By Jim Bedford, director and Yves Leclerc, managing director, West Monroe Partners
The patent cliff era is far from over for the pharma industry. In the last three years, some of the biggest drugmakers have seen their blockbuster patents expire, a trend that will only increase going forward. A recent study by GlobalData estimates the industry will lose more than $60 billion in revenue through the end of 2019 due to the patent cliff.
Early 2015 analysis from Moody’s Investors Service identified Big Pharma players including AZ, Lilly, and Bristol- Myers Squibb as those most vulnerable to patent cliff repercussions, with 30 to 40 percent of their revenues at risk. Over the next two years, these firms alone are predicted to face major patent expirations not just in the U.S., but internationally as well.
Plenty of firms have kept busy building their pipelines and expanding their product portfolios to combat the cliff’s inherent risks, but adding products isn’t the only solution. In order to stay competitive and maintain healthy margins, Big Pharma leaders need to think more strategically about their supply chains, IT investments, and M&A activity.
SIZE UP SUPPLY CHAIN MANAGEMENT
Operational excellence now has the boardroom’s attention. Similar to the challenges historically faced by the consumer packaged goods (CPG) sector, Big Pharma is under pressure to adopt more agile production processes while delivering supreme customer service and product quality. Making good on both demands starts with supply chain evolution.
To keep pace with younger, more nimble generics companies — which usually don’t have the legacy overhead or staff to support — firms will need to pivot away from traditional supply chain strategies to a new supply chain network approach. This move requires better demand visibility and end-to-end supply chain integration, not to mention demand and supply collaboration and modernized advance planning and scheduling optimization.
Stronger inventory and plant optimization, higher service levels, and acrossthe- board cost structure optimization will also be essential to offsetting patent cliff losses. Firms relying on contract manufacturing may need to go to greater lengths to ensure supply chain integrity. As drugmakers pursue new products, they must have full visibility into their suppliers’ service quality and potential risks to avoid regulatory noncompliance and minimize damages in the event of a recall.
GO ALL-IN ON IT AND ANALYTICS
Perhaps due to the industry’s highly regulated nature, pharmaceutical companies have been slow moving on the technology adoption curve. Many firms have integrated automation capabilities to a degree, but the sector still struggles to shed its “this is how it’s always been done” mentality. While the cost of IT change is high, it is time to change.
Established firms should take note from smaller drug start-ups, which consistently create new levels of efficiency by marrying technology and advanced data analytics. From inventory management software to predictive analytics tools, there is a bevy of resources available today that Big Pharma should be using to make more accurate business decisions. Pairing automation with real-time analytics ultimately shortens the new product timeline from R&D to market, expediting the clinical development process and augmenting plant workers’ productivity.
The patent cliff is a shared struggle throughout the pharmaceutical industry. Given Big Pharma’s recent affection for deal making, mergers and acquisitions present another possible solution to sustaining revenue during an otherwise tumultuous time. Firms with products facing expiration may consider acquiring companies rich in biotech development expertise, strengthening their portfolios for a postpatent-cliff era.
On one side, M&A provides another avenue for diversifying drug portfolios and getting access to new, promising molecules. Conversely, some firms may look into divestiture activity to shed nonrevenue-generating divisions and minimize operating costs. Potential acquirers and hopeful targets should stay current on deal trends to take advantage of these collaborative opportunities.
The patent cliff isn’t a terminal diagnosis for the pharmaceutical industry, but rather an inevitable growing pain. With the number of options at its disposal, Big Pharma should be able to clear this hurdle unscathed — so long as they start planning and executing new operations and technology approaches now.