Can big pharma cure the common divestiture headache? Part 1 of 2

Big pharma companies are aggressively pursuing acquisitive growth as a means to compete with biotech and specialty pharmaceuticals. Divestitures are the counterpart of this strategy – helping pharmaceuticals shed lines of business that are outside of core competencies to bring greater focus to core business, raising capital and maximizing probability of success with subsequent strategic acquisitions.

Unfortunately, the path to success is challenging and many pharma companies are as likely to face divestiture related headaches as catch the common cold during wintertime. In this two part blog series, we explore the most common business process and technology headaches that plague pharmaceutical divestitures. Part one will focus on the business process headaches while part two will discuss technology headaches.

There are many business process headaches that can increase the real cost of the Transition Services Agreement (TSA) and cannibalize corporate attention. These headaches delay successful separation and thwart M&A growth. Most of these headaches are tricky to detect, latent and unlikely to get attention during the separation process because they are deemed trivial. But, any of the following headaches can increase the total effort (time and money) of the separation.

  1. First Day of Payroll and Expenses: Deciding where headcount sit after the divestiture may sound like a simple task. But, there are many critical factors to consider. Can the new entity conduct financial and inventory related tasks on Day 1 after separation? Is quarter end approaching and, if so, which of the parent company’s personnel need to be able to access the new entity’s systems? Lastly, how will the first payroll check be distributed? It may come as a surprise, but business processes that are not related to the core operations of a pharmaceutical firm (such as time and expenses and financial close cycles) can pose many challenges during separation. Though such systems do not add value to the customer, they are crucial in maintining operations. A day of expense system problem with the sales staff can lead to a significant drop in revenue. A problem with closing books  at month end can disrupt billing. A missing payroll check can hurt employee morale during an already uncertain time.
  2. Documents: Can a simple document cost you a fortune during separation? Absolutely. The challenge in pharmaceutical divestitures lies with mingled proprietary data. A lot of data can be hidden in documents – policies, procedures, quality information, and product specifications. FDA submissions, device Design Master Files  and related product lifecycle management data is often intermingled.  During separation, it is critical to establish a well-defined set of roles and processes defining how the parent company and the new entity will identify and approve which documents can be migrated and how.
  3. What’s hidden in emails? Email migrations should be easy, but they often take much longer than expected. Email systems are similar to documents – most email systems have underlying files on a user’s desktop that contain all of the emails and associated file attachments. When migrating email, similar to Document Management Systems, it is critical to establish a process involving both business and legal representatives from both the parent company and the new entity to identify and approve which documents can be transitioned.
  4. Policies and Procedures: What set of policies and procedures will the new entity use? More often than not, divestitures assume that the parent company’s processes can be inherited by the new entity. In fact, the parent company usually prefers to simply hand over the latest version of such documents to make it easy for the new entity to separate. However, in many cases, the parent company’s policies are too complex or not applicable to the new entity. As such, the new entity requires much unplanned legal and compliance help from the parent company. Simply put, the procedures need to be redesigned, simplified, rewritten, approved and implemented to be in compliance.  Having a strategy, project plan, resource allocation and budget can reduce the time, risk and cost related to policies and procedures during a divestiture.

Stay tuned for part 2 of the blog, which will discuss the technology systems that are typical causes of divestiture headaches.

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