Shaping a Three-Layered Intended Strategy to Realize Benefits for Life Sciences R&D Site Closures

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1 Cognizant Insights Shaping a Three-Layered Intended Strategy to Realize Benefits for Life Sciences R&D Site Closures To ensure minimal disruption and impact to regular business operations, leadership teams must ensure that closure and transition to a new site is smooth; this requires effective change management, as well as efficient knowledge retention and management. Executive Summary The global life sciences industry is undergoing a wave of mergers and acquisitions, organizational transformations and restructurings. R&D site closures are a consequence of radical changes to the traditional life sciences research and development business model. Since 2009 there have been nearly 18 R&D site closures in the U.S. and 14 in the EU region, based on public disclosures. To remain competitive, life sciences organizations are focusing on core research/therapeutic areas and consolidating their R&D locations (closing some sites and relocating others to lower-cost destinations) and selectively outsourcing activities to external service providers to gain efficiency and reduce costs. The decision to close an R&D site is a major, sensitive issue for life sciences organizations. Once decided upon, the closure must be delicately managed and executed because it can have a significant long-term impact on the organization. To ensure minimal disruption and impact to regular business operations, leadership teams must ensure that the closure and transition to a new site is smooth; this requires effective change management, as well as efficient knowledge retention and management. To attain this, life sciences organizations should embrace the three-layer intended strategy, presented in this paper, to execute a site closure program that results in substantial business benefits that exceed expectations. The three layers pivot around strategic considerations, tactical considerations and operational considerations. Industry Trends Influencing R&D Strategic Changes As revenue growth slows, the R&D strategies of life sciences players are morphing. These changes are in response to: Patent cliff: With patents on many blockbuster drugs due to expire, an estimated $290 billion in sales are at risk between 2012 and There are also persistent fears of governmentbacked healthcare reforms aimed at reducing exclusivity periods enjoyed by drug makers in different geographies. cognizant insights december 2012

2 Post-merger integration activities or consolidation: R&D consolidation is an important aspect of post-merger integration, as it helps bolster productivity and reduce costs. For example, in 2009 Pfizer consolidated R&D operations and closed six R&D sites in the UK and U.S. following its acquisition of Wyeth. Shift toward selective outsourcing: Due to margin pressures driven by higher development costs, increasing regulatory compliance costs, reduced R&D budgets, government-enforced price cuts and intellectual-property-related taxation laws, life sciences organizations have gradually embraced cost-reduction strategies such as selective outsourcing of R&D activities to academic institutions (early stage research) and contract research organizations (CROs). Pipeline deficiencies: In the past, life sciences organizations relied on a robust pipeline of new products that opened up new revenue streams to offset revenue lost from patent expiration of existing products in the market. However, a sharp decline in successful innovation due to increasingly complex disease targets and numerous late-stage new product failures has had an adverse impact on returns from R&D expenditures. Location optimization: The top-10 global pharmaceuticals companies occupy at least 430 million square feet of office, manufacturing and specialist research space around the world, of which approximately 75% is owned one of the highest ownership ratios of any corporate sector. 2 To address the issue of high fixed costs, the pharmaceuticals sector is beginning to gravitate toward all-purpose campuses containing manufacturing, R&D, sales, marketing and administration functions. Key R&D Site Closures Since 2009 Year Figure 1 Companies 2009 Pfizer, Merck, Eli Lilly 2010 GlaxoSmithKline, AstraZeneca, Pfizer, Takeda, Abbott Labs, Sanofi-Aventis, Bayer, Roche, Novartis 2011 Pfizer, Novartis 2012 Sanofi, AstraZeneca, Roche Site Closure Decisions and Possible Impact Life sciences organizations face increasing cost pressures due to drying pipelines and declining productivity in R&D operations, forcing them to rethink their core focus areas in an effort to improve efficiency and lower operating costs. This has also resulted in the cessation of operations in not so important therapeutic areas. In 2009 alone, major pharmaceuticals players announced site closures and layoffs of more than 40,000 staffers the world over. 3 Figure 1 reveals some of the site closures/site consolidation announcements. New-age R&D organizations, those that are increasingly adopting a more open and collaborative approach, with selective outsourcing and open innovation, are gradually phasing out oversized facilities, which is creating greater job insecurity across the industry. Typical site closure activities run the gamut, from exiting the site completely, to reducing its existing footprint by exiting partially, or by consolidating operations across multiple sites. Regardless of the approach taken, the primary goal is to help the organizations reduce costs, consolidate R&D efforts, focus on core therapeutic areas, create a leaner organization and redirect resources to areas of greater focus or ROI. Figure 2 illustrates the key parameters of the rationale for R&D site closures. Indicative Business Case for R&D Site Closures Redirect resources to areas of greater focus Figure 2 Focus on core therapeutic areas Reduce costs Lean organization Consolidate R&D efforts cognizant insights 2

3 Our Three-Stage Strategy for R&D Site Closures Layer One: Strategic Considerations Layer Two: Tactical Considerations Layer Three: Operational Considerations Shaping Three-Layered Intended Strategy for Effective and Efficient R&D Site Closures Figure 3 Three-Layered Strategy for Successful Site Closures A wide range of internal and external attributes of life sciences organizations were carefully considered in our adaptable and flexible strategic approach for developing a three-layered strategy for successful R&D site closures (see Figure 3). Layer One: Strategic Considerations The key strategic considerations must first be identified to provide an overall objective and direction on the organizational initiative required to realize the expected business benefits from site closures. Some of these strategic considerations for R&D site closures could include: Define a clear site exit strategy or site transition strategy and align it with primary business objectives of the site closure. > > After the organizational announcement of a site closure, there is an immediate need to define and develop the site exit strategy, site transition strategy, identify the impacted business areas and the key stakeholders involved in it. > > Ensure that primary business objectives of the site closure initiative are aligned with the organizational objectives and expectations from site closure. > > Work with municipal planning authorities to help find socially responsible solutions to help employees impacted by the site exit as well as the impact on the region as a whole. > > Define site remediation and cleanup goals to reduce environmental impact and to align with the organization s green initiatives (site redevelopment and sale). Build a climate for change and continuously assess the effectiveness of the change management plan. > > Develop a climate for change in the organization to improve the readiness of the organization for change. > > Identify the impact of change and conduct a change readiness assessment. The assessment must consider who will be impacted by the change, what the impact is and how to maximize readiness for the change. > > Ensure the change is managed in the most effective manner and an assessment of the change management plan is done at regular intervals to ensure methodologies implemented to manage change are effective, focused and improving continuously throughout the change period. Develop effective communication with consistent and targeted messaging from the leadership team. > > The site exit decision brings job losses and some turbulence in daily operational activities. It is highly recommended that accurate, consistent and targeted message content is created for organization-wide communication. > > Ongoing communications and stakeholder management activity must encourage movement along the change curve. > > Prepare and execute a communication plan and training plan. cognizant insights 3

4 Define benefits of site closure strategy and identify measures to track the realization of benefits. It is essential to track and quantify the benefits of the site closure activities. Methods for quantifying benefits could include measuring the savings from reduced operational costs and return on investment metrics, such as direct contribution to the company s market position and revenues generated, etc. Layer Two: Tactical Considerations Key tactical considerations must then be identified to establish a logical approach to successfully executing R&D site closures. These tactical imperatives could include the following steps: Develop a dedicated systems integrator team to manage the multi-vendor ecosystem. > > Supplier integration and management: The systems integrator is a crucial function in site closures programs because of the complex engagement structure that results from multi-vendor environments. Systems integrators act as a glue to bind all suppliers by defining and enforcing unified operating principles and ways of working. They form an umbrella over all the suppliers to manage and oversee their activities and ensure that all team members are working in an integrated manner. > > Project oversight and coordination: Systems integrators provide an assurance role that ensures preparedness for smooth functioning of program activities; they also maintain oversight and coordination of program-level activities. > > Conflict management and resolution: This is extremely critical in multi-vendor scenarios where there could be differences in approach. Any delay in issue resolution can place a program at risk. A standard approach for conflict resolution must be created and agreed upon with all the vendors/ suppliers. Teamwork and collaboration must be the guiding principle in the formulation of this approach. In collaborative ways of working, systems integrator teams involve suppliers in the conflict management process, identify the underlying issues and, in theory, arrive at a solution acceptable to all. > > Audit management and support: Systems integrators maintain key audit artifacts and provide a support program during IT compliance audits. This team will also work with vendors to collect evidence and material in Quick Take Managing Site Closure for a Leading Global Pharma Player Client Situation A leading pharmaceuticals organization identified efficiency improvement as one of the primary areas of focus in its R&D strategy. Site closure and consolidation was identified as an important means of achieving this objective. As part of this initiative, the IT function defined a roadmap for R&D consolidation that covered operations across all global R&D sites. We were engaged by IT leadership to act as a strategic partner in planning and executing site closure activities across multiple R&D sites. Benefits Delivered We worked with the client s program leadership team and provided a strategic direction to the site closure activities. As such, we provided: A structured approach for multiple supplier management and integration, project oversight and coordination, conflict management, audit management and communications management. This structured approach helped in avoiding delays, reduced ambiguity in cross-supplier communications and provided a seamless transition of activities across suppliers with improved IT compliance. Management of end-to-end site closure activities, including applications migration, decommissioning and clean-up activities on the application estate, reporting, etc. Effective relationship management with all suppliers, resulting in improved quality and timely delivery. cognizant insights 4

5 support of their compliance with the audit findings. > > Identify cross-supplier dependencies and facilitate communications: System integrators facilitate communications on crosssupplier dependencies, key announcements and program decisions. This helps to reduce ambiguity in communication and retains a single communications channel and a one communications approach. Develop a robust governance structure: > > Create a clearly defined responsible, accountable, consulted and informed (RACI) matrix: Ensuring clarity on roles and responsibilities is an absolute business essential to avoid duplication of efforts and reduce ambiguity in ownership of activities. In a site closure program, there could be multiple suppliers who might have some overlaps and dependencies on each other. Defining and agreeing to a RACI approach with all the suppliers during the initial phase of the program will reduce conflicts and the risks during the execute phase. > > Management reporting through a joint program management office (PMO): A joint PMO handling reporting will reduce the requirements of status/progress reporting of multiple suppliers. The quality of reports will improve by having one version of truth produced by a joint PMO with information provided by all suppliers. Layer Three: Operational Considerations Information discovery: This phase is essential for a clear understanding of application availability, criticality and architectural interdependencies to diligently scope migration waves and create a data inventory of the entire application estate. It is important to validate this data inventory using multiple manual and automated approaches. It would be dangerous to assume that applications currently in use represent the entire set to be migrated. Ensure one version of the truth is worked upon by all parties and maintained on an ongoing basis > > One applications data inventory to ensure accuracy and completeness of the information stored: One of the most important considerations for application migration and decommissioning is the completeness and accuracy of the data inventory for each application. Incomplete data sets could cause problems during migrations and potentially impact other dependent applications. > > Define a structure to record the data collected to ensure ease in data mining activities: The template for data collection must be reviewed and agreed upon by all the stakeholders of the site closure program. The data collection effort should not create a mountain of information that generates no valuable insights and results in tremendous data mining efforts. At the same time, data gathering must be comprehensive enough to ensure all information is available for decision-making; there should not be a need to repeat the exercise at future points in the program. > > Identify applications interdependencies: Early identification of dependencies will help in creating groups of dependent applications that can then be migrated en masse. Doing this will reduce the possible disruptions in service for these applications as well as other dependent applications. > > Application rationalization: The purpose of this is to identify quick win opportunities for decommissioning and thus reduce migration efforts by eliminating/decommissioning applications that are not required by users in other sites or users from this site moving to other sites. Business continuity managing disruption to business-as-usual (BAU) activities: The site closure program disrupts BAU, impacting the availability of applications to end users. Site closure programs must identify and factor in the specific requirements of critical or complex applications in the scope of migration. Program leaders should plan a customized approach for such applications to minimize application downtime. Communicating realistic downtime for the applications in advance will help in managing business expectations and aid in planning ways to minimize the disruption. Define unified processes for application migration and decommissioning across regions: Standard processes that minimize the deviations across regions will result in better audit results and will reduce efforts to manage multiple processes across regions. Data loss prevention: Due to the level of complexity and the quantum of work involving large volumes of data in application migrations and decommissioning, there is a big risk of cognizant insights 5

