Pharma industry needs to speed up transformation, says report

Leaders of the largest global pharmaceutical companies recognise the need for transformational change in their organisations, but will need to move swiftly to ensure sustained growth for the sector.

Ernst & Young's bi-annual global pharmaceutical report - Progressions, Executing for success: powering new business models - also finds that current global financial conditions and the threat of a broad recession have accelerated the timetable for implementing change, as the industry confronts lower corporate stock prices and an increasingly cost-averse customer.

The Progressions report reveals findings from a global survey of senior executives from 15 major pharmaceutical companies. It identifies the top concerns of these leaders and the progress they have made in transforming their businesses.

The industry faces unprecedented challenges related to patent expirations, pricing and regulatory pressures, thin late-stage pipelines, shifting demographics, efficacy issues and globalisation. While the majority of companies have announced major strategic shifts and choices that have the potential of transforming the business and the business model, most have yet to adopt the organisational and functionality changes needed to power these new models, the report says.

"Many companies are facing initiative overload and need to find a way to increase the speed of change by prioritising, allocating resources effectively and exercising rigour in project management," said Pamela Spence, UK pharmaceutical leader.

Improving new product flow is the top priority among pharmaceutical executives. Seventy two percent of executives indicate that the "thinness" of their pipelines is a chief concern. Other top pressure points include producing and sustaining products of value in today's demanding marketplace (47%), pressures of global regulatory authorities (44%), and the redefinition of the customer and rise of payors (36%).

Industry leaders are searching for new ways to transform business models to drive innovation and better demonstrate the value of their products. Sixty-six percent of interviewees ranked reinvigorating r&d as the most important strategic initiative underway in their organisations, and 40% cited expanding into new markets and becoming more customer-centric as primary areas of focus.

But although the strategic changes should be transformative in making the business much more effective, most pharmaceutical executives are not fully advancing more radical business model shifts, according to the survey results in Progressions.

Transforming the finance function is a critical first step in preparing to implement the kinds of broad organizational and business model changes now needed, according to the report.

"To deliver real value to shareholders, the finance function of the future will be tasked with driving more sophisticated financial strategies," said Spence. "Real financial leadership will come from the application of different weighted costs of capital to different parts of the business that have fundamentally different profiles. This will drive decisions that are more specifically targeted on value creation."