Tag: pharmaceuticals

Pharmaceutical Companies Can Help Support Trump’s Vision of Make America Great Again | Sherpas in Blue Shirts

When U.S. President Donald Trump met with the CEOs of a host of major pharmaceutical companies in late January 2017, one of his primary declarations was that drug makers should bring manufacturing and production, much of which is done in countries like India and China, back to the United States.

While moving FDA-certified production factories and establishing new supply chains back onshore is an extremely difficult, years-long ordeal, failing to take some type of proactive step to appease the Trump administration could open the door to potentially unfavorable actions for the major pharmaceutical companies. Think patent reforms, price lock-downs, consumer advertisement bans, and import/export tax mandates, all of which could wipe out the lucrative margins from U.S. consumers.

But there’s one easy step pharma companies can take to mollify the administration’s overarching agenda: start moving services jobs – such as IT, finance, and HR – back to U.S. turf.

Aprrox. 110k to 140k pharma industry services jobs have been offshored, with the majority residing in India

Trump and the pharma industry services jobs

If you look at the dollars, cents, and sense of doing so, it really is win-win. Consider:

  • Services jobs are the least likely to disrupt core business operations if brought back onshore
  • They’re comparatively easy to move, as they’re essentially labor-based and mostly centralized in offshore service centers
  • Doing so would not only provide gainful employment to more U.S. workers, but also signal a commitment to invest in the U.S. workforce and worker productivity
  • Pharma companies could avoid a negative impact to their bottom lines (i.e., a 50-70 percent labor arbitrage) if they effectively leverage digital technologies and capabilities to transform their delivery models as they repatriate the services.

Let’s take a deeper dive look at this last bullet point. True that India’s and other low-cost regions’ skilled workforce and cheaper labor made them attractive locations for offshoring pharmaceutical services jobs. This labor cost advantage has shielded pharma companies from having to take the painful and arduous path towards step-change improvements in workforce productivity, which requires significant investments and service redesigns. After all, why automate if you can get two or three offshore workers for the price of one U.S. worker?

But the world has changed. Digital service models are transforming how services are delivered and consumed. For example, when was the last time you filled out a deposit slip at a bank? Mobile deposits rule the day now. These transformations are happening across the services functions, and are opening the door to operational savings and productivity improvements.

Higher US labor costs can be mitigated by leveraging digital capabilities to transform the service functions being migrated back

Trump and the pharma industry services jobs

By moving and transforming their services, pharma companies wouldn’t bring back all of the jobs they initially offshored, but would create higher paying, higher skilled, and highly productive U.S. services jobs. And, this could be done relatively quickly and on a cost neutral basis with no impact to their bottom- or top-lines, while simultaneously leveraging digital technologies to transform their service delivery models.

It’s true that uncertainty abounds around what levers the Trump administration will pull to entice or force the pharmaceutical industry to align to its core tenant of creating U.S. jobs and “Making America Great Again.” But wait-and-see is a dicey game to play when it comes to the pharmaceutical industry’s most lucrative market.

Everest Group’s advice is to get ahead of the game – starting today. Take a fresh look at your company’s global talent management strategy and shared services construct to identify your degrees of freedom. Then start engaging your technology and services organizations to assess how you can bring some or all of these services jobs back to the U.S., and at the same time offset the higher labor costs with digital technologies and delivery models. It might just save your CEO from seeing an early morning Tweet from President Trump stating, “Horrible company!”

Learn more about the importance of bringing pharma jobs to the United States in Stephen Chen’s executive viewpoint, Will Big Pharma Heed the Call to Bring Jobs Back Home?

Teva Buys Allergan’s Generics Business to Consolidate Pole Position | Sherpas in Blue Shirts

On July 27, Israel-based Teva Pharmaceutical announced the acquisition of Allergan’s generics business unit for US$40.5 billion in cash and stock, consolidating its position as the leader in off-brand drugs. The deal which becomes the latest in a wave of high-profile consolidation in the pharmaceutical industry, combines Teva, the world’s largest generics drug company with its third largest competitor. The acquisition gives Teva enhanced scale in the intensely competitive generics market (over 20% market share) with cost savings potential due to product overlaps and economies of scale (through operating synergies of nearly US$1.4 billion) as it looks to cope with end of patent expirations. The deals comes at a time when the entire healthcare and life sciences continuum is witnessing rapid consolidation moves including large payers teaming up.

