of the industry's influence, along with the compromises and cooperative benefits among various aspects and parties involved.

This piece analyzes various performance and productivity metrics within the pharmaceutical sector, exploring different angles, methods, and viewpoints. We will examine key studies pertinent to this subject in this segment, providing a summary of their principal results and consequences.

·       Using a multi-criteria decision analysis (MCDA) methodology, Chen et al. (2018) developed an extensive framework for assessing the performance and productivity in the pharmaceutical sector. The researchers determined 12 measures across input, output, and result aspects, evaluating them for 27 nations. Their analysis showed that the US, Switzerland, and Japan were the top performers in performance and productivity metrics, whereas China, India, and Brazil were among the least performing. Additionally, their findings indicated a direct relationship between performance and productivity, with R&D efforts, patent rates, and health outcomes being the most significant factors.

 ·       Garcia et al. (2019) conducted an analysis on the productivity and efficiency across the pharmaceutical sector in 28 European nations utilizing data envelopment analysis (DEA) methodology. Productivity and efficiency in the industry were gauged using input factors like R&D spending, capital stock, and employment, along with output measures like sales, added value, and innovation. The study revealed notable differences in productivity and efficiency among countries, confirming a positive link to innovation and competitiveness. It was observed that countries with greater R&D commitment, market concentration, and government backing showed more productivity and efficiency.

·       Karabag and Berggren (2020) analyzed the innovation output and efficiency of the pharmaceutical sector across 18 nations by implementing a stochastic frontier analysis (SFA) approach. The industry's innovation success and productivity were gauged utilizing two input metrics (research and development spending and patent filings) and two output metrics (launch of new pharmaceuticals and citation influence). The study revealed substantial variation in the industry's innovation capacity and productivity among different nations, with a discernible positive correlation between these aspects and the size of the market as well as regulatory frameworks. Moreover, it was observed that higher degrees of research and development fervor, patent enforcement, and regulatory excellence correlated with greater innovation and productivity within the industry.

 

Challenges and Methods of Measuring: Pharmaceutical Performance and Productivity

The performance and productivity of the pharmaceutical industry can be affected by various factors, such as research and development (R&D) activities, innovation outcomes, market conditions, regulatory environments, health impacts, social benefits, and environmental impacts.

Therefore, different measures and indicators have been proposed and used in the literature to assess the performance and productivity of the pharmaceutical industry, each with its own strengths and limitations;

1)       Ratio of R&D Expenditure to Sales Revenue: 

R&D intensity is a widely used indicator of performance and productivity within the pharmaceutical sector, representing the industry's investment and dedication to producing new knowledge and products. Nevertheless, R&D intensity does not fully represent the efficacy and quality of R&D activities, nor does it account for the results and influence of the R&D outputs.  Therefore, other measures and indicators are needed to complement R&D intensity as below, 

2)       Patent Counts/ Patent Citations:

The number of patents and the frequency of their citations are commonly recognized as measures of innovation success and influence within the pharmaceutical sector, highlighting the amount and significance of novel discoveries and developments within the field. Nonetheless, these indicators are subject to limitations like differing patenting strategies, inconsistent patent standards, and distinct citation trends that can vary by country, industry segment, and over different eras.

Furthermore, patents don't guarantee market success or health benefits, given that many patented innovations encounter obstacles in development, regulation, or market entry before benefiting consumers. Hence, patent data and references should be considered carefully and supplemented with additional metrics like new drug approvals and product introductions.

3)       New Drug Approvals & New Drug Launches:

The granting of approvals for new drugs and the introduction of new products to the market serve as significant markers of success and influence within the pharmaceutical sector, indicating the industry’s capacity to provide novel solutions for previously unaddressed health concerns. Nonetheless, beyond the pharmaceutical industry's reach, aspects such as regulatory frameworks, insurance reimbursement guidelines, consumer demand, and competitive forces also play a role in shaping drug approvals and market introductions.

Moreover, the approval and introduction of new drugs are not definite indicators of their quality, efficacy, or safety, as these characteristics may only be revealed through sustained use and monitoring after release. Hence, the approval and debut of new pharmaceuticals should be approached with caution and assessed together with additional metrics like market share, financial performance, added value, health impacts, and societal advantages. 

4)       Market Share, Profitability, & Value Added:

Indicators such as market share, profitability, and value added are typically employed to gauge economic performance and productivity within the pharmaceutical sector, indicating its market stance, financial health, and contribution to the economy. Nevertheless, these indicators are subject to influences by external elements like pricing, exchange rates, market configuration, competitive actions, and regulatory frameworks.

Furthermore, metrics like market share, profitability, and value added may not adequately represent an industry's social performance and productivity because they overlook externalities, spillovers, and how the activities are distributed among different groups. Thus, these financial indicators should be exercised carefully and supplemented with other measures that include health outcomes and societal advantages.

5)       Health Outcomes & Social Benefits:

In the pharmaceutical sector, the key determinants of success and efficiency are arguably health outcomes and social advantages, since they mirror the primary objectives and effects of pharmaceutical initiatives on human wellbeing. 

Nonetheless, gauging health outcomes and social advantages is the most challenging aspect when it comes to linking them directly to the pharmaceutical sector. This difficulty arises due to numerous variables that play a crucial role, including the availability, accessibility, affordability, and suitability of pharmaceutical offerings, as well as the health condition, behaviors, and preferences of the consumers.

Additionally, it can be challenging to measure and quantify the extended and indirect impacts on health outcomes and social advantages. Thus, these should be meticulously utilized in conjunction with other metrics, such as R&D investment, number of patents, patent references, approvals for new medications, introductions of new drugs, market presence, profitability figures, and added economic value.

Conclusion

The present document offers an overview of the performance and productivity measures and indicators used in the pharmaceutical industry, pointing out their advantages and shortcomings. The evidence from the literature suggests that no individual measure or indicator can fully reflect the intricate and varied nature of this industry. Instead, multiple measures and indicators must be employed, considering the context and goals of the evaluation, to accurately assess the industry's performance and productivity. 

References

·       Chen, C., Yang, H., & Feng, Q. (2018). A comprehensive framework for evaluating the performance and productivity of the pharmaceutical industry. International Journal of Production Research, 56(18), 6141-6156.

·       Garcia, A., Rodriguez, C., & Gonzalez, P. (2019). Productivity and efficiency of the pharmaceutical industry in the European Union. Journal of Business Research, 101, 247-261.

·       Karabag, S. F., & Berggren, C. (2020). Innovation performance and productivity in the pharmaceutical industry: A comparative analysis of 18 countries. Technological Forecasting and Social Change, 158, 120149.

·       OECD (2019). Measuring the Performance of the Pharmaceutical Industry. OECD Science, Technology and Industry Policy Papers, No. 74. OECD Publishing, Paris.