The pharmaceutical industry is undergoing a major, and difficult, change. For the first time in its history the market is contracting. Increased government pressure to reduce drug prices and more regulations concerning bringing drugs to market is taking its toll. Added to this is the increase in generic drug suppliers and a slowdown in the number of new drugs coming to market.
However, estimates still put the current size of the global pharmaceutical industry at £280 billion. North America, Europe and Japan together accounted for 88 per cent of the worldwide sales last year.
But the US is the major market, accounting for almost half of all global drug sales. The worldwide drug market grew by 14 per cent last year according to US market research organisation ReportSure.
The pharmaceutical industry is seeing reduced returns on its investments in primary care, greater therapeutic density even in higher margin franchises and fewer promising compounds coming through drug discovery and development, according to Nic Oatridge, who heads up who heads global IT for Novartis Oncology in the US. He says the situation is causing significant cost pruning, especially in areas like optimising supply chain management. He believes there is also a greater focus on ensuring effective targeting in the field, with drugs companies putting a lot of resources into CRM.
“IT is making a contribution through more efficient computer inventory management; globally and regionally centralised infrastructure; ERP and CRM support organisations and an increased focus on outsourcing and offshoring,” he says. “There are pockets of increased IT investment – such as video-conferencing technology to offset travel costs – and attempts to reduce time to market for new compounds through more visibility of key performance indicators, and faster study start-up and database lock.”
Milena Izmirlieva a healthcare practice analyst at Global Insight says price pressures are having a profound effect on the industry. “In the EU especially, government controls and the fact that generic drugs are cheaper means it is difficult for pharmaceutical companies to make a return on new drugs,” she says. “If they are 10 years into research and then the new drug launch includes a generic version it is difficult.” Some companies are addressing this threat by expanding their generic drug offerings, like Novartis, which has its own generic arm, Sandoz, from the original creation of the company through the merger of Ciba-Geigy and Sandoz in 1996.
Key IT issues
Lowering operating costs:
With the pharmaceutical industry beginning to contract, IT directors are looking at ways to add value and lower costs. Consolidating infrastructures and standardising applications globally, together with selective outsourcing and improvements in business processes like supply chain management, are all part of their current strategy.
Constant changes to the structure of the NHS and technological innovations mean that having a really effective CRM implementation has become critical to drug companies.
Improving drug research productivity:
The number of new drugs ready to come to market is declining, so pharmaceutical companies want ways to speed up the development cycle. IT directors are looking at innovative approaches to processing the huge amounts of data drug development creates and at the increasingly complex data mining techniques available.
European pricing is fraught with problems as some countries such as Spain, Greece and Italy have significantly lower prices than others, and wholesalers have been tempted to import their drugs from those countries. “This parallel pricing is causing significant problems for pharmaceutical companies. They have tried quota systems and by-passing wholesalers to try to stop it, but on the whole the EU sees it as free trade,” says Izmirlieva.
For years big pharmaceutical companies have been almost alone in not seeing the cyclical cost pressures most industries experience, according to Oatridge. “So many companies are now looking for new models of how to do business through greater collaboration with third-parties, and scaling back promotional spending for the first time in the industry’s history,” he says.
Learning from others
For most of the industry’s CIOs the slow down means concentrating on the IT developments that support the business and maximise the value of IT expenditure. They are using the experience of their peers in other sectors, who are now old hands at handling cut backs, to help formulate their own IT strategies.
For example the retail and travel industry have both moved to strong CRM infrastructures to support their businesses and they are also looking at best practice in the manufacturing and logistics industries.
Although much of the work that is going on is in the back-office, there is also some innovative IT work being done to speed up the delivery of drug development, including the use of grid computing and data mining techniques. But ultimately the pharmaceutical industry is now where most other sectors have been for some time – making sure that IT delivers support and adds value to the business, while improving productivity and reducing operating costs.
- Headquarters: Basingstoke
- Number of employees: 2,500 in UK
- Last full-year revenues: $13.857m (2004)
- Head of IT: Sue Gale, UK IT director
Eli Lilly was founded in 1876 in the mid-west of America. It now has around 44,000 employees worldwide, 2,500 of them in the UK – its European headquarters are here – and it markets products to over 140 countries.
The company is in the midst of a major CRM project, and Sue Gale, Eli Lilly’s UK IT director says that this is the key focus at both the UK and European level.
“In terms of traditional IT projects we are doing a Siebel CRM implementation, but we are also looking at delivering on the IP telephony which has been rolled out and are migrating to XP,” says Gale. “The company is making more use of analytics, data mining and multi-channel message management. And of course there is a lot to do in the data privacy and security arena in the back-office.”