6 data loss associated with it. It must be ensured that the application owner places appropriate measures for data backup to reduce the probability of data loss resulting from migration initiatives. For instance, there could be many regulated applications that have mandates from health/legal authorities for data retention and storage. IT compliance, GxP which includes good laboratory practice (GLP), good manufacturing practice (GMP) and good clinical practice (GCP) SOX and legal hold requirements: A regulatory impact analysis must be performed on the application landscape impacted by the site closure program. Appropriate actions must be identified for each application to ensure regulatory compliance, as per the following: > > Data retention requirements from health authorities: Regulatory authorities have clear mandates for data retention with sufficient details provided to life sciences organizations on the data types required and timelines. Life sciences organizations must comply with these requirements; noncompliance could result in penalties or more serious consequences for the organization. > > Legal hold on system, information and data: It is critically important to identify the systems and information/data subjected to legal hold before migration and decommissioning of applications. > > Requirements on the system s downtime for some critical applications (financial systems, adverse event reporting system, etc.). Knowledge retention and management: This can be accomplished by ensuring that information and data from applications being decommissioned are archived. Knowledge retention will ensure the availability of legacy information in the event key staffers leave the organization or as a result of regulatory audits or legal inquiries. The retention and management of knowledge stored in the applications decommissioned will also improve the reusability of the information and save efforts to reinvent the wheel. This data can also be used to generate valuable insights to reinforce management decision-making. The Way Forward Life sciences organizations face overwhelming challenges to bring down costs. R&D site closures are among the key R&D levers companies can apply to an overall cost-reduction strategy. Although this is a complex activity fraught with operational sensitivities, the three-layered approach outlined above provides most of the necessary inputs for shaping the strategy to achieve most if not all of a life sciences organization s business objectives. (See the accompanying sidebar on page 4 for a brief illustration of how this methodology can be applied.) The potential savings from the site closures must be directed to core focus areas leading to higher return on investment. The absolute savings can be maximized if the site closures program is managed in an operationally effective and efficient manner. Footnotes 1 World Preview 2018-Embracing the Patent Cliff, 2 The Pharmaceutical Sector: Real estate implications of industry wide change, Nov. 2009, 3 Chemical and Engineering News; company Web sites; Fierce Pharma. About the Authors Dinesh Singh is a Consulting Manager with Cognizant Business Consulting s Life Sciences Practice. He is a seasoned advisor with nine-plus years of experience in business strategy, large transformation initiatives and complex program management consulting in the life sciences industry. He has worked with leading pharmaceuticals clients to help them address key business problems and align their strategies. He can be reached at Dinesh.Singh@cognizant.com. Rohan Desai is a Consultant with Cognizant Business Consulting. He has worked as a solution consultant for various life sciences solution development activities, projects and pursuits. He can be reached at Rohan.Desai@cognizant.com. cognizant insights 6

7 About Cognizant Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 150,400 employees as of September 30, 2012, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. World Headquarters 500 Frank W. Burr Blvd. Teaneck, NJ USA Phone: Fax: Toll Free: inquiry@cognizant.com European Headquarters 1 Kingdom Street Paddington Central London W2 6BD Phone: +44 (0) Fax: +44 (0) infouk@cognizant.com India Operations Headquarters #5/535, Old Mahabalipuram Road Okkiyam Pettai, Thoraipakkam Chennai, India Phone: +91 (0) Fax: +91 (0) inquiryindia@cognizant.com Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners.