Vinnie, software and pharma

Vinnie has a go at software R&D in his post here. I felt compelled to respond, even if it means missing lunch in the Walldorf canteen. 

Having spent 13 years in presales, I for one, would love shorter sales cycles. 600 page RFPs that result in 3 vendors being scored at 91% 87% and 88% fit, and death by demo doesnt help anyone. I have been involved in some sales cycles that have taken over 5 years for a basic HR system. I sometimes liken selling enterprise software to selling a house to 40 people, all whom have to agree, but you never get the same 40 people through the house at the same time. 

I have argued before that organisations that "buy fast" tend to implement fast.  It takes two to tango. If the customer buying patterns change, you bet the software companies will change too. I think you may need to point your finger at those that dream up the RFP circus, rather than those that are compelled to perform in them.

Secondly, and more fudamentally.

 Vinnie if you dont like 10% R&D you need to beat up every industry, not just the software guys. While I was missing out on my schitzel I googled pharma R&D and came up with some interesting numbers. It is not the paragon imagine.

Looking at pharma R&D industry stats, I found out the following: (This is related to the German Pharma industry, but could be extrapolated relatively accurately globally)

 the first time since the introduction of the VFA Member Survey in 1997, the R&D expenditures of the researchbased pharmaceutical companies did, in fact, stagnate. In 2004, they increased by a mere 0.2 percent to EUR 3.9 billion compared to 2003. Since sales were down 3.8 percent, the share of R&D expenditures increased from 15 to 16 percent.

You can read more here. on the german association of research based pharma companies.

Similarily a look at the DTI report here shows that the  pharma industry (GSK, Pfizer, … has an R&D and CAPEX spend of 21% (adding capex to R&D inflates this considerably), and an operating profit of  71,4%.

I picked GSK as an example R&D is constant at 14.5% over the past two years.

Although a little old, I think these numbers offer a similar view for the whole pharma industry

1999 Data

All data points are percentages of sales unless specified otherwise

 Company  Cost of Goods  Marketing & Administrative  R&D
 Abbott   45.4%   21.7%    9.1% 
 American Home Products   27.3%   37.2%   12.8% 
 AMGEN   13.2%*   19.6%   24.6% 
 Biogen   17.9%*   18.4%   27.8% 
 Bristol-Myers Squibb   27.4%   34.6%    9.1% 
 Dupont   63.1%    9.6%    6.0% 
 Eli Lilly   21.0%   27.6%   17.8% 
 Genentech   18.0%*   33.0%   26.0% 
 Glaxo Wellcome   20.0%   35.2%   14.6% 
 Johnson & Johnson   30.7%   38.2%   9.5% 
 Merck   53.6%   15.9%    6.3% 
 Novartis   N.A   N.A   12.4% 
 Novartis (Pharmaceutical segment)   N.A   N.A   18.3% 
 Pharmacia   26.1%   38.6%   19.8% 
 Pfizer  15.6%   39.2%   17.1% 
 Roche   N.A   N.A   13.7% 
 Schering-Plough  19.6%   37.4%   13.0% 
 SmithKline Beecham   29.2%   38.2%   12.1% 
 Warner-Lambert   23.5%   46.1%    9.7% 

*Percentage of Product Sales

Source: Company SEC 10K Filings and Company Annual Reports

SAP spends 13% on R&D, and grew this by 19% this year.

You may also want to check on your charity.

2 thoughts on “Vinnie, software and pharma”

  1. I will buy you lunch for taking the time to comment!

    On long sales cycles. I did say buyers need to streamline their process. But if you want to see games sales people play in the cycle see my series of sales people “tricks” on my blogs. Or see how poorly scripted scenarios are responded to by your competition (SAP is somewhat better) – when prospects want to see cutomized demos not canned ones. I happen to agree with you on time. Any evaluation which lasts longer than 120 days is doomed. Roles change, requirements change. I like intense evaluations and negotiations. But there is plenty vendors can do to streamline.

    One of your customers remarked to me how much time the salesperson sat in their meetings, demos etc while hardly saying anything. Their comment was “to expensive to be just part of meetings – we are paying for it in some shape or form”

    On R&D – some pharma companies are also in to CPG products and that dilutes their R&D to S&M ratio. And if you look at cereal – the example I used Kellogg shows no R&D on its WSJ P&L.

    On Charities, find me a big one which spends like than 15% on distributions…and I will owe you a dinner in addition to the lunch.


  2. the major point I have made elsewhere on my blog is I am having serious discussions with CIOs given that only 5-10-15% of every dollar they spend with their software vendors is going in to R&D, could they not do better by negotiating down maintenance etc and using that full dollar (I call it full oxygen) for doing their own applied innovation.

    The reality is whoever is at fault 40 to 50% in SG&A in software is not helping one iota when it comes to innovation or pushing the tech envelope.

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