Innovation and success go hand in hand within the pharmaceutical industry; the commonly used phrase “innovate or die” is testament to this. Yet despite its necessity, the industry’s innovation outlook is bleak.
The statistics prove this. Dwindling returns from R&D, driven by poor sales forecasts and rapidly rising costs. The Deloitte report ‘Embracing the future of work to unlock R&D productivity’ perfectly illustrates the issues that pharma faces. This study looked at the top 12 biopharma companies and found that R&D returns had plunged from 10.1% in 2010 to 1.9% in 2018. Forecast peak sales have gone in the same direction, dropping from $816m to $407m over the same time period. These declines coincide with a hefty increase in the cost of bringing a drug to market, which currently sits at $2,168m, nearly double the $1,188m cost of 2010.
There is a proven disconnect between invention and innovation. Pharma accounted for 6 of the top 20 companies (from all industries) that spent the most on R&D in 2018, yet just one is ranked in the 20 most innovative. In a recent Forbes article, Standish Fleming wrote, “A 97% plus failure rate limits the ability to produce more drugs and raises the cost of those that are made, relentlessly squeezing returns”. In other words, “New drugs cost too much”.
“Coming together is the beginning. Keeping together is progress. Working together is success.”
– Henry Ford
The old innovation model is no longer effective; now is the time for Big Pharma companies to engage with their supply chain and drive cost effective innovation and drug discovery. Through collaboration with smaller, highly specialised suppliers and third parties, Big Pharma companies can discover, develop and deliver drugs to market faster and cheaper, and innovate processes and technology along the way.
This forward thinking mindset is already being adopted. Johnson & Johnson recognised the potential of supplier collaboration around 10 years ago, and have since set up innovation centres across the globe to facilitate it. Along side J&J, a number of other Big Pharma firms now seek innovation from their external ecosystems. The Deloitte paper ‘Partnering for progress’ states 9,000 new R&D partnerships were formed between 2005 and 2014, more than double the amount formed a decade before. It also cites impressive increases in the number of joint ventures and consortia. However, in BCG’s report ‘Creating more powerful partnerships in pharma’, 75% of executives said that their strategic partnership efforts had been unsuccessful as of 2018. This alarming statistic suggests a lack of effective collaboration capabilities exists within the pharma industry. The pressing need for effective supplier collaboration is equally apparent in Accenture’s paper ‘Dare to be different’. The report gives good insight into the dawn of the ‘New Science’ era – the emergence of complex biopharmaceuticals and complex personalised therapies – and its future effects on supply chain complexity.
“The day procurement enables top-line growth is the day it becomes part of the corporate strategy”
– Johnson & Johnson
Simultaneously handling this complexity and generating value through supplier collaboration seems a daunting prospect. Procurement functions sit at the interface of relationships between pharma enterprises and their suppliers. With their expertise and capabilities and the resources freed by digitisation, procurement should be able to sit at the heart of supplier partnerships, driving effective, productive collaboration. Embarking on an SC&I programme would kickstart the transition of procurement from a function focussed on cost saving and strategic sourcing to one that adds value to the company and helps drive top line growth.
Published September 2019