Waltzing Away in Pharma Wonderland with Polichinelle

Contributor:  Cristina Falcão
Posted:  09/20/2011  12:00:00 AM EDT  |  0  

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Tags:   Cristina Falcão | value chain | pharmaceutical outsourcing | sourcing strategies |offshoring | 

Pharma Fallacies ?  Mais c'est le secret de Polichinelle ! Bien entendu, les apparences sont sauves….

“Puff,” the mighty, magic outsourcing dragon is the “jack-of-all-trades” but master of none, trying to make sure that all roads lead to globalisation.

Strategic coherence provides greater differentiation, enables the right form of scale, focuses limited investments, and has the hugely important benefit of aligning the entire organisation around a common and consistent purpose. The problem is when there is no coherence.

R&D spending continues to rise and there isn’t any rising tide to lift all boats.

In recent years, outsourcing itself became a core competence, when companies outsourced all of the value chain activities.

Truth is stranger than fiction. Sure as night follows day, failing to identify mainstream economic fallacies will make fiction standout, but there is the minor matter that there is no panacea for all seasons.

TANSTAAFL, “External Economies,” Minimising Costs, Arbitrary Assumptions about Scale, Bigger Is Better, are some of The Fallacies.

The Role of Size, Economies of Scale/Scope and Positive Externalities (Spillovers)

Private R&D activities generate widespread benefits to society. This overall economic value often exceeds the economic benefits to the innovating firms .This difference is an economic positive externality or spillover.

One of the characteristics of pharma companies is their large size. This attribute begets huge profits to R&D, trough economies of scope and has no negative impact on economies of scale.~

Economies of scope come from the coexistence of several research programs for different disease areas conducted by a significant pool of scientists that concur to generate internal knowledge spillovers, which will expand over other R&D activities at no additional costs.

Economies of scale are achieved because fixed costs and investments spread over a large base of research activity.

Knowledge Spillovers

External spillovers and those between firms were positively associated with research productivity in a blockbuster model, where competition worked in related therapeutic areas but not on the same disease targets. The impact of interfirm spillovers on research productivity has significantly increased over the last twenty years.

As pharmaceutical research has moved to “rational" drug design, the evolution of biomedical science has placed an increasing premium on the ability to exchange information within the firm. The primary advantage of size has become the ability to exploit internal returns to scope-particularly the ability to exploit internal spillovers of knowledge-rather than any economy of scale per se.

Effect of Outsourcing on Knowledge Spillovers (Considering Symmetric Downstream Competitors with R&D Spillovers among Them)

Outsourcing production is a source of knowledge spillovers, which depend on the knowledge stock already acquired.

• The aggregate effect of outsourcing on downstream R&D 
• Increases R&D investments if R&D spillovers are large and companies are competing
• Always increases R&D investments when there is cooperation between companies
• Companies outsourcing to a common supplier will have even larger R&D spillovers

The first outsourcing method – M&A in the late 90’s

• Sharing knowledge spillovers with other companies to refill the empty pipelines and reduce R&D economies of scale.
   
• M&A growth did not deliver long run profitability measures and created new huge sized R&D units ; bigger is not synonym of better and we now watch Big Pharma spinning- off not just to streamline portfolios but also to survive .

The Role of R&D Spin-Offs

Spin-offs make an independent business out of an existing part of an organisation.

• IP oriented spin-offs (to create new drug candidates)
• Service oriented spin-offs (to provide services (fee-for-service-model) to the drug discovery/process).
• They become very valuable because they can “work” for other companies, developing new activities and” know-how”, which in turn makes them  interesting partners for companies across the entire value chain (including the parent organization).
• The “survival role” - Pharma stocks are low and the “conglomerate discount” (when stock markets value a diversified group at less than the sum of its parts) can be very attractive.

The Real Meaning of Spinning- Off

• R&D is a core competence but Big Pharma hands it over and proceeds towards becoming virtual companies, hubs of certifications, trademarks, and contractual obligations
   
• As Andy Grove says”: Startups are a wonderful thing, but they cannot, by themselves, increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.”

