| | By Stephen Humphreys
Pharmaceuticals is a
sector, perhaps even
more than oil & gas,
where the industry’s
minnows are still
behemoths. Never is this
clearer than when
looking at the revenue
figures of the top 50
global pharmaceutical
companies, with the
lowest still an
impressive £1.5bn.
Key trends presently
seen in the
pharmaceutical industry
that are generating work
for consultancies are
cost-reduction, new
forms of business
process outsourcing
(BPO), acquisition &
consolidation and
research & development
(R&D) challenges.
“The biggest
challenge for
pharmaceutical companies
is always the pipeline
of new drugs and,
currently, pipelines are
shrinking”, said Paul
Attridge, head of life
sciences at CSC. New
drug development takes
place over a 10-year
cycle, with an average
of $100m investment
required. Companies then
have a limited timeline
to make profits before
generic companies enter
the market. This
decreasing pipeline of
new drugs has
significant implications
for the revenues and
profits of these
pharmaceutical companies
and is the key driver
behind many of the
different directions
these firms are trying
to take. Along with the
declining pipeline of
new drugs, there is also
the question of what the
next “blockbuster” drug
will be. Firms are
focusing on drugs that
target many of the
degenerative diseases,
but they have
encountered difficulties
in R&D, seeing many new
drugs failing at the
second and third stage
of trials. This has
resulted in the loss of
a significant amount of
R&D investment, and a
large number of jobs.
These economic
conditions have led to a
great deal of
consultancy work, within
a sector looking to
maximise profits. This
work falls into broad
categories of
cost-reduction and
outsourcing in order to
maximise profits,
despite falling
revenues, and
acquisitions, strategic
marketing and joined up
R&D to improve
drug/product/sales
pipelines.
Acquisitions across
the market range from
within ‘big-pharma’
(e.g. the relatively
recent acquisition of | |
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| | Wyeth by Pfizer), to big
pharmaceuticals buying
small firms, where the
aim of the purchase is
to own a patent, a
compound or for product
fit. John Rountree,
co-founder of mid-sized
pharmaceutical
consultancy NovaSecta,
says that much of the
deal activity in the
‘mid-pharma’ sector is
about “building
capability and
partnerships, not just
compounds”. For example,
many European firms are
looking to acquire in
the US to assist in the
move to new markets.
NovaSecta is helping
companies in the
mid-pharma market with
their “front office”.
The consultancy
particularly focuses on
the gap between strategy
and operations; the
practicalities of
delivering strategy. On
the other side of the
reducing pipeline issue,
CSC focuses on the
cost-reduction aspect,
with strategic sourcing,
IT implementation and
BPO.
Within R&D, NovaSecta
is looking at generating
more innovation,
strategic outsourcing of
research, and the
interface of innovation
and marketing. This last
point is particularly
important at the moment.
Essentially,
pharmaceuticals is a
business that sells the
output of good R&D.
Linking these two
functions is essential
for a streamlined and
effective pharma
business, and NovaSecta
is seeing significant
business growth in this
area. In summary, its
front office project
areas are:
* Research &
development –
accelerating proof of
concept, evolving and
building functional
capabilities, partnering
effectively.
* Corporate
development – supporting
clients with their
strategic intent, and
helping to make that
happen (e.g.
acquisitions vs. organic
growth, risk management,
partner selection).
* Strategic marketing
– helping to improve the
interface with R&D.
Ensuring medical,
marketing and research
work together.
On the “back
office”/cost reduction
side, there has been a
steady growth of IT
outsourcing, alongside
the development of
business process
outsourcing. The growth
of the outsourcing model
has lowered the
price-point even | |
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| | further. This has had
significant implications
for the consulting
industry, as the
traditional US
integrators Accenture,
IBM and EDS/HP are being
replaced by the Indian
firms TCS, Cognizant
Wipro and Infosys. This,
coupled with a
consolidation of the
number of suppliers that
each pharmaceutical
company uses, has put a
lot of pressure on the
market, leading to
consolidation in the
consultancy arena. CSC’s
Attridge says his
company is a classic
example of this, with
its acquisition of First
Consulting Group in 2008
and, even more timely,
the acquisition by CSC
of Image Solutions
Incorporated (ISI) at
the end of 2010. Scale
and depth within the
consultancy firms is
critical.
“These market
developments and
acquisitions leave us in
a very strategic
situation to present a
stronger BPO offering to
big-pharma at a time
when they are looking
for ways to further cut
operational costs,” says
Attridge. He says
acquisition has also
increased the firm’s
competency in the
regulatory outsourcing
space where it has won
deals with GSK, among
others. “This is a
market that few of the
other outsourcers are
focusing on, and is a
real growth opportunity
for CSC. This move is a
real game-changer,” he
says.
Pharmaceutical
companies are
increasingly looking to
consultancies for
support. The “back
office” needs to cut
costs, through
operational improvements
and large scale
outsourcing of IT,
business processes and
regulatory reporting.
This demand has led to
an expansion of the
pharma group at CSC,
along with acquisitions,
from 100 to 550 people.
It’s a similar story
for the “front office”.
The pharmaceutical
companies want to
increase sales and
specialist firms like
NovaSecta are working
with them to tackle
strategic marketing
issues, R&D performance
improvement, and make
proactive and driven
corporate strategies
happen. As clients have
succeeded and taken on
more challenges,
NovaSecta has been able
to grow its own business
in terms of both client
base and staff. | |
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