The IMS Institute of Health Informatics released a report today called “riding the technology wave in life sciences” and there are some troubling findings. Among one of their key findings “despite abundant and growing amounts of data being generated and accessed by life sciences companies, analytic systems designed to interpret and create actionable insights have not kept pace.”Their survey revealed 74% of respondents expressing they have a high level of need for greater insights from data. As the mix of new medicines brought to market by pharmaceutical companies is skewing toward those with relatively small target patient populations, it is more important for analytic systems to help identify those patients and their physicians.
New capabilities needed for life sciences companies
Customers of life sciences companies are demanding more compelling evidence of the value of their products, therefore requiring new approaches to commercialization.
The largest life sciences companies will need to reduce their annual operating costs by at least $35 billion by 2017 in order to maintain their current operating margins and level of investment in research and development.
New approaches to reducing costs through optimizing performance are needed as recent efforts, through across-the-board cuts and outsourcing, have not delivered adequate improvements.
Total global growth in spending on medicines is expected to accelerate from 2-3% in 2013 to 5-7% in 2017 on a constant dollar basis. However, further pressure on operating margins can be expected as companies face rising costs at the same time drug pricing is reduced or constrained. As examples, rebates and discounts applied in the U.S. market have risen from 21.6% to 28.9% of gross sales since 2008.
The high priority placed by life sciences companies on meeting the changing needs of external customers combined with the need to lower operating costs suggests new approaches will be needed to address these cost issues while optimizing performance.
Within commercial operations, cuts were generally implemented across-the-board, with reduced headcount and budgets per brand. Outsourcing of non-strategic functions became a key focus, with companies typically looking for net savings from outsourcing of no less than 25% over their internal costs and an increased level of spending flexibility.
Survey respondents indicate a broad range of approaches to cost reduction are being taken. While crude approaches such as applying across-the-board budget cuts – regardless of a function’s or activity’s strategic importance or contribution to commercial success – are being used a lot or some by 77% of respondents, even more (87%) are applying approaches that seek to optimize the commercial organization (n=91). Improvements in workflow automation and increasing commercial outsourcing are important approaches, in addition to the more direct reductions in data budgets, headcount or technology budgets .
I found this report very insightful and it confirms what I have been seeing while consulting. It’s going to be very interesting to see which pharma companies have the leadership to invest both in technology and people who can take large amounts of data and translate them into actionable KPI’s with speed.
The “across the board” job cuts that have been pharma’s trademark over the last 2-3 years are having an unexpected consequence; they are driving talented people away from a career in life sciences. Not too long ago I was asked to guest lecture at a Harvard MBA class and asked the class how many were going to pursue a career in pharma and not one person raised their hand.
The rub is that while budget cuts are needed to maintain profit margins, investment in technology is also necessary both in people and systems. Real leaders will be able to make this transition those that are more interested in short term profits for The Street are going to fail.