By Jon Smith, director of industry development, Revitas
Consider for a moment the diversity among emerging growth life sciences companies. Since the designation is not based on revenue alone, these midmarket companies vary in market potential, current size, and immediate needs. An emerging growth company might be public and have a large market cap and even be prerevenue. It might have a small team of employees or be rapidly adding staff. It might be in the late stages of clinical trial approvals or have a small product portfolio. It might focus on generic, specialty, or branded pharmaceuticals, each of which has vastly different needs.
Still, every one of these companies faces the same challenges of compliance risk and operational inefficiency. These issues have always been thorny for pharmaceutical manufacturers, but they are even more so for emerging growth life sciences companies, which have limited resources to manage them. However, cloud computing brings new possibilities for effectively managing these challenges and helping midmarket companies rapidly scale into enterprises when sales take off.
Obstacles Facing Midmarket Pharma Companies
Few midmarket companies are equipped to handle blockbuster-like rapid growth. They need ways to scale and speed products to market.
When organizations aren’t prepared, such growth correlates to an exponential increase in revenue leakage. A midmarket company with $250 million in revenue, for example, risks as much as $1.8 million (or just less than 1% of revenue) in a poorly managed pharmaceutical supply chain. However, if that company were suddenly to increase revenue to $1 billion — a not uncommon occurrence — the revenue loss could increase to $139 million or 13% of revenue, according to IDC Health Insights’ Business Strategy: Revenue Leakage—Pharma’s $11 Billion Problem. The manual systems these companies all too frequently use provide poor economies of scale when major, rapid growth occurs, translating to exponential rather than linear losses on margin.
Beyond managing contract revenue and associated obligations, emerging growth companies need infrastructure in place to adequately handle government pricing and prove compliance to avoid serious penalties. Between November 2010 and July 2012, 57% of pharmaceutical industry violations centered on overcharging government health programs, notes Public Citizen’s Pharmaceutical Industry Criminal and Civil Penalties: An Update. During that same period, pharmaceutical manufacturers paid more than $2 billion in fines as a result.
What should be particularly worrisome to emerging growth companies is the trend toward greater scrutiny and oversight. The Public Citizen report also points out that the number of settlements in the past decade between pharmaceutical manufacturers and federal and state governments has increased more than 1,000%, as have the financial penalties. This is too big of a problem to just wing it with homegrown systems and spreadsheets.
Leveraging Capabilities Once Exclusive To Big Pharma
Cloud computing has leveled the playing field between the midmarket and the enterprise, allowing companies with fewer resources to gain enterprise computing capabilities without the capital expenditure. The cloud computing model also fully leverages the scalable hardware and software capabilities that benefit midmarket companies preparing for growth.
While cloud computing might go against the traditional IT thinking in life sciences organizations, the benefits are worth the effort to convince stakeholders. By virtualizing software, organizations will see an increase in computing efficiency that matches enterprise-scale infrastructure with no up-front capital expenditure.
At the same time, operating in the cloud provides scalability and fast provisioning that enables speedy, high-capacity, and reliable IT services. Cloud computing providers commoditize infrastructure, eliminating maintenance and upgrade costs, and leaving IT to focus on the more strategic aspects of its role.
Midmarket companies face the same challenges as their enterprise counterparts, but in the past have been at a disadvantage due to fewer resources. Now, if your emerging growth life sciences company needs a flexible solution to manage contracts, pricing, and compliance concerns, look to the cloud. Cloudbased solutions provide faster time to value, allowing users to add capabilities as needed, and, most importantly for midmarket companies, scale with a business as it grows.