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

In part 1 of this blog, we discussed the key business processes that may pose a “headache” during big pharmaceutical divestitures. This second part of the blog will now examine similar technology roadblocks and headaches. Again, having an M&A readiness assessment and practical playbook can help alleviate these headaches while minimizing cost, time and risk during a divestiture.

  1. Proprietary Systems: What makes you different can also give you a headache. Proprietary systems are still very common in large pharma companies. Most of these systems were not constructed in a modular way, resulting in many “tentacles” into other business processes and systems. In almost every divestiture project, there is one system that seems too easy to separate but ends up causing a great deal of discussion, debate and effort down the road. Companies should conduct a critical assessment of such systems before a divestiture and plan accordingly so the TSA costs can be included. In addition, managing the complexities of these proprietary systems helps the parent company understand when the new entity will realistically be separated.
  2. Customized Revenue Management Solutions: Most pharmaceutical companies have at least partially disjointed procedures around the pricing, contracting, incentives and rebates. Pharmaceutical manufacturers have implemented significant changes to their Medicaid, Medicare and 340B compliance processes in order to meet the increasingly complex regulatory requirements of health care reform. The advent of new software solutions such as ModelN and IMany have attempted to streamline such operational siloes. However, how such software is implemented can make or break the divestiture process. The more complex the customization, the more difficult it can be to divest a product line since the new entity will rely heavily on the parent company to provide the regulatory, business process and technical know-how to manage these processes. Successful pharmaceutical firms should have a divestiture playbook focused on these systems to streamline the divestiture process. A little investment can yield large returns, especially if the company expects more than one divestiture.
  3. Customized ERP Solutions: Similar to Revenue Management Solutions, most pharmaceutical companies have highly customized ERP systems to manage manufacturing and financial processes. Software solutions such as SAP, JD Edwards and Microsoft Dynamics have varying degrees of customization available to suit the needs of the business. Again, deep business and technical know-how is required for complex customizations during a separation and M&A playbooks specific to these systems can significantly reduce the time, cost and risk during a separation.
  4. Challenge of Quality Systems: The technical aspects of migrating from one quality system handling corrective action/preventative action, deviations and customer complaints to another are rather simple. The complexity of these migrations resides in the business workflow. Most pharmaceutical companies tend to lack IT and business alignment during separation. It is critical to conduct the right level and type of analysis by both business leaders and IT teams to ensure the successful migration of a quality system. A readiness matrix can help identify a list of key decisions to be made with suggested approaches that can reduce the risk and cost of separating the business. For example, consider:
    1. Who will own the data going forward? How much historical data is needed by the new entity?
    2. What is the cut over date for the ownership of the data?
    3. How will new quality items be created? How will existing quality items be processed during the transition period?
    4. What is the best business process workflow for data conversion and data migration?
    5. What are the CFR Part 11 Validation considerations?
    6. Who is the final decision maker for the buyer and seller?

Divestitures can be daunting. Especially at a time when the firm needs to shed non-core business, the stress of a divestiture can weigh heavily on the business, as well as the people leading the divestiture. In order to prevent these common headaches, it is important for pharmaceutical companies to assess divestiture readiness and create a streamlined process. Doing so can significantly reduce risk, timeline and costs, allowing them to focus on core operations – and even potentially acquiring new targets. There may not be a cure, but the “prescription” outlined above can help treat divestiture headaches.

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