THE ONE THING BIG PHARMA CAN'T OUTSOURCE—CULPABILITY

What has outsourcing done for Big Pharma?

Big pharma companies began outsourcing assets and activities in the early to mid 1980s.

This is what world leading exponent of procurement and supply, Professor Andrew Cox, described it in Taming The Big Pharma Monster: by Speaking Truth to Power

All of these recent developments lead to a serious questioning of the strategic outsourcing undertaken by the major pharmaceutical companies in the recent past.

Not only has there been an inadvertent loss of critical assets, but also an increase in competition and a loss of control of key suppliers and supply chains.

Unfortunately, this has occurred at a time when competition from generic companies has increased and when profits from patented products have been in decline. The result has been an industry experiencing widespread decline in profitability, now responding with short-term, knee-jerk merger and acquisition strategies.

Loss of critical assets - includes product development, manufacture, quality control, storage, transportation and distribution of finished products. Is that enough for you?

Short-term, knee-jerk merger and acquisition strategies - we’ve seen plenty of that. Window dressing to keep investors happy and disguise the underlying issue that bringing new products to market requires assets and skilled people working for your company, not someone else’s.

Professor Cox goes on:

Unfortunately for the major pharmaceutical companies that used to be the ‘channel captains’ who controlled the industry and all of its major supply chains through a judicious control internally of critical assets, there has been considerable evidence of very poor practice in outsourcing in recent years.

This has led to the loss of critical assets, post-contractual moral hazard and poor post-contractual management of suppliers.

…major pharmaceutical companies that used to be the ‘channel captains’ - not any more, they are at the will and whim of contractors providing the services needed to get new products out there.

…post-contractual moral hazard and poor post-contractual management of suppliers - sounds a mouthful, but basically, post-contractual moral hazard means once the contract is signed, and you don’t have an alternative, you are captive, and poor post-contractual management of suppliers means you don’t have the procurement skills to reverse the situation and regain control.

So, what has outsourcing done for Big Pharma?

Didly squat, zilch, zero, nought, nada; in fact, it has brought it to the edge of failure.

Boeing tried the same thing with the Dreamliner, but learnt the lesson

Boeing dabbled with increased levels of outsourced development for the ‘Dreamliner’ and suffered reported major delays and budget overrun, as well as much pain and suffering, for its troubles.

In this Reuters article titled A wing and a prayer: outsourcing at boeing: The Dreamliner is three years behind schedule and massively over budget. What went wrong? Critics point to outsourcing, you can read the sorry tale.

In a nutshell, the conclusion was that by outsourcing both the design and the manufacturing, Boeing lost control of the development process.

Outsourcing manufacture can work so long as the development process and control are in the hands of the developer and the developer allows detailed instructions and specifications to be handed down to contractors and suppliers.

Boeing managed to learn from the experience and recover the situation. Sadly, Big Pharma is way past any kind of remediation.

Where does culpability come in?

You may or not agree with this, but I believe that Big Pharma has long been unable to deliver on the blockbuster expectations of investors.

It has tried M&A (horizontal integration)—no impact.

It’s had a go at value-based pricing, and heath economics and outcomes research (HEOR)—to no avail.

Then it focussed on rare disease, orphan indications and all things cancer—nothing doing.

In desperation, it turned to DNA vaccines (mRNA/Adenovirus).

This is where culpability comes in. The only way to deliver blockbuster revenues in an acceptable timescale, was to cheat. To deceive and falsify in the most cynical way possible, hang the consequences.

Food for thought?

Hedley :O)