Says Simon Holt, a consultant with AT Kearney’s pharmaceutical and healthcare practice: “The industry invests an awful lot of money in what is essentially a game of roulette: to bring a drug to market costs a lot and it may take 10 years to see if that investment is going to actually produce a product.” He adds: “A number of forces are colliding and shaping the industry now and any one of them in another sector would cause a major seismic fluctuation. It makes it an extremely interesting place for consultants.”
And, he says, those consultants have to stay on top of both the business and scientific sides. “That’s what attracts you into this business. After a couple of hot engagements you get passionate about it – it’s not the same elsewhere. It has a language all its own: the trick is to learn, understand and translate it into the business context.”
Robert Thong, late of Gemini Consulting, is equally passionate about the sector. He turned his back on dotcom fever to found strategy firm Phizz Rx two years ago. At that time, he says, the desire to focus on e-business, IT-related work was widespread. “But I had grown fond of pharmaceuticals and saw a lot happening from the scientific and business end, with nothing to do with e-commerce. No-one in Gemini or the other big consultancies was really willing to listen to that,” he says.
Thong decided to go it alone. “Lots of people thought we were mad – but our business has not changed since the dotcom crash. The industry runs on quite different drivers. People still get ill and need medicine and if you produce a medicine that works, irrespective of what it costs, the government is under social pressure to pay for it. Obviously governments do put in cost control mechanisms but at the end of the day the stock market and dotcoms do not drive the pharmaceutical business.”
Ron Collins, director of pharmaceutical consulting at KPMG Consulting, has seen strong growth for services over the last few years. He attributes this partly to the size of the industry in the UK – GlaxoSmithKline and AstraZeneca are both headquartered here while US firm Pfizer has a massive R&D facility at Sandwich. Collins also identifies two sets of pressures on players in the sector, involving R&D and sales and marketing. “Companies need to keep producing innovative new medicines, registering up to three substantial drugs per year,” he says. “There is big pressure on R&D for speed and productivity and it is becoming difficult to maintain that rate of innovation.”
As a proportion of turnover, R&D investment has risen steadily, he says. “The typical spend 30 years ago would have been around 8-10% – now it is 15-20%.” These rising costs mean that people are starting to become interested in making R&D more efficient and better managed, he adds.
And there are pressures on pricing and prescription volumes in the UK market. “Primary Care Trusts and the National Institute of Clinical Excellence are creating issues around which doctor should be prescribing which drug when. Clearly the NHS has an interest in making sure over-prescribing doesn’t happen and that prescriptions are only made when they are absolutely cost-effectively necessary.” These sorts of pressures make it much more complex to manage the sales and marketing space, he says.
“There is now a wider range of stakeholders in that space: the tactical – Primary Care Trusts and Acute Trusts that look after hospitals – and the more strategic – the royal colleges, patient groups and organisations indirectly connected to NICE that create the climate of medical opinion. NICE collects best practice views from these strategic stakeholders and the industry has a real need to make sure it communicates with them about therapies, drugs and so on so that NICE makes the best informed decisions it can.”
Holt highlights the growth of consumerism as a force for change in the industry. “Patients now are well-informed – many of the patients a doctor sees will have already been on the Net to find out about their illness and be full of misinformation and information.” And, he says, the Internet is also radically changing the discovery process for pharmaceuticals, enabling them to liaise with scientists the world over. He also cites pharmacogenomics as an industry-shaping phenomenon. “Blockbuster drugs used to treat the broad spectrum of people may be replaced in the future by more targeted drugs, which map the genetic make up of the individual alongside the drug profile that will work for them,” he says.
The new technologies for the discovery of drugs also enable companies to replicate competitors’ products fairly easily, says Thong. This means that marketing has to be much more competitive. “Given the high quality of biochemistry and molecular modelling now, rivals can create a new compound with similar characteristics but under a different patent in less than two years.”
And when a drug goes off patent, says Thong, everyone piles in. “Government is very concerned about the cost of healthcare and there is a lot of pressure to lower prices as soon as a patent ends. Prices can fall by a factor of 10 in a year.” By the time a product gets to market a patent can only have seven to 10 years left to run, he adds, so the big pharmaceutical companies are under increasing pressure to develop something new.
The cost of developing new drugs, however, is growing so rapidly that it is driving a lot of mergers, hollowing out the middle of the value chain. “A lot of big firms are being created, with new, smaller biotech firms starting to attract attention with a hot product or life science technology at the other end of the scale,” says Thong. As the industry is changing in structure, and in the way it works, it is creating a lot of work for consultants, he adds.
Holt agrees. But, he adds, while the industry traditionally had a lot of money to spend on itself and suppliers like consultancies, this is no longer true. “Strategy firms like us have got to show clients that what we do is going to add significantly to their bottom line. Consultancies which offer flexibility and ‘future think’ are doing quite well in this area.”
AT Kearney works with both providers of pharmaceuticals and healthcare and payers, such as the NHS, in this area, and, like KPMG, has seen growth in recent years. Says Holt: “We are doing quite a lot of strategy, restructuring and resource effectiveness work.” Supply chain and merger integration are also important areas for the firm, he says. “When two pharmaceutical firms combine they have to merge their R&D pipelines – they can’t afford to sustain all the drugs they are developing, so they foster some of them out to new homes. And they have to find ways of getting all their scientists to work together.”
