By: Nigel Walker, Partner & Managing Director, Energy & Life Sciences Services, TPI
The pharmaceutical industry has not seen a lot of new molecular entities (NMEs) in recent years and, as patent expirations are rapidly approaching for many blockbuster drugs, there is a real concern about the imminent revenue drop among the majors. This has caused pharmaceutical companies to scale back its R&D spending. This, in turn, is accelerating a review by the major pharmaceutical companies of their internal cost structures – especially head office shared service activities such as IT, HR, Finance and Accounting (F&A), Procurement, and Real Estate.
Sourcing is turning out to be a major consideration and a viable option for cost reduction, efficiency improvements, and increased productivity. Our statistics show that decent savings can and have been achieved at pharmaceutical companies via this alternative with potential savings in the range of 8-27% – depending upon the area analyzed. TPI is often hired to help quantify those potential savings using our Mark-to-Market service. With this service, we compare internal cost structures of company service operations not to their peers, but to the sourcing alternatives or the service provider community. We are able to do this because TPI has been involved in a large number of transactions, thus allowing us to make accurate judgments on the reviews and enabling major sourcing strategy decisions to be made with confidence. We have also performed Mark-to-Market on in-flight contracts and offered advice on whether the company has current market based pricing.
Other pharmaceutical companies have utilized TPI’s “Fairness Opinion” whereby they have often struck a deal with a service provider in a sole-source situation and asked for our opinion as to whether the Terms and Conditions, Pricing, and Service Levels are equal to what they could have achieved in a competitively bid transaction.
As the major pharmaceutical companies continue to feel the pinch from blockbuster drugs reaching the end of their patents, senior management must be prepared to implement strategies that will put these companies in a position to grow.
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