The Big Squeeze - Pharmaceutical Executive


The Big Squeeze
The simple answer to pharma's pipeline crisis? Get more value out of the products you already have

Pharmaceutical Executive

There are several reasons why companies might be falling short of their expectations in lifecycle management. Life cycle strategies are not adopted early enough, and confused governance undermines their effectiveness. Strategies are often developed from functional perspectives, rather than an overall business perspective. Organizational boundaries—between business functions such as R&D, marketing and sales and manufacturing, as well as between global product teams and the subsidiaries—make it difficult to adopt a cradle-to-grave approach. "Responsibility shifts from function to function through the lifecycle of the product," stated one European executive.

What is more, the focus is often on the wrong goal. In many companies, life cycle strategies are evaluated primarily in terms of top-line growth. That may have been adequate when pipelines were full. But what is needed today is an integrated, holistic approach that aims to maximize not the lifetime revenue of the individual product, but the lifetime profit contribution of the whole portfolio.

Modeling Impact To achieve this goal, companies must build new competencies. Financial management and insights will have to improve, so companies have a clear picture of what it costs to bring each product to market. Simply dealing in average numbers won't be acceptable. This new understanding of costs will feed decision making about the portfolio.

The promise of lifecycle management is that modest, achievable improvements in multiple dimensions will lead to large effects on profitability. That makes intuitive sense, but it isn't necessarily easy to demonstrate. Over the past few years, Capgemini has been working on modeling the financial impact of life-cycle management. The charts accompanying this article summarize some of that research.

The chart on page 88 lists principal elements of an integrated life cycle management program and estimates the scale of improvements that seem achievable. We estimate, for instance, that clinical trials can be accelerated by three to nine months through more efficient patient enrollment, predictive modeling, and the like; that the use of inexpensive sales channels can reduce costs by 50 percent in the late phases of the lifecycle; and peak sales can be reached three to nine months earlier.

Different companies, of course, will have different results. The point is the impact when these improvements are applied simultaneously. The two graphs on page 90 look at a single product—a me-too drug in a crowded marketplace. The two graphs may not look terribly different—the sales line rises to peak a little more quickly, the peak is about 13 percent higher, and costs are lower during the fall-off of sales. But the impact on profitability is substantial. The modest changes to cost and sales increase the product's contribution by more than 20 percent.

The third chart takes the same sort of analysis to the level of the whole company. Here, we model the performance of a large pharma company over five years of patent expirations and price pressures. If the company performs at its current standard, profits rapidly erode—something that will be happening over the next few years to companies that don't rise to the challenge of today's marketplace. With lifecycle management—even if we assume that only part of the benefits can be realized in the five-year time frame—the picture is quite different. Sales rise by $500 million, and the whole increase appears in the form of operating profit.

The Elements of Success What are the ingredients of successful product lifecycle management? One of the difficulties in defining best practices is the relative immaturity of lifecycle strategies in the pharmaceutical sector. For a variety of reasons, product lifecycle management is more entrenched and sophisticated in the more consumer-oriented industries. Even so, there are plenty of examples of good practice and innovative product management in the pharmaceutical industry to draw on.

Sustain value through proactive planning. Whether through identifying follow-up indications, planning new formulations, or creating a consumer brand in readiness for an OTC switch, success depends on early planning. "Ten years ago lifecycle management was about what to do once the product was on the market. Now, even at the stage of preclinical development, we need to know what indications we're going for and what dosage forms we will need," explains a vice-president of global business development and licensing at a large pharmaceutical company.


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