Core Competence – the New Life Sciences M&A Mantra

The deal is another indication in a long line of recent transactions as life sciences firms undergo a realignment of strategic focus and choose to concentrate on business of core competence. Following the big bang “acquire all” days of Big Pharma, pharmaceutical firms have realized that they need to reorient strategic goals and narrow down their focus to specific service lines and markets. This was the principal driving factor in the seminal Novartis-GSK asset swap announced in April 2014, which typified the new normal.

For Teva, this wraps up an increasingly messy four-month long pursuit of another generics rival, Mylan. The company withdrew its latest US$40.1 billion hostile offer to acquire Mylan as the deal prospects became bleak. Mylan itself is busy chasing rival OTC drugs company, Perrigo, which has so far snubbed Mylan’s attempts. The deal also has interesting implications for Allergan. The company has been at the center of major M&A activity in the last two years. This sale allows it to pay off debt from the US$70.5 billion integration with Actavis in 2014. That deal also signaled the end of one of the intense takeover struggles as Actavis beat Valeant Pharmaceuticals for Allergan. The sale to Teva allows Allergan to focus on building its branded drugs business. It could also mount an effort to purchase large peers such as Amgen or AbbVie.

Implications for Service Providers

As with any major consolidation exercise, the primary beneficiaries will be service providers with exposure to both merging entities and account-level relationships as they help with the integration initiatives. A natural consequence of such an exercise is the tendency to go for vendor rationalization as enterprises look to trim the sourcing pie. Demonstrating value across the life sciences value chain will emerge as a crucial differentiator in retaining presence across accounts. Given the diversified operational footprint of pharma firms, global presence becomes an important qualifying criteria for large scale deals, especially when it comes to areas such as infrastructure management. As the spotlight shifts on pockets of core competence, mapping enterprise-specific business outcomes and challenges to technology/process solutions will be key in getting management buy-in for forthcoming sourcing initiatives. The following image illustrates the current exposure of key service providers across major life sciences firms. As you can see, these mergers will lead to overlapping accounts for several services providers.

Account exposure across life sciences firms

The Road Ahead

Life sciences buyers stand at interesting crossroads right now. They seek technological preparedness to tackle multi-faceted challenges arising out of stifling R&D efficiency, dwindling margins, increasing M&A/restructuring, and evolving customer profile. Blockbuster-drugs-led growth has paved way for more pragmatic business models in this new reality. While the digital Kool-Aid continues to sweep the landscape, life sciences firms tend to struggle with digital enablement due to factors such as fragmented service provider landscape and non-standardized internal structures. How they navigate this challenge while digitizing operations will be crucial. Our recent report on IT Outsourcing in the Life Sciences Industry focuses on how global life sciences organizations need to enable their systems for digital enablement through a well-thought out services integration strategy. Pharma is in a continually evolving state of flux and these changes are only going to intensify. Service providers need to up their game to ride this wave.

Wipro and HCL Deals Signal the Arrival of a Life Sciences Infrastructure Surge | Sherpas in Blue Shirts

On 19 May, Wipro signed a US$400 million+, multi-year strategic alliance deal with Japan’s largest pharmaceutical firm, Takeda Pharmaceutical. Wipro will provide infrastructure management services across Takeda’s global operations, thereby creating a unified platform across the company. Less than a week earlier, HCL announced a landmark infrastructure deal with pharmaceutical major Novartis. Per the terms of the deal, HCL will provide remote infrastructure management services for Novartis across its entire data center landscape, covering more than 70 countries across six continents.

The Life Sciences Infrastructure Bandwagon 

These deals are indicative of a sharp inflection point for IT infrastructure services in the life sciences industry. Until now, service providers have been largely focused on delivering application outsourcing services such as ADM, testing, ERP, and package implementation. Demand for infrastructure services was largely linear and predictable. However, the winds of change sweeping the overall healthcare landscape have brought about strong momentum to infrastructure uptake.

These winds include regulatory reform, consumerization, market consolidation, and the emergence of next-generation digital avenues. The volume, variety, and velocity of incoming data are fundamentally impacting how life sciences organizations view their infrastructure needs. Exponential growth in data, coupled with evolving engagement and drug development models, has resulted in a significant need for analytics. Dimensions such as real-time reporting, proliferation of mobile devices, and automation are providing additional impetus.

Healthcare infrastructure services tailwinds

The Opportunity At Hand

Among the various sub-segments of life sciences IT outsourcing, we see infrastructure poised to assume the lion’s share of growth in the coming years. While applications and SI/consulting are likely to grow at a healthy rate, the infrastructure opportunity in life sciences could triple in value over 2014-2020. This is likely to be fueled by increasing traction in cloud delivery and storage models, data warehousing efforts, consolidation of information systems, and the move to obtain a unified view of customer data to enable actionable business outcomes.

Global life sciences ITO market

Life sciences has traditionally been a mature IT market. Across medical device manufacturers, pharmaceutical firms, biotech companies, life science firms spend more on IT than typical buyers. Life science companies have innovative R&D efforts at the core of their operating model. Given the rise in personalized medicines, there will be a surge in data storage/processing requirements and, consequently, infrastructure needs. These themes impact life sciences IT infrastructure requirements to give rise to various technology imperatives across the ecosystem.

Life sciences infrastructure imperatives

Buyers in the life sciences space need to evaluate their infrastructure services roadmap on a business impact versus investment paradigm. They need to establish meaningful relationships with strategic partners in order to enable the true synergistic benefits of a comprehensive and relevant infrastructure services roadmap.

At the same time, services providers need to expand their infrastructure footprint to partner with enterprises in this transformative journey. They need to adopt a holistic mix of traditional tenets (co-location models, data warehousing, BI, hosting, and network services) along with next-generation services such as multi-tenancy solutions, cloud delivery and storage, and BYOD.

What are you experiencing in infrastructure services? Our readers are eager to hear!

Genpact Pharmalink Acquisition Echoes Other Providers’ Efforts to Deepen Life Sciences Expertise | Sherpas in Blue Shirts

On April 23, Genpact announced it had signed an agreement to acquire Pharmalink Consulting, a global provider of regulatory services to the life sciences industry. The move brings Genpact valuable expertise in supporting life sciences research and development functions including regulatory strategy, filing submissions, complex compliance services, and post-licensing activities management. And it well complements Genpact’s traditional stronghold in FAO BPO for major pharma clients.

This strategic play is in line with a wider move by generalist IT-BPO service providers to compete with life sciences technology and process majors such as Accenture and Cognizant. These generalists are ramping up their capabilities in domain-specific areas including drug safety, regulatory services, pharmacovigilance, and clinical data management, to enable more broad-based engagement with pharma customers.

Life Sciences Regulatory Imperatives

Life Sciences Regulatory Imperatives

The already complex life sciences regulatory landscape is further compounded by stringent quality measures, new drug approval regulations, restricted sales force access to physicians, increasing scrutiny of manufacturing processes, improving collaboration among regulatory agencies, and enhanced pharmacovigilance legislation. We estimate that compliance-related IT spending amounts to nearly 15 percent of the total IT budget of life sciences firms, with three to five percent annual increment.

Recent European data protection regulations call for greater control of personal data. Newer provisions include use of health data for only “absolutely necessary” purposes, as well as an additional onus on data controllers to formulate methodologies to adhere to “data minimization” practices. Pharmacovigilance, drug safety, and clinical data management have become key imperatives in this scenario. New technologies and systems can enable organizations to tackle the regulatory puzzle. 

The Inorganic Route to Enabling Domain Expertise

Inorganic Route to Enabling Domain Expertise

In a significant change and recognition of new market realities, nearly all IT majors have separate business verticals specifically targeting clinical data management and pharmacovigilance. In 2011, Accenture even tied up with the Institute of Clinical Research in India (ICRI) to jointly develop a pharmacovigilance and clinical research program for the Indian market.

