IMS: Big Pharma must turn to tech to cut $36B from their operating costs

Over the past few years Big Pharma companies have laid off tens of thousands of staff in a bid to maintain profit margins during a period in which billions of dollars of sales were threatened by generic competition. The worst of the patent cliff has now passed, but IMS Institute for Healthcare Informatics has some bad news for the top 17 pharma companies: You still need to slash $36 billion from annual operating costs.

The figure is based on the assumptions that Big Pharma will continue to be hit by patent expirations and will struggle to offset these lost sales with new products, in part because of pricing pressures and market access challenges. If the top 17 companies are to maintain profit margins while increasing R&D spending by 5% a year--a rate that exceeds the 1.4% growth EvaluatePharma forecasts between 2012 and 2018--IMS thinks they need to cut $36 billion from annual operating costs by 2017.

Commercial operations look set to be the focus of some of the savings, with two-fifths of biopharma executives surveyed by IMS forecasting cuts of more than 10% in the next three years. Big Pharma employees forecast deeper cuts than their mid-tier peers. With budgets shrinking, companies are looking to technology to perform some of the work that was previously handled through sheer spending power. Almost 70% of respondents expect to increase investment in analytic capabilities designed to turn data from health records and other sources into knowledge that can inform sales and marketing decisions.

While biopharma IT teams are ready to spend on analytics, most expect to cut investment in others areas. The IMS survey suggests companies currently allocate 25% of their technology spending to infrastructure, hardware and storage. This is changing. Four-fifths of IT executives who responded to the survey plan to cut investment in these areas. Increased use of cloud computing and storage is expected to offset cuts to in-house capabilities.

"Life sciences companies are shifting their primary data storage to the cloud, along with sales and marketing related applications. Relative to other industries life sciences companies have been slow to migrate to the cloud, both in terms of storage and applications, [but] a turning point has been reached," Murray Aitken, executive director of IMS Institute for Healthcare Informatics, said in a media conference call to discuss the report.

- here's the press release
- read FiercePharmaMarketing's take

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