Applications, operational support and the local infrastructure are all done on a UK level, while back-office support is done regionally. Gale handles governance for regional application development and support for the IT portfolio for specific business processes.
“I help people make the right decisions when they want to implement a specific application for a process,” she says.
The CRM project will escalate during the second and third quarters of next year, and more work needs to be done on the IP telephony rollout. Gale adds that the data privacy and security issues will be taking up a significant chunk of time. “Because we are a US company we have to comply with both US and European laws, which while they are similar are not the same.”
The IT department which has over 200 people in the UK, although not all report to Gale, will also be involved in the implementation of an integrated collaborative environment for workflow process, identity management, and content management both internally and for outside organisations like partner companies. “Like many in the industry we are undertaking more collaborative partnerships, and we will be working on our internet and intranet portals and workflow tools to deliver more effectively in this area.”
As if this was not enough Eli Lilly will be doing infrastructure work, upgrading XP and its Oracle systems and doing some server migration work, as it consolidates its servers. It will also be investigating Linux and some other areas. But Gale says the process changes that are going on are taking most of her time at the demand realisation part of the business.
“We’re changing the IT organisation from being organised according to geography to a regional organisation for infrastructure and applications. These were focused geographically, but it now makes more sense for them to have a regional organisation and common process base while still supporting our affiliates and value cycles.”
The company, which already uses external suppliers, plans to continue with external support to add flexibility and bring in best practice. It uses offshore partners in eastern Europe, Italy, Spain and India already, and Gale says she expects to see more of this.
She says the organisational and process changes probably take up most of her time now, but her advice to other IT directors going along the same route currently is to be flexible.
"The world we work in is changing everyday. Nothing is sacrosanct. Everything will change"
Sue Gale, UK IT director, Eli Lilly
“The world we work in is changing everyday. Nothing is sacrosanct. Everything will change. It gives us as IT directors great opportunities, and makes our jobs very exciting, which is great. We need to embrace the change and deal with it.”
She also believes that whereas before the emphasis on leadership was to motivate and develop staff, now it has to help motivate and develop its business partners.
“As well as moving to different ways of working we have to bring them with us. It is about dealing with change for the business, our suppliers as well as the employee, and making change happen,” she says.
“If you can’t do those things as an IT organisation then you aren’t going to survive.”
- Headquarters: Frimley
- Number of employees: 3,000 in UK (81,392 global in 2004)
- Last full-year revenues: $28.3bn (2004)
- Head of IT: Dr Liz Tyler, CIO pharmaceuticals UK
Novartis was created in 1996 through the merger of Ciba-Geigy and Sandoz. It is organised into three divisions: pharmaceuticals; Sandoz, which handles generic prescription drugs; and consumer health which produces over the counter products, animal health, medical nutrition and CIBA Vision. For the last 12 months Novartis UK has been focused on three main areas: CRM; increasing drug discovery and development productivity; and improving the efficiency of the electronic process with its partners.
Dr Liz Tyler, CIO of Novartis Pharmaceuticals UK says the company is concentrating on IT developments supporting its main areas of strategy and maximising the value of its IT spend. “We are looking to leverage and consolidate infrastructure services for major areas like CRM and ERP globally, and leverage emerging markets like India. A lot of what we are doing is driven by pressures on the industry to increase productivity and the need to apply the innovative use of IT in the drug research and development areas.”
"It is an age old problem of staying customer-centric in what is a volatile and fast changing market, and adapting internally to those changes"
Dr Liz Tyler, CIO, Novartis Pharmaceuticals UK
The top projects of the last year have all focused on improving efficiency. “Enhancing CRM to adapt to the changes in the NHS has been a very important project for us,” says Tyler. “Each time a structure in the NHS changes, like Trusts, nurse practitioners, GP surgeries or pharmacists, we have to make sure we can respond, and our base changes accordingly. These sort of changes affect how we interact with the NHS and mean that we need to be really flexible, and our CRM infrastructure has to reflect this.”
The company has been working hard to use IT to increase the productivity of drug discovery and development. “As the number of new drugs coming to market has declined and the cost of developing them has risen, IT is increasingly being used to speed up the route, through processing vast amounts of data drug development creates and using increasingly sophisticated modelling technologies,” says Tyler.
The third major initiative the company has been concentrating on is improving business processes with its partners. “We are trying to move those customers who are still using paper systems on to electronic processes to improve efficiency. Many of our NHS customers have enormous cost pressures. If we work in partnership with them to improve mutual processes, such as ordering, we both gain benefits from improved efficiency and reduced costs. Some currently use paper-based ordering through faxes, or a mixture of paper and electronic ordering, which means the process can be inefficient and expensive. We are using our existing relationship to work with them to make the move to electronic business processes.”
