Leadership Spotlight: Perspectives from a Manufacturer
Darren Snellgrove, Vice President, Group Finance, Worldwide Pharmaceuticals at Johnson & Johnson Innovative Medicine
Darren Snellgrove, CEO at Johnson & Johnson Innovative Medicine, spoke at the 2024 Life Sciences Accounting and Reporting Congress in March in Philadelphia about the current state of the pharmaceutical industry and how finance leaders can make sustainable investments going forward to foster innovation and productivity within the industry.
Snellgrove started the conference by asking a question: What impact do pharmaceutical companies have on patients and disease? Having reached out to Chat GPT, the answer given was: Pharmaceutical companies have a significant impact on patients and disease by researching, developing, and producing medications that treat and prevent various illnesses. Their innovations have led to the eradication of diseases, improved quality of life for many patients, and extended life expectancy globally.
Snellgrove said that the answer was inspiring, and it made him feel proud to be part of such an impactful industry.
He then went on to ask Chat GPT another question: What impact do cigarette companies have on people and disease?
It answered: Cigarette manufacturers have a significant negative impact on people’s health. The production of cigarettes has led to widespread addiction to nicotine, leading to serious health issues such as lung cancer, heart disease, and other health problems.
Snellgrove highlighted the comparison between cigarette manufacturers and the pharmaceutical industry, noting that despite the pharmaceutical industry’s role in treating and curing diseases, it is often portrayed in the same light as cigarette manufacturers.
Drug development
There is a lack of understanding about the cost, risk, and the degree of difficulty associated with drug development, according to Snellgrove. It costs around $2.6 billion to bring a drug from discovery to market; however, it is understated as only 12% of drugs make it to market and if they do make it, it could take up to 10 years, he noted. This is despite the significant advances in the tools and technology that is available now.
The presentation reflected on the advancements of medicinal machinery such as throughput screening, X-Ray crystallography, and mapping of the human genome to help efficiency.
R&D productivity
Despite these advancements, the industry is seeing a decline in R&D productivity. Snellgrove shared data from Deloitte, who each year publishes data on the R&D returns within the industry. The data highlighted that R&D productivity was declining alongside R&D returns, suggesting that the level of investment needed to drive innovation may not be sustainable.
External factors are driving costs up such as inflation. He said, “A high number of simpler diseases have been solved by this point and so, the problems the industry is now facing are more complex and more difficult to treat.”
Another challenge is global pricing pressures. Snellgrove said that, due to the long-term effects of COVID, the industry is seeing disruption to supply chains, inflation, increased demand, and shortage of supply. Recent global conflicts may have contributed to the feeling of instability and the complexity of what the industry is dealing with, he said.
Additionally, pressure on healthcare budgets are going up, according to Snellgrove. He stated that there is undoubtedly a problem with pricing and the cost of healthcare.
“The cost of drugs in the healthcare system is around 14%, and I would argue that a lot of what we do, actually reduces or avoids certain costs further down the healthcare system.”
Every country is taking a different approach to deal with the pricing pressures the industry is facing.
What does this mean for finance leaders?
Finance professionals need to allocate capital by optimizing short-term and long-term investment. Snellgrove said financers play a role in helping business partners allocate and optimize capital allocation so that value creation is driven for collaboration and deal structures.
From an accounting point of view, finance leaders must line up and drive the right incentives and behavior in the industry, according to Snellgrove. He said that with all these pressures it is inevitable that there would be an impact on the industry.
“That’s why it’s really important that we continue to advocate for our industry and importance of it for society” so that professionals can continue to justify investment in high-risk projects to ensure there is no impact on innovation, Snellgrove said.
Dealing with industry challenges
Snellgrove believes the right transformational innovation would be the best way to deal with challenges the industry is facing. Investing in innovation is key to sustainable value creation. The industry must also pay attention to artificial intelligence (AI) and machine learning, he said.
The combination of these is going to have a significant impact on discovering new drugs, better diagnostics, personalized treatments, and optimizing clinical trials.
AI is going to help with adherence and drug dosing, improve manufacturing quality, and hopefully reduce cost, which will optimize the supply chains, Snellgrove said.
There are huge opportunities for the industry, and it must embrace new approaches and lead into the future.
“We have to continue to step up our game and really try to invest in these new and exciting innovations that are available to us. We also have to try to advocate and help to fix the system.”
