The Secondary Market Research Challenge in Pharma - An Inside view on how to overcome the market monopoly

Transcription

1 Secondary Market Research March The Secondary Market Research Challenge in Pharma - An Inside view on how to overcome the market monopoly

2 Abstract The objective of this whitepaper is to enable pharmaceutical organizations to position themselves as attractive buyers, so as to effectively source pharmaceutical secondary market research services by highlighting various negotiation opportunities & value benefits. The focal point of this whitepaper is to enhance objectivity in terms of procurement of pharmaceutical secondary market research spend. Introduction Pharmaceutical secondary market research plays a pivotal role in supporting pharmaceutical organizations in the form of insights on: Patients Payers Prescribers Drug positioning and much more. However, with the lack of choices in terms of service providers at a global scale & service provider dominance (single service provider monopoly the pharmaceutical secondary market research giant ), pharmaceutical organizations face stiff challenges in effectively sourcing pharmaceutical secondary market research. This whitepaper focuses on providing buyers of secondary pharmaceutical market research insights into sourcing practices that would enable pharmaceutical companies to leverage better from their spend on service providers of pharmaceutical secondary market research. Sourcing Pain Point: The major sourcing roadblock for pharmaceutical organizations in streamlining their secondary market research category spend is the fact that the pharmaceutical secondary market research giant, a dominant service provider in this space, does not offer global contracts. In the sourcing of secondary market research services, global contracts as such is a major lever for cost savings for pharmaceutical organizations which in lieu of discounts bundle their global requirements to select service providers. The absence of global contracts is in line with the current business strategy of the dominant service provider which focusses on ensuring every business unit acts as a separate revenue generator. As a consequence, the pharmaceutical organizations have to engage with regional teams of the service provider in order to fulfill their secondary market research requirements without benefiting from direct negotiations with the service provider s central team.

3 Solution Roadmap: Potential Sourcing Options Continue Sourcing from The pharmaceutical secondary market research giant Source from Alternatives Hybrid Sourcing Continue Sourcing from the pharmaceutical secondary market research giant Pharmaceutical organizations could continue to look at the pharmaceutical secondary market research giant as their go-to service provider. These organizations could look at bundling their demand with this service provider in order to realize value benefits in terms of discounts in the form of free projects (mainly ad-hoc in nature). The following are some of the benefits and dis-advantages that pharmaceutical organizations may realize by continuing with current strategy: Pros: 1. Consistency in level of insights & information 2. Single service provider contract reduced procurement complexity 3. Potential of volume/demand based discounts on pricing points in case demand is large Cons: 1. Continued monopolistic situation 2. Lack of service provider competition due to lack of strong alternatives 3. High supply risk Sourcing Alternatives: Pharmaceutical organizations could look at engaging with potential alternatives as their go-to service providers. In this sourcing scenario, the pharmaceutical organizations would have regional contracts in place with the service providers so as to meet their requirements of various secondary market research services. Some of the benefits and dis-advantages that pharmaceutical organizations may come across while adopting the strategy where sourcing from alternatives is involved are highlighted below: Pros: 1. Sourcing information/services at competitive prices 2. Reduced supply risk 3. Leveraging upon being viewed as an attractive buyer

4 Cons: 1. Lack of service provider presence in all markets 2. Increased sourcing complexity 3. Lack of consistency in terms of services procured 4. Data overlap issues Sourcing Using a Hybrid Strategy: Even though there are multiple sourcing options available for buyer of secondary market research to choose, the hybrid sourcing strategy has proven to be The Model to be followed. This can be complemented by the fact that with the implementation of this strategy, pharmaceutical organizations can negate the bottlenecks caused by the dominance of the secondary market research giant. This strategy also ensures that pharmaceutical organizations have the cushion of working with a mix of potential alternative of the pharmaceutical secondary market research giant as well as use the services of the dominant service provider itself. Before we understand how buyers could implement the hybrid sourcing strategy, let us understand how the supply market has transitioned over the last 2-3 years. Reduced Market Monopoly: It has been observed that in key markets for pharmaceutical organizations, the potential alternatives have set up operations. Pharmaceutical organizations can look at sourcing critical services in these markets from such alternatives while the remaining markets can leverage from the presence of the pharmaceutical secondary market research giant. The supply market has witnessed an expansion in terms of availability of supply base with about service providers across the globe that can operate on the service lines of the giant service provider. These service providers are strong alternatives to the market leader in specific countries/regions either by service lines or by therapeutic areas. The reason why these service providers are termed as potentially strong alternatives is because they offer services at competitive prices (at least 5%-10% cheaper) apart from having the potential to work on the giant service provider s service lines. How can buyer side procurement implement the hybrid sourcing strategy to their advantage? Buyers of pharmaceutical secondary market research could implement the hybrid sourcing strategy in the following manner:

