Pharma CFOs Take Center Stage

April 2, 2008

Pharmaceutical Executive

Volume 0, Issue 0

With M&As the new R&D and sales forces getting axed, the CFO is transitioning from background player to front man. A new survey documents the changing role of the pharma controller.

Pharma's CFOs can no longer just sit back and crunch numbers. So says Ernst & Young in a

released last week about the rapidly changing role of the chief financial officer in the drug industry. Titled "A 'New Star' is Born?the Growing Influence of the CFO," the report is based on a series of surveys with 95 senior-level executives at pharmaceutical companies.

"Gone are the days when the CFO spent the majority of his or her time monitoring and reporting," said Carolyn Buck Luce, global pharmaceutical sector leader for Ernst & Young. "Pipelines are erratic, patents are expiring, pricing is under pressure, and the business is fundamentally changing. In some respects, companies will take different strategies around the science and the categories, but what will be the same will be the precondition to execute well."

Creating Value and Cutting Costs

  • 74 percent agreed that CFOs must shift their time from reactive functions such as monitoring and reporting to proactive partnering that helps shape growth strategies and enhance performance.
  • 92 percent rated global cost reduction as a key issue.
  • 56 percent said the CFO should lead cost reduction initiatives.
  • 64 percent are considering outsourcing to cut costs

In one of the study's biggest surprise, outsourcing emerged as the leading focus of CFO concentration. A majority said they were looking at outsourcing internal departments like distribution and back-office accounting. But a third each were least comfortable outsourcing clinical trials or sales and marketing.

A Finger in Every Portfolio
The biggest CFO change is from scorekeeper to key player. "The business and financial information and controls a pharma company needs are becoming much more complex as the industry moves from the single-cell blockbuster model to much more dynamic multicelled organism," Luce said. "Now the CFO is managing a post-LOE portfolio and an irrigative product portfolio as well as looking at how to wring costs out of the existing R&D and manufacturing processes."

The individuals currently occupying the CFO seats will not be happy to hear that one third were said to lack understanding of the wider issues the industry faces, according to the report. They may be putting in even longer nights, what with their new roles including budgeting, forecasting, and working with capital allocations—all of which require a keener grasp of the industry's dynamic business environment.

What's behind all these CFO changes? Nearly one half cited increased regulatory and compliance requirements, while one third each pointed to a jump in corporate governance obligations or more risk-management duties.