03-Feb-2011
In the latest of the current series of editorials for Top-Consultant.com, Stephen Humphreys from Huntswood reviews the consultancy market in pharmaceuticals.
Huntswood: State of consulting market in pharmaceuticals
Pharmaceuticals is a sector, perhaps even more than Oil & Gas, where the industries 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 revenue figure 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 only then have a limited timeline to make profits before generic companies enter the market. Also, 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, they have, however, encountered difficulties in R&D, seeing many new drugs falling at the second and third stage of trial. This has led to 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 out-sourcing in order to maximise profits, despite reducing 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 Wyeth by Pfizer), to Big-Pharma 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, said 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.
Rountree and NovaSecta are helping the Mid-Pharma market with their “front office”. They particularly look at the gap between strategy and operations; the practicalities of delivering strategy. On the other side of the reducing pipeline issue are Attridge and CSC who are looking at the cost-reduction side aspect, with strategic sourcing, IT implementation and BPO.
Within R&D, NovaSecta are 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 are seeing significant buiness growth in this area. In summary, their 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, but also a development of business process outsourcing. The growth of the outsourcing model has lowered the price-point even 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, which has led to consolidation in the consultancy market. Attridge discussed how CSC are a classic example of this, with their 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 these firms is critical.
These market developments and acquisitions by CSC leave them 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. The acquisition has also increased their competency in the regulatory outsourcing space where they have won deals with GSK, among others. This is a market that few of the other outsourcers are focussing on, and a real growth opportunity for CSC, and others in the market. Attridge described this move as “a real game-changer.”.
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 has led the Pharma group at CSC, along with acquisitions, to grow from 100 to 550 people.
It’s a similar story for the “front office.” Increased sales are required and specialist firms like NovaSecta are tackling this through working with their clients to tackle strategic marketing issues, R&D performance improvement, and making proactive and driven corporate strategies happen. As their clients have succeeded and taken on more challenges, NovaSecta continues to grow its own business successfully in terms of both client base and staff.
Stephen Humphreys, Recruitment Manager, Huntswood
Email: shumphreys@huntswood.com ; Tel: 0118 971 8467
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