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Preparing a sufficient budget to cover drug development is a more straightforward exercise. Much of the work, whether internal or external, is determined far in advance by the development plan and can be estimated by referring to similar experiences with previous projects. Historical information can also be helpful in estimating the cost of contingency plans, which would increase the budget, and the project failure rate, which would reduce it. |
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Accurate project cost accounting is important for effective budget control. Concerns over high-priced drug therapies are increasingly motivating companies to track the actual cost of product development. Monitoring costs from the earliest research effort through product registration will provide valuable data to justify the cost of the product development. Since companies must also cover the cost of good ideas that fail during development, development costs must be adjusted to account for these investments as well. Nevertheless, good project accounting provides a sound basis for these adjustments. |
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Since personnel can be such a significant component of the R & D budget, many companies have introduced monitoring systems to track the time employees spend on development projects as part of the project cost accounting procedure. The cost of materials purchased for specific projects, as well as contracts, can also be captured as project costs. However, lab supplies that are ordered in bulk and the facilities costs serve many projects and cannot be monitored on a project basis. In these cases an allocation procedure is used to spread unspecified costs to all projects, in proportion to the amount of work done on each one. Administrative support costs can be allocated to the projects on the same basis. |
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Increasingly, project managers are realizing that it makes good sense for the project to have its own budget and to be accountable for the expenses it incurs. By holding the team that is responsible for development of a compound also accountable for its expenses and for a competitive share of the budget, the team will be more cognizant and aggressive in seeking cost-effective options for conducting studies, assaying samples, and the like. Project budgeting is possible for development projects because the costs can be planned several years in advance. In discovery projects, this is more difficult. |
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IV. Balance between Research and Development |
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With R & D budgets being more carefully scrutinized, one of the most difficult questions is how to divide the R & D budget between discovery and development activities. Discovery of a new development candidate is a very small cost relative to the cost of developing it. However, discovery efforts have a much |
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