Accelerating and Amplifying R&D Cost Reduction

A major global pharmaceutical company sought to reduce its external R&D spending. The company lacked a centralized spend management system—hundreds of studies and programs were spread across many therapeutic areas and geographies.

Challenge
The pharmaceutical company engaged A.T. Kearney to reduce its external spend in R&D by several hundred million dollars over three years.

Approach
A.T. Kearney partnered with more than a dozen teams—from procurement to R&D—in several key categories, including discovery, pre-clinical and clinical development. We developed comprehensive baselines for price, terms and conditions across each major R&D spend area, and launched strategic sourcing initiatives for larger purchasing areas, including:

• CROs (full-service and functional)
• Lab supplies
• Central labs
• Clinical packaging

The teams performed contract reviews and benchmarking to identify “quick win” cost saving opportunities, which were captured within three months of the project’s launch. We applied customized sourcing levers for each R&D category, including supplier consolidation, price benchmarking, terms and conditions, cost modeling and global sourcing. Advanced analytics, expert knowledge of global supply markets and strategic negotiation techniques contributed to the efforts.

As the company evolved to a center-led procurement culture, it required strong leadership, input from experts, decision-making support and change management. Thus, R&D stakeholders from managers to senior vice presidents joined in the sourcing initiative, some as sponsors, others as joint team leaders and members.

Results
The company reduced R&D costs well in excess of targets, with individual areas generating savings from 7 to 60 percent of addressable spend. Key factors for the savings included:

• Increased cost transparency
• More extensive modeling
• Improved negotiations
• Pre-screened suppliers from low-cost countries

A strong governance process and program office helped keep the sourcing initiatives on track. Several teams built on the success of the initial projects by launching follow-up initiatives, including complexity management and lean-process improvement, that led to collaborative work with a few select suppliers.