5 Using a step by step approach, the procurement team could successfully achieve the task of re-structuring their secondary market research procurement and thus negate the market monopoly which they continue to witness. Step 1: Buyers need to identify markets with the presence of strong alternatives. It has been learnt that markets like US, UK, China, Germany and other pharmemerging countries have the presence of potential alternatives. Step 2: After identifying the key markets, buyers could look to de-bundle and source the de-bundled services from the potential alternate service providers. Data services such as payer insights, prescriber insights, payer insights, etc. could be sourced from alternative while competitive data and market strategy information could be leveraged from the market leader s service portfolio. Step 3: This procurement stage could be carried out in a two phase approach. In the first phase of this approach, buyers could engage with service providers on short term contracts (3months to 1 year). During this phase, the service providers are evaluated in terms of their performance and ability to service the client s requirements in the secondary market research space. Step 4: Phase 2: After evaluating the alternate service providers, buyers could go in for longer contracts (2-3 year contracts) with their preferred set of service providers which also includes the market leader. Sourcing in parallel from the market leader and its alternatives will ensure that the buyers have a platform to benchmark services as well as ensure that there is service provider competition that is maintained. Step 5: In this procurement stage, buyers need to implement continuous performance tracking criterions on the basis of which the service providers would be monitored and evaluated. Some of the broader areas on which the service providers need to be evaluated are: a. Value Benefits Provided to the Buyer: Some of the value benefits that buyers need to comprehend are ability of the service provider to offer buyers preferential pay back terms (i.e. is implementing no late fee payment penalties), work on a pay-forperformance basis, etc. b. Accuracy of Insights: Accuracy of insights could be measured by having defined set of KPIs to evaluate the service provider s insights. Some of the KPIs are database synchronization, server downtime, database refresh rate, data redundancy, inaccurate data points, etc. c. Ease in Integration on Working: This can be defined as the ability of the service provider to bring in service innovation or onboard technologies that can enable the buyer to meet business objectives.

6 The following figure depicts the outlook of pharmaceutical secondary market research in terms of category value impact and business criticality in if the hybrid sourcing strategy is adopted by pharmaceutical organizations: Buyer side procurement may face certain risks during the implementation of the above recommended strategy. Some of these risks are as follows: 1. The market leader buying out competition: The biggest threat that buyers may encounter is; the market leader buying out competition through inorganic expansion strategies. If this happens, the power to negotiate would be back in the service provider s court and buyers may continue to face the bottleneck while sourcing various secondary market research service. However, the possibility of wiping out competition through inorganic expansion is very low. This can be complimented by the fact that the amount of competition in the supply market at present is high with approximately potential service providers operating at different scales. 2. Increased Sourcing Complexity: As the number of service providers would increase, the management of these service providers would become complex. This is due to the various scales and service lines at which these service providers operate. However, the sourcing complexity could be negated or minimized if buyer side procurement teams can have a center-led

7 procurement structure in place. This structure can be defined as a centralized procurement model having regional corporate/purchasing control. This procurement model would ensure that the service providers are effectively handled regionally. Apart from that, this model also ensures that regional or local nuances and difficulties are highlighted across regions. 3. Increased Harmonization Cost: Buyers might have to bare additional costs in terms of harmonization costs. Harmonization costs would ensure that the right balance (in terms of synergies) is maintained between the buyer procurement teams and various service providers that are being managed regionally. This cost could range between 3%-6% of the spend budget. In turn, this means that an additional investment of about 1% of the spend budget could be required from the buyer s side after realizing a minimum cost saving of 5% during the first year of implementing this strategy. However, it is only a one time investment and that buyers would begin to realize cost savings of at least 5%- 10% from the following year of implementation of this strategy. To sum up the benefits that buyers of pharmaceutical secondary market research will reap from the implementation of this strategy are: 1. Higher negotiating power 2. Maintain supplier competition 3. Leveraging value benefits 4. Encounter reduced supply risk However, what buyers need to keep in mind are: 1. Potential Increase in Sourcing Complexity 2. Increased Harmonization Costs Conclusion What can the buyers of secondary market research do? With the growing demand for generic drugs across geographies & rise in drug pipeline and patent cliff around the corner, the demand for secondary market research services is expected to witness a steep rise. Globally, across client sectors, procurement organizations are under pressure to deliver quality in terms of purchases while providing realizable cost savings. Beroe s strategy takes into considerations the above points and hence recommends the hybrid sourcing strategy which would hold pharmaceutical buyers of secondary market research in good stead.

8 Metadata Industry to be impacted Pharmaceutical Food, Beverage & Tobacco Metal, Mining & Minerals Chemicals Oil & Gas Personal Products Bank & Financial Services Hi-tech Domain to be impacted Mass Communication Category to be impacted Secondary Market Research Focus Area Sourcing Opportunity Supplier Intelligence Technology Substitute Opportunity Supply chain Risk Input Cost Price Outlook Sustainability Keywords Used Pharmaceutical Secondary Market Research Giant, Monopoly, Sourcing, Strategy, Pharmaceutical, Supplier Competition References Primary Interactions Market Research News Websites

9 About the Author Analyst Brief: Angad Singh, works as a senior research analyst in the Marketing Services domain. His professional work involves project execution apart from focusing on domain building activities. He handles the Secondary Market Research category within marketing services wherein he provides insights on services for clients in industry verticals like Consumer Packaged Goods, BFSI and Pharmaceuticals. He has written whitepapers on Market Research The Ever-changing Landscape, Implementing the Pay-for-Performance Model A Success Story & An Assessment of the Israeli CPG Market. Educational Background: Graduate with a bachelor s degree in Computer Science Engineering.