Reacting faster with Product Lifecycle Management: Why PLM is important to future life sciences growth

In their latest global research report Increasing the lifetime value of pharmaceutical products , Capgemini Life Sciences have found that the majority of pharmaceutical companies are missing vital opportunities to maximize their products lifetime value. The report, developed in collaboration with the Economist Intelligence Unit, points to a need for a more integrated approach to Product Lifecycle Management (PLM). Good PLM enables companies to make the most of their existing products It can also help identify and nurture the products that will drive industry growth well into the future.

Rapidly changing market
Given the success of pharmaceutical companies in bringing major blockbuster products to the market, investment in PLM up to now has not been considered a priority. But set against a backdrop of financial and pipeline pressures, the report findings reveal an emerging belief amongst pharmaceutical executives that lifecycle management must become a core capability for the future.

Here are some of the stark figures:

• By 2007 more than US$40 billion in US sales will be lost at the top 10 pharmaceutical companies as a result of the slowdown in research and development (R&D) innovation and the expiry of patents on major products;
• Capgemini estimates that 150 medium sized new drugs will be required to plug the gap to arrest the drug pipeline shortfall by 2007-8 in the US alone;
• The market erosion to generics has the potential of costing Pfizer 20 percent of 2003 sales by 2008
• Future pharmaceutical industry growth is expected to be between 4 and 8 percent. Historically industry growth has been double digit.

"The pharmaceutical industrys success to date has been built on a consistent flow of high earning innovative products," says Paul Nannetti, Global Life Sciences leader. "However, as the industry faces up to the challenge of weaker R&D pipelines and likely reduced returns from new products, there is an imperative to drive greater value from existing portfolios. It is therefore not surprising that PLM is an important, if not the single most important priority for the industry."

Survey method
The work included Capgemini interviews with over 70 senior pharmaceutical industry executives in 12 countries about their views on PLM and on their companies approach to PLM. A survey of more than 8,000 physicians in Europe and the USA was done to understand their perspective on the way pharmaceutical companies manage their product lifecycles and interact with them on this. Detailed interviews with private and public payer organizations were carried out in Europe and the USA to understand how they are impacted by and react to lifecycle management strategies and current industry challenges. The research has been supplemented by secondary research and follow-up interviews with selected industry experts and senior executives on the topic of PLM, conducted by the Economist Intelligence Unit.

PLM is high on the agenda but more work needs to be done
A key survey finding revealed that 90 percent of pharmaceutical companies believe that PLM is important for their future prosperity; in fact 60 percent of executives cite the need for PLM as their number one priority in the next 5 years. In spite of this, it is clear that PLM is an area that requires further investment by the pharmaceutical industry. The research shows that

• Many of the traditional PLM strategies are losing effectiveness as they "fall out of favor" with physicians, payers and regulators;
• Major inconsistencies exist in how firms define PLM and how they implement it;
• PLM opportunities are not adopted early enough in a products life;
• Lifecycle plans and strategies are developed from functional perspectives, rather than taking an overall business perspective;
• Many organizations do not apply hard bottom-line criteria to the planning and evaluation of PLM.

The definition and objectives of PLM and how it should be implemented vary considerably both within organizations and across the pharmaceutical industry. Additionally, the research reveals that many of the leading practices adopted by other industries are either absent or poorly implemented in pharmaceutical companies. Key challenges that need to be addressed are:

• An overly narrow focus for lifecycle management activities;
• The lack of clear targets and performance measures;
• A silo-based approach preventing effective cradle-to-grave product management;
• No clear governance model to drive lifecycle management.

Tangible benefits make PLM worthwhile in pure financial term the total net contribution for a drug can be increased by 22 percent if a more rigorous and planned approach to PLM is adopted early enough in the development lifecycle of a drug. For a drug with peak sales of US$100 million, doing PLM better represents an additional US$105 million in total net contribution over its lifetime. Blockbuster drugs, such as Viagra, can reach peak sales in excess of US$5 billion, the financial implications of good PLM are huge!

There is little doubt that adopting rigorous lifecycle management practices will be a challenge for the industry. Although some companies have pockets of good practice, none have approached the level of sophistication seen in other industries such as automotive, aerospace, high-tech or consumer goods.

The highly successful business model of pharmaceutical companies - based on bringing a steady stream of blockbuster products to the market - has meant that investments in lifecycle management have not been a priority. However, faced with increased financial and pipeline pressures, pharmaceutical firms now have an opportunity to fully unleash the returns locked in their products, and to deliver the profitability and growth needed to sustain their financial well-being.