A Dynamic Model for Studying
the Impact of Resource
Estimation and Allocation
Processes on R&D Performance
Paul Bunch, Ph.D.
Eli Lilly and Company
Tan Fenty
Worcester Polytechnic Institute
a Outline
= Problem at Lilly
=» Model Boundaries and Assumptions
a Analysis and Explanation of Dynamic
Behavior
a Key Learning Points
Model Boundaries
Licenses / Iterations
Targets Launches Off-Patent
Marketed
Products
Peak Year Sales
Product Life
Net Income
R &D Budget Revenue
Other Costs
* COPS
° Tax
° SG&A
° etc.
| Reference Mode
4
a
f
3
R&D Dynamic Hypothesis
Resources Max Budget
Fraction
+ i
Allowable / eae
‘Actual meron
Resources
+
delay Actual / Desired
delay
Actual Budget Fraction
Resources CostFet “
Resource C
( we Desired
Actual / Desired aa Budget
+ Resources
7 Fraction R&D Budget
. Required as
Resources
Novel + Required
+ eer er
Discoveries
+
SS wip #
+
Ejections S: Molecules “mS - = Drug Lifetime
f° to Market Mec —~ i
Cycle Time Molecules
% Leavings Market
4 Examples of Feedback in R&D
aw
+ R&D Budget
Ejections +
Cycle aS \ - '
enue
ime +
jy WIP Rev
(J) °
Molecules Moving +
to M Molecules
arke'
4 Unintended Consequences
Total
Resources Required +
- —— Recouroas Sy
Required
\ Actual / Desired + ce
+ Resources Resources Per
WIP
+
f WIP 4
Novel ag
Discoveries Molecules Moving
to Market
- Cycle Time te
4 Significant Time Delays
R&D Budget —f
Resources
+ ‘\
_ Allowable /
Actual Cost Per
( Resources Resource
delay
Actual
4 General Phase Structure
Process parameters R_—~ Resource consunption
¢ cycle time “s
*success rate a CT,
SR,
5 TH,
Tote e ee > Bm Stl pt - - + >
WIP, j
K,
=
| Model Assertions
Licenses / Iterations |
arge’
R&D performance generated new products on
market
New products on market generate revenue
Revenue is the source of the R&D budget
A minimum R&D budget is required for R&D
performance to reach target levels
Results of Disturbance and
ft Parameter Analysis
= System typically falls into one of 3
states
=» perpetual oscillation
=» transitory oscillation and system-wide
collapse
» transitory oscillation with damping
7 Case 1: Why Oscillations?
Shifting of Dominant Feedback Loops Through Time
Delay in Resource Re-allocation
When Molecules are Increasing, Molecules Leaving are
typically decreasing
Two Loop States
Molecule Change LN
YY
When in this state, molecules in this phase When in this state, molecules in this phase
are increasing. Molecules leaving the are decreasing. The amount of molecules
phase are typically decreasing as cycle leaving the phase are typically increasing as
times increase. cycle times decrease.
After Initial Increase of Discovery
Rate...
4
\Y
Resources are initially inadequate, after a delay, a sufficient amount of
resources become available to change the direction of the loops.
30 5
25 + —— Revenues
20 5
—— Resources
15 + R&D Budget Fraction
10 -
5 4
a
When Resources Are Sufficient,
the Flows Change Direction...
. “nN
SOD
Maer RIATANCLIViaG PIAEGIMLSERInag! Meitas apeenes INpCQuarnTOE!
of resources become available and are allocated to Phase 2. When the rate of
molecules leaving 2 > those entering, the loops shift again.
30 -
SS —— Revenues
20 - Resources
=" R&D Budget Fraction
10 -
T T T
4
Summary of Behavior
4
=» In summary
« Oscillations occur due to the inevitable time delays
in resource allocation and acquisition
» Side by Side Positive Feedback Loops create a
situation of continual resource shifting
a Consequences
= Unintended Consequences.
= In the short term, increasing discovery rate
decreases profits.
=» Consequences.
» Disturbances thought to increase output
can actually decrease profits as resources
are tied up in transit.
5 Case 2: Systemic Collapse
= System Collapse Occurs when the
system crosses a threshold where it
becomes unable to satisfy the needs of
loops with increasing resources
requirements.
=» As a consequence, the directions of
these loops cannot be reversed.
Case 3: Damped Oscillations
Resource Estimation Technique
= Enhanced Ability to deal with Oscillations
=» Summary of Characteristics
» Quicker Positive Adjustment
» Lowering of Cycle Times with + Resources
« Less Negative Adjustment
=» Damps Oscillations in Steady State, Reduces
Oscillations in Normal Distribution
a Key Learning Points
Due to long time horizons of effect, policies
have counter-intuitive behavior in the short
term.
Ultimately increasing output requires
consciousness of shifts of resources,
molecules, and the budget fraction.
Alternative Resource Estimation Techniques
(Planning) can lead to robustness and the
dampening of oscillations.
Back
Resource Estimation Options -
Resource estimates base on current WIP
Resource estimates based on current demand
plus
anticipated demand over some time horizon
[ee
Different Effects of
4 Resources on Cycle Time
al
Cycle Time Scale Factor
| SS
1.8 2
Allocated Resources / Required Resources
7" Specific Model Flow Structure
Early
Late
Stage
Leads Licenses Stage
| | T
Candidate Product
Selection Decisi
ion
Project _ ———————>_ Program ————— Product ——?_ Launches
PRB
= Disturbance Options Back
Step | Ramp
“| Example:
7 Unexpected In-licensing Opportunities
«) Example:
“| Increased Discovery Output
Oscillatory ~ Normal Distribution
4 Resource Allocation
Back
Total R&D Capacity
RB | Rog |r
Candidate Product
Selection Decision
Project ———————>_ Program —————— Product ——?>_ Launches
Attritior Attrition Attrition
PRB
A Specific Instance of the
7 Model
= Resource Requirements in a Phase are
based on current Phase WIPs and the
associated Phase Costs / Molecule
= Allocation is proportional to relative
need and occurs with delay
Fraction of Research to
4 Terminate
Back
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