The Challenges of a Changing Landscape

A quarter of a century after the launch of theinvestigation. The majority do not affect product
first biotechnology drug, the global biotechnologyquality but still, some 5% of batches are found to
industry finds itself split. Many startups andbe out of specification and have to be discarded.
middle-aged companies remain unable to realizeBiotech companies also have to cope with raw
their long-anticipated aims and aresteadily losingmaterial supplies not growing in line with demand.
money. But the more successful companies areRisks to the entire supply chain are intensifying as
being acquired by Big Pharma to fill a dry pipelinemore companies vie over the same suppliers.
and bolster their otherwise loss-making operations.Companies may wait more than half a year for
In both cases, these biotech companies are findingraw materials and the entire industry is too
that margin maximization and cost reduction aredependent on single sources for key materials,
moving ever higher up the agenda. Indeed, thisputting delivery at risk and impairing flexibility. As
rapidly maturing industry, which has historicallythe industry matures, brilliance in R&D isn't
focused much of its effort on volume growth, isenough. The companies need excellent business
now facing operational challenges as severe asmanagement skills at all levels, yet there is a lack
those faced by more casehardened sectors.of managerial talent and the churn rate is high.
One tool these companies are using to develop aBiotech companies typically lose 10% of their
response to the changing environment isstaff each year. How do they prevail against
benchmarking.these odds? The companies showing the best
Using a combination of metric benchmarking andbenchmark results were ones that took an active
process benchmarking, they are finding out notapproach, that understand profit to depend on
only the extent to which they need to be betteroperational excellence, and took steps.
to compete, but also the specific operationalOne "secret", the study showed, was to forge
practices that need to change for them totight working relationships between production,
achieve better results.R&D and industrialization, which accelerated
Tefen's recent bio-benchmark study, with six ofthe R&D process. Crossfunctional teamwork
the biggest names in the sector, was designed tohelps resolve deviations speedily. Some companies
reveal an overview of their operations from theeven started linking remuneration to speed of
inside. The study's aim was to identify the mainproduct-flow and decisionmaking.
levers that influenced each participant's results,Another crucial element is to work more closely
and to guide them toward necessary changes. Inwith raw material suppliers, while in parallel
doing so the benchmarking study uncovered thediversifying sources to reduce supply risks. Within
trends and challenges facing the industry, and theproduction, investment in new technologies is
ways companies are coping with them. As aworking to increase yields and processes are
young industry, biotech companies have beenbeing reengineered to reduce variation and
used to focusing their efforts on filling the marketdecrease the minor non-conformances. Multi-skilling
with their eagerly anticipated product. Today,and job rotation programs can be instituted to
demand remains strong in certain areas butincrease motivation and retention, while improving
generally the market has slowed and in somethe match between skills and business needs.
areas, become saturated. The emergence ofPersonal development and succession-planning
competition has led to excess capacity andprocesses are gaining in prominence, as is working
severe price erosion, and these companies havewith external local academic institutions. Employee
had to adapt their operational strategiesneeds are being addressed for the sake of
accordingly. Senior executives in biotech findretention. Flexibility is the word, including through
themselves dealing with challenges typically facedoffering part-time options. In parallel, maturing
by more mature businesses. They find they mustbiotech firms are learning to outsource noncore
switch focus from creating capacity to improvingactivities such as packaging, to improve overhead
productivity: the operation is required to be fasterrecovery and reduce variable cost.
yet cheaper.The proof of the pudding
The changing landscape is making itself felt in aBenchmarking proved itself to be a valuable tool in
number of key areas. In light of reduced prices,highlighting key issues and solutions in
costs have become too high. Overhead recoverybiotechnology in general, though the lessons have
needs to improve. Also, because of worseningbroad application to industry as a whole. Diagnostic
forecast reliability and the growing extent ofbenchmarking is relatively inexpensive and delivers
product variety needed to supply new markets,proportionately high benefits, so long as both
flexibility needs to improve and lead-times need toperformance metrics and enabling practices are
be reduced, both in manufacturing andevaluated, and as long as the output is heeded.
development. And as the focus shifts fromThe study portrays the picture of an industry
growth to cost reduction, the balance of talent attraversing through its lifecycle. We see the shift in
all levels needs to tip away from scientific andemphasis through the embryonic and growth
project management skills to operationalphases into the shakeout phase. The effect of
leadership skills. It's one thing to list the neededcompetition has forced many companies to focus
improvements and another toexecute them. Theon their poor operational performance. Operational
benchmark study found typical obstacles, includingExcellence has ceased to be an ephemeral fad,
general protraction of management andbut a source of real competitive advantage.
production processes, even compared with theCompanies lagging in performance excellence are
sluggish pace of bureaucracy in the pharmaceuticalfacing ever greater external pressure.
industry. Product release can take 60 daysThe majority of biotech companies face similar
compared with 7 to 20 days for the bestexternal pressures - intensifying competition,
companies. Deviations take 35 to 40 days onexcess capacity, talent constraints. The diagnostic
average to clear, while the best companiesstudy showed their common issues: how to
managed this in 10 to 15 days. And changes inaccelerate development, increase productivity,
procedure take on average 10 to 15 weeks to bereduce manufacturing lead-times, manage costs
approved. Another obstacle is that cost reductionand how to recruit and retain the right staff.
efforts are slow to impact. Despite rising costMany prove to be tackling the issues in the same
pressure, little time, typically 2% to 10%, is spentway. Most are trying to improve margins by
in driving cost reduction opportunities and in 2007improving productivity - achieving the same
operational costs were reduced by only 4% tooutput with fewer people. They are trying to
5%. Plant utilization is running at an average ofspeed up manufacturing and product development
70% to 80%, which is poor for a capital-intensiveby simplifying management processes. They are
process industry. Inconsistency of internalworking more tightly with suppliers to ensure
processes causes waste. The benchmark studyreliable supply. They are reorganizing themselves
found that biotech manufacturing averages 15around value-streams to attain better line-of-sight
non-conformances per batch compared with oneto their customers; and they are redoubling their
to two at the best sites, and all deviations requireefforts to retain and develop staff.