A new event - ProcureCon Pharma - which took place in Zurich last week - has been added to the ProcureCon
series of global procurement conferences. The event is timely, as not
only does purchasing in pharma have its own unique challenges but, more
importantly, procurement enterprises are in a unique position to drive
innovation and value in the industry through dynamic procurement.
Cost up
For
those of us that have been in and around the pharmaceutical industry
for a while it doesn’t seem that long since the quoted costs for
developing a new drug were a few hundred million dollars. In the
mid-noughties they cut through the billion mark. But now, according to some research, the cost to bring a new drug to market can exceed a truly staggering $10bn.
Productivity down
This
figure takes into account another indicator that weighs heavily on
pharma – not only are costs going up but pre-market failure rates are
increasing too. For example, a 2011 study
showed phase II success rates declined from 28% in 2006/7 to just 18%
in 2008/9. Considering that the chance of a drug subsequently
progressing through phase III is 50%, the attrition rate is
unsustainably high.
Market fragmentation
It’s been well documented that the biopharmaceutical industry is undergoing unprecedented change.
The blockbuster era – where a single drug addressed a large market over
a sustained period of time is ending. New medicines are more complex,
address smaller markets and treatments increasingly personalised.
Price sensitivity
With
costs escalating, the operators of healthcare systems globally are also
looking to reduce spending. The same buyers of pharmaceuticals are also
asking more questions about the value of the products they buy.
Unfortunately, the sellers aren’t always coming up with convincing answers.
So whilst the industry is still making the decisions on which drugs
come to market and their pricing, price sensitivity will be an
increasing factor.
Grappling
with increasing failure rates and increasing costs has meant that
productivity has become a major focus in the pharma sector. In R&D a
significant trend over the last 2 decades has been to blend in-house
developed candidates with a pipeline from biotech firms. Companies in
the biotech space have a lower legacy cost base and a vaunted innovative
culture that sparks new ideas for therapies.
Balanced supply chains
However,
pharma companies are also looking to reduce costs by simplifying supply
chains. In some cases this is leading them to bring work back in house to drive out cost and increase control.
The
pharmaceutical supply chain of the future will therefore comprise a
balance of insourced and outsourced capabilities. Those activities
requiring local control, that are key drivers of competitive advantage
or where offshore costs no longer drive a numerical benefit will be
conducted in-house. On the other hand, those activities that require
specialist resources or are non-differentiating will continue to be
outsourced.
Dynamic procurement
All of this points to an increasing requirement for dynamic procurement
where the procurement department plays three essential roles – as
innovator, collaborator and strategist. Some examples of how procurement
will create value in each of these areas include:
- Innovator – driving more productive outsource/insource structures to deliver more effective supply chains.
- Collaborator – effectively leveraging supplier relationships to capture increased value and drive greater innovation.
-
Strategist - SRM has always been a core component of the procurement
enterprise; recognising and leveraging sources of competitive advantage
in these relationships will be a key source of competitive advantage in
future.
With its unique position at the nexus of
finance, operations and suppliers, procurement is in a key position to
recognise and exploit key sources of competitive advantage in pharma.
Jonathan Betts is Sales & Marketing Director at procurement technology provider Science Warehouse.
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