Cross posted from Everest Group's blog, with minor contextual edits:
In late November 2011, the world's largest branded drug by revenue - Lipitor® - went off patent. The forecasted fall in revenues for Pfizer is expected to knock it off the perch of being the world's largest pharmaceuticals firm. By 2015, industry analysts expect the patent cliff (revenue loss due to patent expiries) to cumulatively knock out more than US$200 billion in pharma industry revenues. For an industry that brings in just under a trillion dollars annually, this is a major revenue hit.
Exacerbating the problem is continually dipping R&D productivity that has constrained pharma firms’ capacity to replenish their pipelines. While R&D spend has doubled to nearly US$50 billion annually over the last decade, new drug approvals across the industry have more than halved.
To manage this unprecedented change, pharma firms are taking a re-look at their business profiles and cost structures.
Emerging market expansions are the industry's new mantra for growth. IMS, a leading provider of information services for the healthcare industry, estimates the industry's share of revenues from emerging pharma markets to double to nearly 40 percent by 2015. And all players, from the big pharma companies to generic manufacturers, are expanding their footprint in these markets, aggressively building and buying distribution capacity, and expanding sales and marketing networks. For example, Pfizer teamed up with ITC in India last year to leverage its distribution network to sell drugs to rural consumers.
In the face of steep revenue declines, productivity and cost optimizations are but a given. The R&D function is being restructured into leaner and more collaborative partnerships, with growing industry-academia interfaces. For example, in 2011, Pfizer aimed to reduce its R&D budget by US$1.5 billion with sizeable job cuts. And in the commercial function, sales force reductions have become the norm. In December 2011, AstraZeneca announced that it would cut its U.S. pharma sales force by over a quarter (even as it announced plans to scale up its emerging markets sales force).
Further, as the industry tries to manage its risk profile, it has begun to diversify into new consumer-centric business areas including generics, consumer healthcare, diagnostics, nutritionals, health management and animal health. For example, GlaxoSmithKline (GSK) today lists the creation of a ”diversified global business” as its top strategic priority.
In this era of significant change, technology and business service providers have a great opportunity to exhibit leadership and step up to stronger partnerships with the industry by:
· Helping drive innovation in the pharma industry
o Bringing in ideas from other industries, not just in R&D, but also in manufacturing, retail, and distribution, e.g., helping pharma improve field-force design based on fast-moving consumer goods (FMCG) principles, and its manufacturing and supply chain with ideas from logistics
o Enabling a more effective use of technology to drive business results, e.g., through use of collaboration technologies to improve research, and by leveraging digital media more effectively for a more effective consumer presence
· Helping pharma firms address the myriad of complexities they face as they enter and expand in emerging markets, e.g., establishing local market relationships, navigating regulatory issues, building distribution setups and partnerships, structuring low-cost solutions, etc. Established service providers with significant emerging market presence also have the potential to enable the industry with more holistic propositions to address a number of these complexities end-to-end.
· Helping the industry optimize its cost structure:
o Improving field-force effectiveness – where nearly one-third of pharma spend is concentrated – through enabling sales force management tools, data and analytics (in next generation areas such as effectiveness research and digital analytics) and back office services (sales operations)
o Driving manufacturing and supply chain efficiencies through more integrated technology architectures (e.g., redesigned ERP implementations, and emerging rollouts)
o Managing regulatory complexity (an area in which pharma firms spend a couple of billion dollars each year) through building validated, compliant technology environments and cost-effective BPO services in areas such as pharmacovigilance
o Driving R&D efficiencies through collaborative platforms, and helping manage large volume high-throughput data environments
o Increasing flexibility in the face of rapid change, e.g., through cloud-based models
Today, service providers seem focused on servicing the pharma industry's IT-BPO requirements largely in a “vendor” capacity. Traditionally, the pharma industry's cash rich and risk-averse culture often drove this arms-length positioning. However, in this time of massive change, a more proactive approach is called for, and smart technology and business service providers will not miss the opportunity to challenge the industry's status quo and support its growth through bold, provocative offerings and thought leadership.