Procurement has a key role to play in solving the costs up: revenue down equation in pharma

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.

The life sciences cloud

When a group of life science companies gathered in Cambridge recently to discuss cloud computing, a question on many people’s lips was: “What is it?”

The session, ‘Cloud computing in life sciences’ hosted by ERBI, the industry body for international biotech and healthcare companies, shed some light on this question.

Below I summarise the discussion and highlight some examples of cloud in life sciences.

Defining cloud
According to @IanMcKendrick, life science IT strategist, put simply, cloud is about outsourcing computing. But as Microsoft’s Andy Davies emphasised, cloud solutions have two important features: they are scalable and elastic. This allows computing resource to be acquired and released very quickly.

Low cost computing
The ‘pay-per-use’ model also defines cloud. It means there are no worries about over-provisioning (wasting investment) or under-provisioning (resulting in poor performance).

Overall, the total cost of ownership for a cloud-based application should be less than building in-house resource. From his experience as IT operations manager at the Wellcome Trust, Richard Gough (@chopsm) projected the 3 year costs of running their databases in the cloud being 75% less than in-house.

Discovery on demand
The ability to access computing resource on demand is seen as one of the most powerful benefits of cloud. Eli Lilly & Co. has capitalised on this to cope with ‘spikiness’ of demand. Using Amazon’s Elastic Compute Cloud (EC2) Lilly was able to launch a 64-machine cluster, complete a bioinformatics analysis and shutdown in 20 minutes. The cost was just a few dollars and replaced a process that would have taken 12 weeks internally.

Other pharmaceutical companies have also speeded up their computational drug design processes using the cloud. Also using Amazon Web Services (AWS) protein engineers and informaticians at Pfizer’s Biotherapeutics and Bioinnovation Centre can carry out antibody docking modelling that previously took 2-3 months overnight.

Enquiring into the mind
Understanding how the brain works is a major scientific challenge. It requires knowledge of how information is encoded, accessed, analysed, archived and decoded by networks of neurons. The CARMEN e-science project is designing a cloud system to allow neuroscientists to share, integrate and analyse data. Globally, over 100,000 neuroscientists are working on this problem. Solving it could revolutionise biology, medicine and computer science.

Processing power on tap
Proteomics is the field of large scale study of protein structures and functions and is key to understanding disease processes and designing interventions. One of the main obstacles to starting proteomics programs is setting up computational resource to cope with major data processing requirements. However, a team at the Medical College of Wisconsin used Amazon’s cloud services for low cost, scalable proteomics analysis. This approach allows users to have large scale computational resources on tap at very low cost per run.

Indiana University is also exploring the use of cloud computing for analysing next-generation sequencing data. This is expected to be generated in volumes "one to two orders of magnitude larger" than possible with current computational capabilities.

Trusting the cloud
No discussion on cloud would be complete without raising the aspect of security. However, given the dedicated nature of cloud providers security is high on the agenda and should be class-leading. There is every chance that capability in this respect is ahead of in-house resources; it’s just that if things do go wrong, it tends to get high profile coverage.

Richard Gough also noted that just because an organisation is using the cloud it doesn’t negate the need for it to be managed rigorously. In the acquisition phase strong procurement processes are vital and security people should be involved from day one of the procurement cycle.

Evolving models
Over the last year Microsoft’s Simon Davies has been working with early adopters of Windows Azure, its cloud-based platform. He says whilst the cloud enables users to achieve lots of things they couldn’t before, it’s “not a panacea for everything.” This is not to say that Microsoft is not committed to cloud, rather they believe that ‘software plus services’ is a better and more flexible approach.

Moving forward, there will be a number of models that businesses can choose from to suit their requirements. This is an evolving ecosystem that ranges from the raw computing power provided by the likes of Amazon through platforms that allow others to develop (Windows Azure, Google App Engine) to web-based services (Science Warehouse, Salesforce.com) and the wealth of consumer-oriented online offerings like Facebook and Twitter.

At whatever level organisations engage with the cloud the future is all about being able to do more for less.

Links to additional information quoted in this article:

Eli Lilly bioinformatics
Pfizer antibody docking
CARMEN brain research project
Wisconsin proteomics
Indiana sequencing
Economist mag debate on cloud computing (pits Salesforce.com's Marc Benioff against Microsoft's Stephen Elop)
A great series of articles on Cloud Computing in Life Sciences published by BioITWorld is also available here.

This post is an edited and updated version of my post on the Science Warehouse site: http://bit.ly/8h0RQT

Obama: the real change - from sales to delivery

Much has been made of the marketing force that was the Obama campaign. Reaching out to and energising new audiences. Effective utilisation of new and multiple social media channels. Trigger marketing (or at least creating the perception of responsiveness) but all the time tirelessly pushing the core message of change.

Within any business, a considerable investment is made in ensuring that the marketing messages concord with customer experience. The handover from sales to delivery is optimised to be efficient and delight the client. However, the new president's room for manoeuvre to implement his key promise - change - will be very restricted. Being long on rhetoric and big on charisma will not provide the answers needed on the economy, security and international affairs. Will the inevitable dissonance that arises as a result of the difference between promise and reality be as expertly managed as the campaign?

Experience from the UK suggests there may be no reason to worry. The 1997 New Labour landslide was delivered on the back of a change message. The 11 years since has shown that apart from a propensity to waste massive quantities of voters' cash very little has changed. We still have lack of leadership, sleaze, poor decision-making and lack of imagination in abundance. Voters become inured to lack of delivery on promises. Perhaps because Obama is who he is that's enough change for the electorate anyhow.

One has to hope that the abovementioned campaign approach of rhetoric, charisma and lack of policy detail isn't taken on board by the UK Tories as a winning formula. Cameron has been excelling for some time with the latter factor (and let's not forget that new UK governments don't get a several weeks handover period) but to the extent that the second (charisma) is to a large extent required to carry off the first, they wouldn't have a hope.

The electoral college system means that, despite the fact that nearly 47% of voters plumped for McCain, Obama achieved a sweeping victory. The UK doesn't have a gearing system like the electoral colleges that amplifies differences; however, the first-past-the-post system means that usually the majority of the electorate is disenfranchised when it comes to installing a government. It's an imperfect system but presumably the knowledge that we get an opportunity to boot them out a few years down the line and the immutable law that every action has a reaction (viz. the rise of Newt Gingrich in response to the first 2 years of Clinton liberalism) is enough to sustain the disenfranchised through those years of pain.

Initial thoughts on what the new regime will mean for our industry. As far as biopharma is concerned in Obamadom, the industry can look to increasing cost controls with expensive biotech drugs in the firing line whilst a greater role for generics and general price controls can be expected. DTC (direct-to-consumer) advertising is also likely to feel the heat with greater regulation. Pharma donated approximately $10m to the Obama campaign.