Helping clients extract value from M&A activity and achieve the synergies that the market wants from them, is also a significant stream of work for KPMG, says Collins. “A lot of it involves large back office functions such as finance, and we also see people trying to upgrade and integrate IS systems and sort out a patchwork of ERP initiatives.”
KPMG is also seeing a lot of work in the CRM space, he adds. “Clients want us to help with strategy, processes, how to optimise sales and marketing and technology. We call this solution integration – the design and delivery of a total solution. Understanding the increasingly challenging and complex sales and marketing environment seems to be one of the hottest themes now.”
Alongside that, he adds, comes helping pharmaceuticals with e-business strategy and implementation. “The industry has been slightly slower to adopt e-business than other sectors. There are strict regulations on companies talking directly to patients so most of it is B2B and B2E.”
Alongside such big firms, many other consultancies are active in the sector. Ashridge, for example, which has around 40 consultants, is extremely busy in pharmaceuticals at the moment, according to senior consultant Gary Luck. “We are working across the supply chain, from the inventory end to the R&D, from the pharmaceutical company to the customer. One issue is the link between the manufacture of the drugs in one part of the world, with the distribution channels elsewhere. New channels like supermarkets and the Internet make it an interesting time.”
Further down the scale is BioBridge Associates, a business strategy consultancy focusing on the impact of innovation in the life sciences sector. While the firm boasts only two consultants, its network of associates enables it to undertake projects in a wide range of areas. “We don’t have the feast and famine that small consultancies often face,” says founder and managing partner Meredith Lloyd-Evans. “Recent jobs include advising a US company on the market dynamics in Europe for a bio-artificial liver based on pig cells to support people with liver failure until their transplant.
It needed background on surgical centres, patient numbers and trends, healthcare funding and government and public attitudes to experimental procedures.”
Lloyd-Evans began his working life as a vet and then spent some years in the animal health industry before joining PA Consulting.
Holt too, has industry experience, and it seems in strategy, particularly, this is important. “Clients like us offering seniority and an understanding of the industry as well as blue-chip consultants. While younger consultants are often fantastic at what they do, it is sometimes difficult to get past first base with a pharmaceutical client. It is all part of entering an academic elite. People who work in senior positions at pharmaceutical companies have excelled at university, have life science degrees or are doctors.”
He adds: “The ideal mix for us has been to groom bright people internally but also recruit people with consultancy and industry experience.”
Thong agrees: “The industry has a lot of idiosyncrasies, very technical features and very complex regulatory and scientific attributes. Unlike a classical strategy company like Bain where one day you will be working at a bank and another at a supermarket chain, applying strategic thinking in this industry is not enough. 99% of the work is line of business-related.”
As a result, he says, consulting staff need to know a reasonable amount about the industry and its language. “I know some big name consulting firms that have turned up with a team to do something generic like knowledge management in an R&D centre and were subsequently asked to leave because the client’s reaction was ‘you people don’t know anything about our industry, you ask a lot of dumb questions and waste our scientists’ time’. Clients won’t tolerate consultants messing around for two months asking basic questions about how they work.”
KPMG’s Collins agrees that industry experience is important. “Some of our consultants have been product managers or medical directors in large pharmaceutical companies,” he says. But he points out that the firm has to recruit a range of people with a variety of skills to support the projects it undertakes. “The consultancy business is changing. Now that consultancies supply solutions the word is diversity. We recruit deeply technical people who know how to integrate IT systems, information architects, systems integrators with a deep knowledge of killer applications, such as ERP and CRM. Alongside those we have conventional skills of strategy, process and organisation.”
Nicola Mumford, a recruitment consultant with Executive Connections, says: “Requirements vary depending on the style and size of organisation.
For example, we are recruiting for a niche strategy player at the moment, that wants best academics, top business school MBA and experience with one of the top three strategy firms. Other firms might want technical experience of Documentum, for example, a package for managing data such as patients’ records. The area is very diverse.”
Mumford is also seeing quite a lot of movement from bigger consultancies to niche players. While small firms have to compete on salaries, consultants don’t usually move for money, she says. “Usually they want to have more control over travel (of which there is a lot in this sector) and see the rewards of what they put into the business.”
For Marie Cheong, director of administration and organisational development for Phizz Rx, however, someone used to working for a big consultancy is not always the ideal candidate. “In the last few weeks I have received hundreds of CVs. But for us as a small style, get up and go company, they have got to be self-starters. That’s what makes it difficult to hire the right people.”
A SHOT IN THE ARM FOR SALES
When bio-pharmaceutical heavyweight Serono International decided to implement a web-based, global CRM system in 44 countries, time was of the essence. And, for Ron Collins, director of pharmaceutical consulting at KPMG Consulting, that was the most challenging aspect of the project. The firm’s role was to clarify the approach, design and configure the software solution (Siebel ePharma 2000); develop the sales and marketing processes and support the phased roll-out. “We had to do it within six months, 30%-50% faster than usual,” he says.
Previous collaborations stood KPMG in good stead. Giulio Vannini, Serono’s director, marketing and sales e-solutions, says: “A key success factor was our partnership with KPMG. It fits very well with Serono and together we worked as a team.”
The firm’s flexibility, too, was important, he says. “It was a multinational project and we need a global approach.”
The project was an agent of change for Serono, he says, as alongside the development of the process, its staff were receiving training on selling skills, tailored to the new system. “We created expectation and confidence in the system,” he says. And, as the solution rolls out, he expects it to increase the effectiveness of sales and marketing and improve customer retention. ?: