Pharma And Life Sciences Confront The Evolving Role Of The Consumer And Intensifying Competition

By Michael Swanick, Partner, PwC, Global Pharmaceutical and Life Sciences Industry Leader

The pharmaceuticals and life sciences (PLS) industry today faces unprecedented challenges, and around the globe, sector CEOs are pondering how their businesses need to adapt. Insights into their thinking about the hurdles and opportunities ahead can be found in the recently released 17th edition of PwC’s Global CEO survey.

The firm surveyed 1,344 business leaders across 68 countries around the world, in the last quarter of 2013, and conducted further in-depth interviews with 34 CEOs. PLS was well-represented — nearly nine percent of the sample, 119, were PLS CEOs.

Those PLS CEOs told us they face three key challenges:

• They have to chase a moving target, as consumers evolve in different ways in different markets.
• They have to address the needs of more diverse — and demanding — customer segments.
• They have to fight off increasingly intense competition.

Our overall survey sees a leap in CEOs’ confidence in the global economy — but there is caution as to whether this will translate into better prospects for their own companies. The search for growth is getting more and more complicated as opportunities in both developed and emerging economies become more nuanced, leading CEOs to revise the portfolio of overseas markets they will focus on.

Addressing the growth search, Coviden Chairman and CEO José E. (Joe) Almeida told us, “Growth is being driven primarily by major investments in emerging markets and secondly, by investments in technologies. We find that with the combination of emerging markets and those technology initiatives, plus a great deal of product development and pipeline coming in the next five years — up to around 30 products a year — Coviden will be able to deliver above market growth.”

The Top Line
PLS CEOs believe technology is transforming the sector, and they’re using strength in innovation to make the most of it. They’re also focused on regulation and integrity. Facing the talent challenge is a key priority too, particularly with demographics and shifts in wealth also radically reshaping where manufacturers will need to focus their efforts in the sector.

Technology, Demographics, And Shifts In Wealth Are Transforming The Sector.
PLS CEOs are even more convinced than their peers that technological advances will transform their businesses in the next five years. And they’re more conscious than other CEOs of the huge role demographics will play — 72 percent see it as a transformative trend, compared to 60 percent across the sample. More are also expecting a big impact from global shifts in economic power.

That combination of factors was captured succinctly in our conversation with Joseph Jimenez, CEO, Novartis, who told us, “The biggest trend is the aging population. This is going to create both a massive risk and a massive opportunity for the world. On the risk side, who is going to pay for the healthcare as the big cohort moves through? If you look at the number of people who will be over 65 in a few decades, it is a staggering figure. But then you realize this is going to create a demand for disease-modifying new agents. The IT explosion and what we are working on right now is going to lend itself to managing the challenges that come with the aging population.”

PLS CEOs Believe Technology Will Help More Than Hinder.
Only around a third of sector CEOs are concerned that the speed of technological change may negatively impact growth, compared to nearly half of CEOs across the overall sample.

Innovation Is A Top Priority — And Protecting Intellectual Property Is A Worry.
Sector CEOs are already transforming their R&D function to cope with transformation — 38 percent say they’ve completed or have in progress a program to change their R&D and innovation strategies, more than across the sample as a whole. And the same number believe that their R&D departments are well-prepared for the challenge. Importantly, “innovation” means more to these CEOs than new product development. Innovation can also help improve processes or create new services or business models.

The CEOs we surveyed are not as confident about their ability to benefit from their discoveries, though. Sixty-four percent of PLS CEOs are somewhat or extremely concerned that an inability to protect intellectual property will hamper growth, far more than across the sample as a whole.

Too Relaxed When It Comes To Cybersecurity?
A surprising 57 percent of PLS CEOs are not concerned that cyber threats including lack of data security could threaten growth. That’s despite a boom in Big Data and data analytics — 79 percent agree there’s a need to change strategies in that regard, although just 23 percent have already started.

Regulation Is Not All Bad.
Nearly four-fifths of CEOs (79 percent) are concerned that overregulation could put the brakes on growth. That said, a full 72 percent believe that their production and/or service delivery quality standards improved over the past 12 months as a result of regulation.

Supply Chain Integrity And Security Is A Big Issue.
The industry is taking safety seriously; more PLS CEOs strongly agree that it is important to them to ensure the integrity of their supply chain (76 percent vs. 58 percent overall). They also worry about the impact of bribery and corruption. Sixty-one percent believe it could slow down growth, compared to 52 percent of CEOs overall.

Sector CEOs Are Positive About Facing The Talent Challenge.
While about half of PLS CEOs remain concerned about the availability of key skills, this year that is far less than their peers across the sample. Fewer are concerned about rising labor costs in high-growth markets, too. That may be because many have already taken steps to revamp their talent strategy to capitalize on major trends — 43 percent say they’ve already begun or completed a change program, compared to 32 percent overall.

The Drill Down
This changing landscape doesn’t lack for threats — and the top three identified by our global group of CEOs are overregulation, debt and deficit responses by governments, and a slower economy.

Overregulation
More than three-quarters of PLS CEOs believe overregulation could sidetrack growth prospects. That’s far more than
across the sample as a whole (percentage concerned about overregulation — 79 percent).

Debt And Deficit Responses By Governments
PLS CEOs, like their peers overall, are concerned about the ability of debt-laden governments to tackle soaring deficits. It’s a worry that’s been increasing over the past several years (percentage concerned about government responses to debt and deficits — 76 percent).

Poor Growth In Developed Economies
PLS CEOs are slightly less worried about this poor or negative growth in developed economies than the sample as a whole. It’s “business as usual” for them as growth rates in these markets have been low for some years now (percentage concerned about poor growth in developed economies — 65 percent).

CEOs Are Also Changing Their Approaches To Business Models
New strategic alliances or joint ventures are the main restructuring activities planned. The PLS industry’s appetite for collaborative cocreation continues. The sector’s CEOs are more likely than other industries to be looking at alliances, JVs, or outsourcing. When it comes to M&A, they’re keeping things close to home, with less desire for cross-border deals than their peers in other industries.

Half Of PLS CEOs Are Actively Changing Their Transaction Strategies.
PLS CEOs are ahead of the curve when it comes to changing programs around their transaction strategies. Over one quarter (28 percent) have programs completed or under way, compared to 21 percent cross-industry, while a further 22 percent have firm plans to take action.

PLS CEOs Are Embracing Innovation And Technological Change.
More PLS CEOs (44 percent vs. 35 percent overall) see product and service innovation as their main route to growth. The sector’s CEOs are confident in their ability to keep up with a changing world. Just 32 percent of PLS CEOs are concerned about the speed of technological change — lower than across the overall sample (47 percent). And more believe that their R&D department is ready to cope. Thirty-eight percent say it’s well-prepared, compared to 28 percent overall.

Our research shows that successful CEOs are doing three things to innovate their product and service lines — make them repeatable, dependable, and scalable. They’re focusing on innovation in all its forms, putting disciplined innovation techniques in place, and collaborating much more actively. Going beyond new product development, innovation can also help improve processes or create new services or business models.

Finally, These Shifts Carry Implications For The PLS Workforce.
More PLS CEOs are taking on staff than letting them go. Nearly half of PLS CEOs say headcount will increase in the coming 12 months. But this is less than the overall sample predicts. A quarter expects to reduce their workforce, compared to one-fifth overall.

CEOs Are Concerned About Developing A Workforce That Can Cope With A Changing World.
Talent is one of the main engines of business growth. So one of the biggest issues CEOs face, as these huge demographic changes occur, is finding and securing the workforce of tomorrow — particularly the skilled labor they need to take their organizations forward.

Fifty-one percent of PLS CEOs continue to be concerned about the availability of key skills. As consumerization dramatically changes the delivery of healthcare, traditional business models need to change, and that includes people and skills. Thirty-seven PLS CEOs believe that creating a skilled workforce should be a government priority, but only 19 percent believe that the government has been effective. As a result, many are taking action themselves — 64 percent say creating a skilled workforce is a priority for their company.

In the future, a company’s value may be judged on how well it establishes and maintains a robust talent network that spans traditional boundaries. Our research shows that the quest for talent must be in harmony with new collaborative R&D models in the life sciences industry. Companies must involve HR in strategic planning and organizational design to successfully identify skill gaps, align employee incentives with company goals, boost staff morale, and solidify external partner relationships.

Adopting the innovation practices of successful CEOs and taking concrete steps to align an enterprise’s search for talent with the new collaborative models that are allowing PLS leaders to push the envelope for research are tactical approaches that address key concerns we heard from our CEO survey respondents.