Sunday, December 14, 2008

Are Pharma Companies Headed Down the Same Path as Automotive? Part 3

Last time, I blogged about what may happen to Big Pharma’s outsourcers after the financial crisis catches up with them. This time in my final blog in the trilogy I’ll write about what may happen to the consultants.
Actually, I believe that the consultants are already experiencing a downturn. Over the last several weeks, I had opportunities to meet with friends who work for the consulting firms. What I heard was that layoffs are already occurring. While I’m told that limited hiring can occurs for the right opportunity, this is the exception more than the rule.
The consulting firms are also experiencing the fallout from the financial service sector which is cutting into their projected revenues.
The growth drivers of the last decade are either long gone or fading fast. Y2K, e-commerce, ERP implementations and outsourcing are played out. There’s really nothing immediate that can help out. I’ve noticed the senior executives of the major consulting firms spending more time at their clients, looking for new business, and making “investments” to do so. I don’t sense panic yet but if current trends continue then that might change as we go into 2010.
The pharmaceutical industry is generating media and anecdotal evidence of spending cutbacks for next year. Expensive consultants usually are among the first to go. I predict that after the second quarter of 2010, we’ll see more layoffs at the consulting firms particularly at the senior levels.
What might be areas of opportunity in the future? One could be International Financial Reporting Standards (IFRS). This is the adoption of common generally accepted accounting principles (GAAP) by global businesses. The recent business failures in the U.S. financial services sector seem to have added some impetus to this initiative as there is a fear that failure to do so could keep U.S. firms from accessing global capital markets.
At a recent IFRS seminar that I attended in NYC, one Big Four accounting firm partner said that IFRS could be even bigger than Sarbanes-Oxley. (And, we all know how the accounting firms made out on that one.) Unfortunately, other than education and some planning activities, there won’t be much here until maybe 2013 or 2014. Also, Ernst & Young, PriceWaterhouseCoopers, Deloitte, and KPMG could play well in this space with their hordes of accountants. IBM Global Services and Accenture may not be able to offer the same services given their more technical focus.
Like in the auto and drug industries, the consulting industry is experiencing excess capacity. And, regrettably, cutbacks are the only way to go here when there is no new growth to absorb it. I don’t expect this industry to go to Washington, D.C. looking for bailouts.
In these three recent blogs, I’ve tried to summarize Larry’s and my thinking about the next year will bring for Big Pharma and the outsoucing and consulting firms that have been making their livings from it. 2009 will be a tough year for all of them. President-elect Obama will dominate the media after his inauguration next month. The quiet story behind the scenes will be the drug industry and its suppliers slowly following in the footsteps of the U.S. auto industry
As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

No comments: