Healthcare reform always raises concerns about cost controls crimping Pharma margins to a point where it will compromise investment in R & D. Well, Pharma has a long ways to go in retooling their infrastructure and reducing their operating expenses. The easy cuts are in sales (e.g., laying off sales people) and marketing (e.g., cutting advertising) followed by cutting misfit or obsolete research programs and facilities. Regardless of how much is cut in these areas it will not get Pharma to where they need to be. Many operating expenses that Pharma sees as necessary would be considered luxury items in most smaller companies. Large organizational size just further compounds the inefficiencies of legacy operational infrastructure. So what’s the solution?
Essentially, invest in the right people and the right projects…everything else is an expense that must be managed out if it is not essential. Here’s how:
1) Focus and fund only the highest priority R & D projects, cut what doesn’t fit
2) Build teams of expertise (pay for the best you can find) in Leadership, R & D , and managed markets marketing/sales. Three ok candidate hires are not the same as hiring an expert.
3) Unfortunately, managers have a tough time downsizing their own organizations when they have been brought up to “empire build”, so getting lean and ruthless about operational expenses has to come from the top or outside the organization. Even CEOs want a “Big Pharma”.
4) Where to start with cuts? If it is not regulatory or legally required, it better be customer required or it goes. If it is not apparent and you need to rationalize an expense, this is a good place to start.
5) Go back to point one and do the process again until you get it right.
This is not just a cost cutting process. It is a way to “find cash” from operations while preserving margins to invest in the right people and the right R & D projects rather than building and maintaining cash consuming infrastructure. Most companies have to get to bankruptcy before leadership has the courage to go through this process.