Lies,damnedliesandstatistics

StewartAdkinsStewartAdkinsAdvisorsLimited/PharmaForensic Ltd

ThePharmaIndustryisAwashwithData

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Data

DataData Data Data

Data Data

Data

CRMSystem

CRM

ACRMisParticularlyGoodatCollectingData

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CRM

ButNotSoGoodatDeliveringUsefulInformation

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ThereisaGenuineLackofTalentinDataScience

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HittingtheSweetSpotisDifficult

EmploymentSweetSpot

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CorrelationandCausationcanbeConfusing

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IsPharmaRuledbyDashboardsandKPIs?

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Introduction– APeekintoaDisruptiveFuture• Thepharmaceuticalindustryisdatarich(commercialdata)butreluctant(oratleastglaciallyslow)toembraceitsmyriadpossibilities.• Notconfidentinthedataintegrity?• Tooacceptingoflinearrelationshipsbetweenvariables?• Confusescorrelationandcausality?AbigproblemwithBigData.• ToofocusedondashboardsanderroneousKPIs?• Lackingaccesstotalent?

• Makingdataacorecompetencewithintheindustryoffersenormousupside.• Competitiveadvantageforfirstmovers• Bettersalesandmargins• ScopetoreinvestsavingsinR&Dorlowerpricesforsocietalgood.

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MakeDataaCoreCompetenceforCompetitiveAdvantage

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BenefitsofDataasCoreCompetence

• Bettersales• Highermargins• Lessvolatilityinheadcount• HigherMarketValue• Optionality• Cutpricesbutpreservemargins• BoostR&Dbutpreservemargins

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ABitofFunwithCorrelation

• Correlationdoesnotimplycausality• Forsomethingtobeshowntobecausal

a) AmustprecedeBb) TheremustbeaplausiblemechanismforAtoleadtoBc) Allotherpossibleorprobablecausesmustbeabletobediscounted.

• Thisrequirescomplextechniquesandgoodqualitydatameasuredovertime.

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Correlation:0.992558

CanAnyoneClaimaCausalLink?

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Correlation:0.992082

HowAbouttheCausationHere?

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“…all modelsarewrongbutsomeareuseful”*

*GeorgeE.P.Box15

“…all modelsarewrongbutsomeareuseful”*

*GeorgeE.P.Box16

TheUseofLinearRegressionhereExaggeratestheRelationshipbetweenCallsandSales

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What’sWrong?• MostPharmaceuticaldataviolatestheassumptionsthatunderpinlinearregression.• Excelbasedmodelsfrequentlyoverestimateresults.• Thismeansthat• SalespredictionsforROIheavilyoverestimatetheeffectofactivities.• Non-significantactivitiesarereportedassignificant

• Inthisverysimpleexampletheincorrectmodelinflatestheslopebyafactorof9.

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Anscombe’s QuartetSoundsaDiscordantNote

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R2=0.67,Y=3+0.5xForeachdataset!!

050000100000150000200000250000300000350000400000

MarketCappreandpostadjustmentaftercutting15%ofSG&A

MarketCap$bn Additionalmarketcap=additionalearningsxPEmultiple

TheBenefitsofSmartAnalyticsSavingjust15%ofSG&Acanadd$2-34bnofMarketCap

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TheBenefitsofSmartAnalyticsTranslatestoadding4-39%toMarketValue(dependingonPEmultiple)

00.20.40.60.81

1.21.41.6

MarketCapadjustedforSG&Asavingsin%

MarketCap Additionalmarketcap=additionalearningsxPEmultiple

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Conclusion• Analyticscanaddenormousvaluetoacompanyanditscompetitiveposition.• Useofthewrongmodelcanleadtoerroneousconclusionswithexpensiveresults– lostsalesandlowermargins.• ThePharmaceuticalindustryneedstomakeanalyticsacorecompetence• Establishstrongrelationshipswithuniversitiestoencouragemorestudents• Showleadershipinpromotinganalyticsasanexcitingcareerchoiceintegraltothecommercialorganisation.• DemonstratetopayershowlesswastedspendingcanbereinvestedinR&Dorlowerpricesforthebenefitofpatientsandsocietyasawhole.

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