And in the last couple of years, there has been an increasing impetus on behalf of service providers to look at M&As to acquire these specific areas of expertise in the life sciences domain. For example, the Accenture/Octagon deal in 2012 signalled an important shift in focus as Accenture attempted to combine its life sciences offerings by adding elements of regulatory management and SI/consulting to have a more integrated portfolio with a cross-functional view. This is based on the belief that the marriage of functional expertise in conventional process-oriented outsourcing services with industry expertise across regulatory, drug safety and clinical trials, make for a very compelling business case. Additionally, regulatory work has been largely project-based, and typically short-term. The enhanced value players bring to the table can translate into longer and more meaningful IT-BPO engagements.

The moves by Accenture and Genpact herald the transformation of life sciences customers’ expectations for greater consolidation and efficiency in the aspects of regulatory activities management, bringing together different tenets such as clinical data management and pharmacovigilance. Service providers that seek to explore, leverage, and consolidate adjacencies in current scope of work, and assume a consolidated and integrated approach to IT-BPO services, will end up with a greater share of the life sciences pie.

Novartis and GSK Restructure to Adjust to the New Normal | Sherpas in Blue Shirts

Novartis on April 22, 2014, announced a succession of deals in a sweeping restructuring. It agreed to buy GlaxoSmithKline’s (GSK) oncology products unit for US$14.5 billion, plus another US$1.5 billion subject to certain milestones. In turn, it divested its vaccines business to GSK for US$7.1 billion, plus royalties. The two companies also announced the creation of a new consumer healthcare business through a joint venture, in effect combining Novartis’ OTC drug business with GSK’s consumer business, with nearly US$10 billion in annual sales. In a separate deal, it hived off its animal health business to Eli Lilly for US$5.4 billion.

The deals – given their scale and impact – principally reshape Novartis, which has been evaluating its businesses since last year. The move reflects a strategic imperative to focus on higher margin products, such as cancer drugs, and let go of low margin ones, which rely on scale and volume. This signals a momentous shift for the firm, which under its previous chief executive transformed into an expansive healthcare behemoth, fueled primarily by M&As. The deals have substantial implications for GSK as well, reorienting its business across respiratory, HIV, vaccines, and consumer health products – together accounting for nearly roughly 70 percent of its sales. It also consolidates its position as the leading global vaccine player.

These changes reflect an important inflection point for the pharmaceutical industry. The industry is coming to terms with multi-faceted challenges arising out of patent cliff implications, middling R&D productivity, and rising consolidation, leading to a rethink of business models.

Life sciences M&A bandwagon

Life Sciences Mergers and Acquisition Bandwagon

Bigger is not always better

Consolidation has been a standard practice adopted by Big Pharma to tide over industry challenges, maintain growth momentum, diversify into emerging geographical and product markets, beef up R&D efforts, and boost sagging drug pipelines.

However, with middling R&D productivity, patent cliff losses, and expansion into newer product/service lines, pharma companies are reconsidering the conventional paradigm to factor in these multi-pronged challenges. Incessant consolidation has had a detrimental impact on many companies with decreasing post-merger productivity, culture mismatch, integration challenges, and declining agility.

That has resulted in firms such as Novartis refocusing their priorities to focus on core competencies instead of having its fingers in too many pies. These restructuring efforts call for a carefully thought-out technology strategy that encompasses organization-specific challenges and hurdles. The roadmap for pharmaceutical firms must be evaluated on a profitability-productivity matrix to test for efficacy. The imperatives brought by wholesale value chain digitization in the pharmaceutical industry entail a re-examination of the organizational structure and resource allocation/rationalization required for driving top line and bottom line growth. Technology will serve as a key enabler to free up resources and ensure optimal utilization levels.

The profitability-productivity matrix of pharmaceutical firms

Profitability-productivity Matrix of Pharmaceutical Firms

Big Pharma will continue to take the acquisitions route as new drug development becomes more expensive and exhibits declining productivity. But companies need to take a more balanced and individualized approach as they assess their unique value proposition and go-to-market strategies in order to thrive in the new world order.

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