General Sourcing Strategies

• Insourcing  when there is a need to impress stakeholders and shareholders
• If corporate image is at stake, the decision will be Insourcing with foreign affiliates.
• Offshore outsourcing is used for operational efficiency and new market shares.
• Decisions on offshoring are associated with the desire of creating market awareness/entry in developing countries. Production of host-oriented products associated with the conduction of clinical trials in the offshore country, secures a market for those products even before they are launched
• Offshoring to countries that do not adopt GCP (Good Clinical Practices) or do not protect IP is not viable due to the strict regulations in the pharmaceutical industry.
• With rapid technological progress and automation, some portions of core activities are becoming more modularized and codified. This enables firms to outsource even complex tasks with minimal transaction costs.
• Domestic outsourcing is a strategic and operational decision.
• When quality is the major concern, domestic outsourcing is the chosen path and cost is not an important driver because firms do not see cost savings in relocating activity within the same home country.
• Backsourcing is an emerging new trend especially when APIs are concerned, due to counterfeiting, lack of compliance in offshore countries with cGMP guidelines, and the costs involved in the development and production of biotechnology-based APIs

Outsourcing Countries, IP, FDA, and EMEA Regulations

• The State Food and Drug Administration (SFDA) of China recently began implementing several changes to its GMP guidelines in an effort to raise standards in the country. As a part of the revision process, the SFDA used guidance from the WHO GMP guidelines, the ICH GMP guidelines, as well as EU and US GMP regulations.
   
• Indiafinally complied with the TRIPS requirements and Indian firms have been filing DMFs (FDA) internationally, primarily to gain entry into regulated markets.

The Role of Outsourcing People

• The industry hires or outsources employees from offshoring companies.
• Company’s employees become less competitive and lose their jobs.
• Experts predict that the use of offshore workers will contribute to higher unemployment rates.

Bigger Isn’t Always Better.

Globalisation eroded the competitive advantage (economies of scale) of the major drug companies.

Pharmaceutical companies acquired a giant octopus-like structure where producer “arms” hand products over to distribution “arms.”

Competitive advantages rely on three factors – customers, technology, and economies of scale. The first two are perishable; the third compensates the losses.

Does it still make sense to say pipeline?

Do You believe in Objectivity?

Objectivity seldom is acknowledged without a highlighted slant to tell the stories that dare to address certain realities without fear of exposing the flaws. I am a lawyer; sometimes we make facts look objective, when they lack objectiveness.

 Did you read the interview of Geraldine Doogue with John Le Carré, about “The Constant Gardner”? Very interesting what he says about “the victims of torture, the dignity that people acquire after pain, some kind of human strength, when they are no longer spectators of life, but part of the suffering world, after enduring pain.”

 Theoretically, it is possible for an individual to make very specific judgements based only on  self developed and tested theories. However, this disregards the complexity of our social relationships as human beings. 

 

 

From early infancy, bonds of power and influence surround us; without our own terms’ support to fall back on, we will almost inevitably make judgements, meagre rationalisations of specific conventions. We cannot avoid self-deceptions involved in power-relationships in which we believe. It is for that reason, that we freely accept being manipulated by someone else’s authority.

  I endured pain to get free from

 

 

 

“guilt”, arising out of the dogmatic conventions of groups, or families. I chose to think with my own free will and chose not to rely on others for ethical guida

 

A white lie is not supposed to hurt someone, it is supposed to protect him or her. Nevertheless, lies are about protecting you from the antipathy, disappointment and even the anger of others.  Your lie takes away someone else's choice - the right to make an informed decision, the right to make own choices.

 

 

  We develop “chained” kinships, we never even perceive! Our parents never even grasped it; I broke that chain – people hurt people – then people need to hurt other people. An “ad infinitum” chain of events setting of threaded distresses and bringing misery and sorrow on the planet. Personally, I paid above what is usual, to keep away from that chain, on a franchise basis.

 I am naive, but I have my threshold; I know crime and I know that we cannot simplify our “environment” – everything is connected in far more complicated ways than the web itself. The Pharmaceutical Industry is the most powerful “finance” on Earth; faceless, with fewer players, result of a patchwork of piling “realities” at any rate, notwithstanding the global costs. 

It will go on, benchmarking profits, regardless of any “Make Poverty History”, or “Oxfam International”, which, by the way, it may very well sponsor.

