The pharmaceutical industry is undergoing a number of major changes as it seeks to reinvigorate new pipelines for drug development through acquisitions, cut operating costs and invest in R&D to deliver new ‘patient-centric’ drugs and therapies.
The urgent need to focus on costs is a relatively new and unfamiliar territory for large pharmaceutical businesses. Added to this is pressure from shareholders for higher returns. Overall, these trends are driving consolidation and restructuring on an unprecedented scale in the industry.
M&A to drive growth and support innovation
Pharmaceutical businesses need to find new sources of growth. Politicians and consumers alike are questioning the cost of drugs, and seeking lower cost alternatives from various sources, including generics manufacturers. In addition, the trend towards more patient-focused personalized healthcare and the future of biopharma requires significant R&D investment to meet this changing demand. Accordingly, pharmaceutical businesses are seeking to focus their activities in particular areas. That trend has already been evident in some of the divestment and acquisition play that have been seen in the market recently. These include, Novartis’ acquisition of GSK’s oncology division and – in the other direction – GSK’s acquisition of Novartis’ vaccine business.
Pharmaceutical businesses are seeking to optimize their portfolio mix, with some acquiring generics manufacturers in order to capitalize on the appetite for lower-cost alternatives to branded products. Opportunities to make fast returns from acquiring and restructuring inefficient businesses have now largely gone. The quest for innovation and cost savings have become the principal drivers of corporate strategies.
Cost strategies to the fore
The need to save costs and divert funds into innovation requires pharmaceutical businesses to take a fresh look at their asset bases and identify ways to extract cash from their non-core assets, including real estate holdings. In response to this need, many are developing new location strategies that can deliver cost efficiencies and synergies. They are investigating consolidation of office, research and lab space and exploring new workplace solutions in order to, for example, collocate greater numbers in a given space. That rationalization imperative also extends to manufacturing sites.
Focus on innovation
As they look to shed assets or consolidate sites, pharmaceutical businesses must maintain a delicate balance between cost-saving initiatives and the retention of essential personnel. Highly-skilled resources that are essential for the development of new compounds need to be carefully managed. That requires pharmaceutical businesses to take multiple factors into account as they make decisions about their locations worldwide. Looking across the global estate and examining the business implications of making changes across the portfolio are essential. Some pharmaceutical businesses are taking highly innovative approaches to optimize R&D at the same time as cutting costs. Some, for example, are considering the creation of multi-business research campuses that can deliver a productive and attractive environment for researchers and academics from different businesses while also making overhead savings at the same time.
In an attempt to respond to the challenges generated by the patent cliff, the pharmaceutical industry is reinventing itself, moving from a disperse spokes system, to a centralized but collaborative operational model based on new “Innovation Clusters”. This model has the potential to re-shape the industry, but, to be successful, big pharma will need to be prepared to solve a conundrum impacting operations, finance and culture.
As the demand grows for more precise and personalized drugs, pharmaceutical businesses are moving from traditional chemical-based drugs to bio compounds. Bio drugs are far more complex to produce and impose greater reliance on highly sought after geneticists, as well as considerable big data capabilities. Acquisition activity in this space is likely to remain fierce as larger players seek to capture the potential of early stage biotech breakthroughs. In addition, there is growing activity in building new bio manufacturing capabilities. With time to market a critical factor in the success of a new drug, pharmaceutical businesses have to ensure that they can manage a portfolio of capital projects effectively in order to make manufacturing facilities ready in time for new product launches.
Capital delivery models
Arcadis recently surveyed the senior property executives from several of the world’s largest chemical and pharmaceutical organizations on their capital delivery priorities, their current and future intended position of their capital delivery models, and enablers and barriers for improved capital delivery.
The survey identified that organizations are on a journey in the development of their capital delivery models. 60% of respondents are already well on their journey to significantly outsource and all respondents foresaw implementing further outsource initiatives. 80% intend to reach a position where most functions are outsourced in the foreseeable future.
Meanwhile, organizations believe there are still significant changes to be made in their journey toward centralization of the supply chain, centralization of asset knowledge for use by the organization and a shift from a transactional mind-set to more collaborative forms of working both internally and with the supply chain.
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