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

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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 devel-opment 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 organiza-tions. Once decided upon, the closure must be delicately managed and executed because it can have a significant long-term impact on the orga-nization. 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, pre-sented 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 con-siderations and operational considerations.

Industry Trends Influencing R&D Strategic ChangesAs 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 2018.1 There are also persistent fears of government-backed healthcare reforms aimed at reducing exclusivity periods enjoyed by drug makers in different geographies.

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• Post-merger integration activities or con-solidation: 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, manufactur-ing 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.

Site Closure Decisions and Possible ImpactLife 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 announce-ments. New-age R&D organizations, those that are increasingly adopting a more open and col-

laborative 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.

Figure 1

Key R&D Site Closures Since 2009

Year Companies2009 Pfizer, Merck, Eli Lilly

2010 GlaxoSmithKline, AstraZeneca, Pfizer, Takeda, Abbott Labs, Sanofi-Aventis, Bayer, Roche, Novartis

2011 Pfizer, Novartis

2012 Sanofi, AstraZeneca, Roche

Indicative Business Case for R&D Site Closures

Reduce costs

Lean organization

Redirect resources to

areas of greater focus

Consolidate R&D efforts

Focus on core therapeutic

areas

Figure 2

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Three-Layered Strategy for Successful Site ClosuresA 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 consider-ations 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 impact-ed 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 expecta-tions 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 initia-tives (site redevelopment and sale).

• Build a climate for change and continuous-ly assess the effectiveness of the change management plan.

> Develop a climate for change in the organi-zation to improve the readiness of the orga-nization for change.

> Identify the impact of change and conduct a change readiness assessment. The assess-ment 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 effec-tive, 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 ac-tivities. It is highly recommended that ac-curate, consistent and targeted message content is created for organization-wide communication.

> Ongoing communications and stakehold-er management activity must encourage movement along the change curve.

> Prepare and execute a communication plan and training plan.

Layer One: Strategic Considerations

Layer Two: Tactical Considerations

Shaping Three-Layered Intended Strategy for Effective and Efficient R&D Site ClosuresLayer Three: Operational Considerations

Figure 3

Our Three-Stage Strategy for R&D Site Closures

Quick Take

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 DeliveredWe 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.

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• 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 opera-tional 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 imper-atives 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 suppli-ers by defining and enforcing unified oper-ating principles and ways of working. They form an umbrella over all the suppliers to manage and oversee their activities and en-

sure that all team members are working in an integrated manner.

> Project oversight and coordination: Sys-tems integrators provide an assurance role that ensures preparedness for smooth functioning of program activities; they also maintain oversight and coordination of pro-gram-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 ap-proach for conflict resolution must be cre-ated 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 pro-cess, 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 com-pliance audits. This team will also work with vendors to collect evidence and material in

Managing Site Closure for a Leading Global Pharma Player

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support of their compliance with the audit findings.

> Identify cross-supplier dependencies and facilitate communications: System inte-grators facilitate communications on cross-supplier 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 activi-ties. 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 re-porting of multiple suppliers. The quality of reports will improve by having “one version of truth” produced by a joint PMO with in-formation provided by all suppliers.

Layer Three: Operational Considerations

• Information discovery: This phase is essential for a clear understanding of application avail-ability, criticality and architectural interdepen-dencies 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 infor-mation stored: One of the most important considerations for application migration and decommissioning is the completeness and accuracy of the data inventory for each ap-plication. 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 collec-tion 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 compre-hensive enough to ensure all information is available for decision-making; there should not be a need to repeat the exercise at fu-ture points in the program.

> Identify applications interdependencies: Early identification of dependencies will help in creating groups of dependent ap-plications 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 opportuni-ties for decommissioning and thus reduce migration efforts by eliminating/decommis-sioning 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

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data loss associated with it. It must be ensured that the application owner places appropriate measures for data backup to reduce the prob-ability 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 manufactur-ing 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 suf-ficient details provided to life sciences or-ganizations on the data types required and timelines. Life sciences organizations must comply with these requirements; noncom-pliance 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 decommis-sioning 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 informa-tion and data from applications being decom-missioned are archived. Knowledge retention will ensure the availability of legacy informa-tion in the event key staffers leave the orga-nization or as a result of regulatory audits or legal inquiries. The retention and management of knowledge stored in the applications decom-missioned 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 ForwardLife 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.

Footnotes1 “World Preview 2018-Embracing the Patent Cliff,” www.evaluatepharma.com.

2 “The Pharmaceutical Sector: Real estate implications of industry wide change,” Nov. 2009, http://www.cbre.eu.

3 Chemical and Engineering News; company Web sites; Fierce Pharma.

About the AuthorsDinesh 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 initia-tives 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.

About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing 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 www.cognizant.com or follow us on Twitter: Cognizant.

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