“Pigs will fly” before we see the end of wars, before any profit-oriented organization will allocate scientific research for “orphan” diseases that affect “just a few” thousands of people

Did you watch “The Silence of Lorna” (The Dardennes brothers, 2008)? , "I can have a better life, but in order to have this better life I have to participate in a murder of someone. How do people deal with such a situation, facing another human being, do they realize too late? That is what happened to Lorna; she had no courage - that is the silence; because of that, she was left with a feeling of guilt. Just silent, lonely suffering.” 

 

Life is like “Ishtar” (Elaine May, 1987, US) – (a big flop in the country of origin, but a success in Europe); I love it!  Perhaps the most subversive thing about” Ishtar” is the fact we love the “heroes”, in spite of  their failure ,mediocrity ,and the havoc created by their “Reaganite” ignorance in the third world, with politics and show biz turned into mindless equivalents.

 Objectivity is a method of acquiring knowledge by reasoning solely based on the facts of reality and in accordance with the laws of logic. What are the facts of reality? Those which validity we established, by matching them with referents in reality "(Ayn Rand).

 

 

Hélas! How many realities are there? 

 

 

 

 

 

The Face of Trustworthiness

My “Face of Trustworthiness” is a Muslim man.

I only saw him once; he was poor and had not even one cent in his pocket. This is what happened                  

                                                        

I was doing the Hospital part of the training, required by Portuguese Law, to become a Pharmacist, after completing the degree (I was in an army Hospital).

One Monday, some colleagues and I, went to have breakfast, and I remember thinking it was better not to take such a big wallet; the wallet never went back after breakfast, although I did not realize it.  

 

 

At lunchtime, needing to pay, where was the wallet? There was serious trouble ahead.

Everybody helped checking all the facility, including waste, toilets, at least, to see if it was possible to find the documents, but we found nothing. Cards were immediately cancelled, yet, contrary to what I would normally do, I decided to wait until Wednesday before going to the police and report the stolen documents.

Wednesday, father, who was abroad and knew nothing about this, rings

 

 

and says to call person X at place Y (another army facility).  Astonished, I listen to a man asking if I could pick up the wallet. This man was a Muslim, African, from Mozambique, a former Portuguese colony. He had recently arrived in Portugal, and was staying at an army facility. He had no money, just tickets for transports and to the hospital exams, where he had gone, for the first time, on Monday, with a voucher to lunch, and happened to seat where I sat the same morning. He saw the wallet and thought he should give it to the cashier; he thought better and decided to deliver it to the real owner. That was not easy at all.

 

                                  

To cut a long story short, after many quests, he decided to go to the main radio station, told his story and, amazing as it might seem, the people there let him broadcast he had the wallet of person this and that. My parent’s housekeeper heard it on the radio, and called my parents, (travelling in foreign lands). Here we get back to father’s strange call, mentioned above. I went to pick the wallet and tried to give him some reward; the man would not hear of it; he just requested, if it was possible for me, to go by the Muslim house of prayers and give him a hike.

 

 

He had no money but the wallet had a lot because I had to pay for some expensive books that day. Nothing was missing. Character means making the hard choices and avoiding temptation. This was a man of character.

 

“Ethics are like breathing.”

This is my own saying; no matter what culture you are from, what race, what creed, you have ethics or not; if you have them, you are blessed.

 

 

 

 

Patterns of Change

Change is with us every day. Life would not be possible without it. Change may seem chaotic and unpredictable, but most change occurs in patterns that we can see and recognize.

Change can be linear (new brick is added to a wall every 30 seconds, then the wall will grow at a linear rate),

 or in cycles (our lives are full of cycles, we breathe in and out)

 

 Humans are very sensitive to cycles. The result from one cycle feeds into the next cycle. Today we explain such effects though principles such as the network effect or the first mover advantage.  In a network, such effect can result in cascade effects.

Concept of the paradigm shift. According to Thomas Kuhn, science does not progress in a linear fashion, but rather progresses through a series of jumps, called paradigms. Within a paradigm we have what is called ‘normal science’, but eventually, contradictions, unexplained experimental results, and other problems and questions force the science into a crisis point

 

Through this crisis, our view of the world is revised, and we adopt new scientific theories, terms and concepts.A framework for managing process improvement and dynamic process changes is required, in order to provide life cycle support of business process management   

 

if we want to maximize the flexibility while executing various process versions we need a mechanism for abstract process execution in dynamic business environment.