Contrast this with a traditional 'big brand' pharmaceutical environment in which blockbuster drugs have benefited from patent protection, the main focus until now has centred on technologies and systems to support R&D, with the result that CRM and pricing systems have remained embryonic.
However, as the pharmaceutical sector undergoes profound change, 'sticking plaster' spreadsheet-based solutions are no longer enough to provide the flexibility demanded in a more competitive market.
Learning from more advanced sectors, suppliers to life sciences are having to adopt more thorough-going end-to-end automated solutions in order to protect existing margins and maximise revenues and profitability over the lifetime of new products brought to market.
TRP: What are the key attributes of a best practice technology solution in helping companies succeed in a more complex trading environment?
JR: In replacing spreadsheets and multiple isolated pricing tools, the ideal alternative is to centrally manage price and profit strategies through the adoption of some form of integrated revenue management solution linked to a global data source.
The benefits of linking all pricing processes on a single platform will be felt immediately at both an operational and financial level, as the cross-functional pricing team's productivity increases dramatically.
In the past, in the area of price management most of the supplier's efforts have concentrated on getting the launch process right. By contrast, a best practice revenue management solution will provide essential visibility and control to seamlessly support every stage of the end-to-end revenue life-cycle.
Also, in helping pharmaceutical companies learn from more customer-focused sectors, affordable tools are available to help move to an environment that supports customer segmentation, understanding buying preferences and the commercial supply chain. Equally importantly, they enable these to become embedded as part of the organisations' standard processes.
TRP: What are the risks of not investing in these better technologies (e.g. non-compliance)?
JR: Failure to respond to growing external pressures leaves companies open to margin erosion and regulatory exposure. As the number of blockbuster drugs declines, so the number of targeted treatments is increasing. The impact of the 'patent cliff' has been dramatic, with pharmaceutical giants in Europe and the US expected to lose up to $29 billion to patent expiry.
Tighter regulation in drug development and approvals and shorter product life are also having a financial impact on drug developers looking to generate an acceptable return on high R&D investment.
With the growth of IRP, worrying 'billion dollar conversations' are taking place within suppliers, as poorly-informed pricing decisions in one country can result in the loss of margin in another, with hugely damaging results.
As volume growth falls in established western markets, pharmaceutical companies are looking to emerging markets to maintain sales performance. Yet the need for centralised visibility and control is even more acute here, as sales to newer markets are typically at a lower price and reduced margin.
TRP: What are the first steps around technology development which the supplier should consider in looking to improve their profit performance?
JR: The first step is to achieve data transparency. In an environment that previously lacked centralised visibility and control, the right revenue management technologies provide full visibility of net margin – by product and customer group – by reporting data on all elements of the sale and invoicing process.
By modelling this data, the business is then able to analyse the relative potential impact of different pricing scenarios and ensure centralised control of all strategic pricing decisions.
Companies implementing an integrated global pricing platform often experience a degree of surprise at the initial diagnostic phase, when they have full visibility for the first time of all aspects of pricing across their multi-national business. Yet this rapidly turns to a realisation of the opportunities greater control can deliver and forms the basis of an ongoing iterative process of business improvement.
Many companies recognise the issues involved, but respond in a geographically or departmentally siloed rather than a cross-functional way. The results of such a narrow approach will almost certainly fall short of expectations.
It is essential therefore to bring together the relevant C-level executives and other stakeholders involved in price/profit management at the outset and identify those aspects where performance falls short of the ideal, together with the associated causes.