Tyler thinks the industry has been able to look at other sectors and use their experiences to streamline changes to the pharmaceutical business model. “In the past we were focused on high levels of investment and research and development. Now we have to adapt. We have looked at the retail and travel industry, both of which have adopted strong CRM infrastructures and in manufacturing we have studied FMCG best practice.” Novartis is also seeing where the innovative use of IT can be applied. “In research which generates vast amounts of data we are using grid computing as a way of improving productivity at a global level. We are also looking to improve communications for the research teams that are fragmented around the world, by using a very robust corporate infrastructure.”
In working with its customers the company is leveraging its IT resources. One example is where diagnostics and IT are working together in patient care. Patients who take complex medication often have to have blood tests to see how they are responding and whether it is safe for them to continue with treatment. By using web-based technology Novartis has reduced the time taken to find out if it is safe to continue medication, from one week to about three minutes.
The focus for Novartis looking forward will be to leverage IT to improve efficiency and consolidate its infrastructure services. Tyler says the technology is the easiest part of the plan. “It is an age old problem of staying customer-centric in what is a volatile and fast changing market, and adapting internally to those changes.”
- Headquarters: London
- Number of employees: 100 plus
- Last full-year revenues: £5m (2004)
- Head of IT: Steve Tringham, IT director
Inpharmatica is really a supplier to the pharmaceutical industry, and uses technology to solve scientific and drug research problems, for many of the leading pharmaceutical companies throughout the world. It specialises in predictive informatics to improve the speed and productivity of drug discovery. Founded in 1998, the company employs around 90 people in London and Cambridge, with business development staff in North America, and its largest market, Japan.
IT director Steve Tringham says the company is in the midst of a programme of change. “Over the last year we have made a biggish move into blade servers with a move from our 2,500 CPU’s of rack mounted compute farm servers to a 400 CPU IBM dual Xeon Blade solution,” he says. “At the same time we decided to host this offsite at Globix as the cooling and power issues of server hosting is too specialist an area to continue to do it in-house on a large scale.”
The company will fully deploy this as an in-house ‘compute on-demand’ service, where it will deploy nodes to meet the demands of several business units during 2006. “We will also look at providing this as a customer service during 2006,” says Tringham.
Next year Inpharmatica will have to complete a move to a new West End head office. “We will be dealing with all the normal infrastructure issues as a result of the move and at the same time will complete the consolidation of our split biology and chemistry labs to our Cambridge science park site.” The company will use new integrated VoIP phone switches based on the Asterisk open source platform at both sites. “This will increase functionality and reduce the costs through the use of VoIP,” says Tringham.
Like all companies working in the pharmaceutical industry, reducing costs is critical. “Operating costs are key to us and we try to innovate around keeping these down. For example we have cut maintenance costs by around 80 per cent by using a mixture of redundant hardware, bundled warranties and a more pragmatic approach to the need for 24-hour onsite support. Use of open source is also a key cost management strategy for us.” The company also supports and sells large-scale databases and complex scientific applications which it licenses to customers as fully installed solutions or as hosted online services.
"Operating costs are key to us and we try to innovate around keeping these down"
Steve Tringham, IT director, Inpharmatica
Tringham thinks that running a lot of centric service delivery, with flexible demand and on different platforms, lends itself to hosted solutions and he sees this trend continuing. “We see the demand for the hosted services increasing as it lowers the cost of entry and allows our pharmaceutical customers greater flexibility and choice. We launched new products on the hosted platform this year and development of these web-based applications in Java and Perl is where we see the development focus remaining.”
Those applications are mainly Oracle-based and Inpharmatica will be looking at upgrading to Oracle 10g over the coming year, mostly because Tringham believes it will provide more options for using Oracle on Sun Solaris and on Linux together. “Oracle on Linux is important because hardware based on 64-bit platforms such as AMD Opteron give much better price performance than Sun’s RISC Solutions,” he says.
During the last year, like many other companies Inpharmatica has moved from IPSec VPN to SSL as the normal means of access for customers. Tringham sees these as a more open means of access and the preferred way forward.
Inpharmatica operates four business units and IT people have regular contact with all of them through the executives of each unit. Tringham, who has worked in many different market sectors, believes IT directors’ ability to steer a path between business units and the IT department, is essential to success. “IT is much more of a business driven entity than it used to be. In an organisation like Inpharmatica the business drives the IT and technology elements. But sometimes unexpected results are then driven back down the line to the businesses and our customers.”