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Industry update: procurement's new role in pharmaceuticals

Apr 7, 2011 7:56:00 AM

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Procurement's role in pharmaceuticals

Coming off the back of what was a turbulent year for everyone in the pharmaceutical industry, not only were poor economic conditions forcing everyone to batten the hatches, but new stringent regulatory hurdles and looming patent expiration dates have caused the entire industry to look inwards and either insulate or expand.

AstraZeneca is the first of the big boys to kick off this transition. During 2010, AstraZeneca looked at outdated and ineffective processes - focusing on the Finance and R&D operations. During a recent interview, David Powell, Senior Director of Global Finance Processes at AstraZeneca stated there was a need for AstraZeneca (along with other pharmaceutical companies) to improve overall productivity in R&D and generally “"Money wasted on poor processes could be instead spent on new medicines or be returned to our shareholders.  For too long now pharmaceutical companies have been a bit of a '‘back water'’ when it comes to efficiency and effectiveness and we need to catch-up. Overhauling and modernising business practices ensures that the company focuses on maximising the amount of resources that we can put on our core reason for being, which is to invent and bring to the market new and innovative medicines".”

Powell goes on to discuss the changing role of procurement and the rate at which procurement has moved up everyone'’s agenda within AstraZeneca. “"Ashley Readshaw, our newly appointed CPO has focused on transforming the approach to procurement, introducing world class procurement practices (such as category management). It is fair to say that a significant amount of savings have been made from these procurement activities.  It is these savings that are helping to transform the way in which we work".”

On the other side of the coin, we turn to French conglomerate Sanofi-aventis who in early 2011 acquired German drug maker Genzyme - kicking off what is predicted to be a year of increased merger and acquisition (M&A) activity throughout the Pharma industry.

The acquisition by Sanofi-aventis was primarily driven by the opportunity to curve inefficiencies within Genzyme’'s manufacturing operations ensuring that new (and existing) drugs continue to make it to market while boosting sales of it'’s high margin '‘orphan'’ drugs and strengthening Genzyme'’s range of biological medicines.

Over the past 2 years, M&A activity within the Pharma industry has slowed drastically as companies world wide focused on cost cutting and spend reduction exercises in light of a poor performing economy. Now with a glimpse of light beginning to show at the end of the proverbial tunnel, companies are faced with a tough decision: Preserve whatever cash is available until the economy returns to normality (continue returning dividends to shareholders and focus on core offering) or expand into new markets and/or territories, taking advantage of low cost acquisitions (incurring more costs and reducing short term returns).

a) What do you think the right decision is for our friends in Pharmaceuticals?

b) What role does/should procurement have in these strategic decisions?

Proxima Group

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