As organizations rapidly embrace the “The Fourth Industrial Revolution”—described by Forbes1 as the exponential changes to the way we live, work, and relate to one another due to the adoption of cyber-physical systems, the Internet of Things, and the Internet of Systems—life sciences companies, realizing the impact that this digital shift has on changing business models, are investing in innovation and growth. A Gartner report2 notes that companies will spend on “data analytics, cloud services, and cybersecurity technologies” to support this shift, characterized by growth, development of new products, and cost optimization.
Investments apart, life sciences companies are also exploring mergers, acquisitions, and divestitures in pursuit of optimized product pipelines, extended market reach, realignment of product portfolios, and access to greater innovation. And a report by E&Y3 from February 2019 stated that deal-making reached US$198b in 2018 and adds that “in 2019, divestitures, bolt-ons, and asset swaps will continue to be priorities.”
Many companies are also looking to target popular and innovative therapeutic medicines or treatments, most notably oncology and gene therapy, and acquisition offers a pathway into these next generation products. Additionally, it’s estimated the total value of revenues at risk from patent expiration over the next three years for the top 25 pharmaceutical companies is approximately $85bn.4 Organic development of new innovative drugs to replace those facing loss of exclusivity (LoE) with R&D is expensive, besides it cannot guarantee results. M&A and divestiture provides a platform to purchase the most promising companies while divesting divisions that no longer align to the company’s core strategy.
Deal-making is unlikely to slow down and companies need purposeful IT planning pre and post an M&A or divestiture, or risk adding unnecessary complexity that negatively impact the business. Life sciences companies should bear in mind these five key considerations while pursuing M&A and post deal close.
1. Get In and Out of Your TSA Quickly
Getting in and out of the Transitional Service Agreement (TSA) should be the number one objective for companies. They need to focus on it first, fast, and remember it’s all about the details. So, they need to make sure the TSA clearly stipulates the time and type of support service, while creating a detailed project plan to ensure complete buy-in, alignment, and clarity of expectations. Elements of success include a well-defined project management structure, detailed IT project schedules, integrated schedule detailing dependencies across workstreams, and effective program governance. For life sciences companies in particular, two critical events are: a) isolating qualified and non-qualified infrastructure environments; and b) the validation activities for the applications the qualified infrastructure will contain.
2. Engage a Systems Integrator Partner Early
Most companies bring a Systems Integrator (SI) partner onboard too late, often assuming they can manage the IT challenges internally or promote rising leaders to take on the technology responsibility. What comes after the deal close is more complex than most companies realize, and the challenges are magnified significantly in the absence of a dedicated and experienced integration (or divestment) team. More importantly, speed is a critical success factor, (see previous point on the TSA). So, getting an experienced SI partner involved early to assist in isolating qualified environments and managing validation activities has yielded demonstrated success for those taking this safer path. Other critical considerations suitable for a systems integration partner include deploying centralized tools, rationalizing the portfolio, formalizing teams and processes, preparing for disruptions and setbacks, setting realistic deadlines, and documenting the entire process.
3. Get Your ERP House in Order with a Global Template
Integration of enterprise resource planning (ERP) platforms is another essential action during a merger or divestiture and the focus should be on utilizing a global template. It helps integrate and coordinate activities across departments while bringing in standardization (especially related to data governance) and ensures business alignment. Further, it helps reduce costs during maintenance or upgrades in the future. When a U.S.-based pharma company acquired a European company, NTT was brought in as an SI partner and the conversations focused on timeline (due to TSA), parallel country go-lives (change management), validation activity, and process testing.
With a global template in place, target data mapping was foundationally solid. The heavy lifting was related to mapping source data, so the key was an understanding of life sciences terminology across the value chain and throughout the source ERP systems in order to be able to quickly map the source data and minimize disruption to the business.
4. Speak the Local Language
For the same client, it became a significant benefit for the SI (NTT, as it were) to quickly convene a team of functional experts speaking the local language. While English is a standard business language, the reality is that business users are far more comfortable in their native language. Wave one of migration was planned for France, Spain, Italy, Germany, and the UK.
The deployment of local language functional leads (who also knew the life sciences industry) with mirrored leads in the centralized development country (India, in this case) who could also converse in French, Spanish, and Italian, made a significant difference, while breaking down linguistic and cultural barriers.
Companies should seek SI partners that are not only well-versed with the local language and with technology, but those that have past M&A and divestment expertise. Since M&A and divestiture activities are highly repeatable processes, an SI partner with experience, while getting onboard quickly with the required operational skillsets could also cascade past knowledge in the local language. This essential combination could be a potential game-changer.
5. Organizational Change Management is Important, Yet On-the-Ground Reality is Different
Organization Change Management (OCM), while deemed critically important, is commonly limited in the attention, budget, and effort the discipline receives. That’s the reality. If you are a specialist in procurement on an ERP platform and the firm is migrating to a different version or a different configuration, it is still procurement. There is an inherent expectation that an employee should be able to learn the new system quickly if the proper support system is in place (think quick answer help desk or super user, more than hours of learning modules and presentations).
Within life sciences, we also observe big pharma typically adopting SAP and middle market on Oracle, while the medical device industry mixes it up based on preference or acquisition history. Emerging bio-techs are seeking quicker, cheaper solutions and are delving into Dynamics, as well as asking for functionality bundles (think of a comprehensive life sciences suite purchased by a factor of revenue or users where the full application suite, qualified infrastructure, and security services are combined in a simple single monthly fee).
The OCM question should really look at usage as its guide, especially with an all-inclusive service. If frequent, empower the user to discover easily and with details; they’ll learn from repetition. Conversely, for those that only perform a task a few times a year, user support must be easy to obtain and more full-service (do it for me) because human behavior will not support recall with infrequency. Treat OCM as the defined discipline it is meant to be and not as an exercise in communication and training. If you want to do it right and change behavior, ask your SI if they have an organizational psychologist on the team so that OCM can be treated as a professional discipline, rather than basic training and communication.
There’s no slowing the M&A juggernaut. Life sciences companies would do well to pay close attention to TSAs and take advantage of an SI partner early on (during deal-discussion), so they can assess and plan for the current and future technology layout and provide the right advice and support. It’s too important to do it alone!
Resources:
- https://www.gartner.com/document/3891673?ref=solrAll&refval=228533924&qid=fcd89cb1ab2c1e4b8fac
- https://www.ey.com/Publication/vwLUAssets/ey-2019-ey-m-and-a-firepower-report/$FILE/ey-2019-ey-m-and-a-firepower-report.pdf
- https://www.bloomberg.com/news/articles/2019-01-07/gilead-pfizer-execs-suggest-even-more-pharma-m-a-is-on-the-way
