Managing separation: How divestment and splits create different complications

There have been many conversations about mergers and acquisitions in pharma – why they’re happening, their impact, how they’re being managed, potential fall out, and transition strategies. Less has been said, however, about those companies moving in the opposite direction through divestment, spin offs, or splits.

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Last year, Baxter announced it would be splitting into two companies: one focused on medical devices to retain the name Baxter and one focused on the biotechnology side of the business, to be called Baxalta. They are certainly not the first in the industry to choose a split over expansion. AbbVie split from Abbott Laboratories in 2013; Pfizer split its operations into three businesses; and Bristol-Myers Squibb sold off parts of its business in order to become a specialty biopharma company.

Splits like the four mentioned above make sense. We tend to lump life sciences into one bucket but medical devices, or OTC, or nutraceuticals are distinctly different businesses to pharmaceuticals, and even different types of pharma sectors are vastly different from one another. By separating, each business can move more rapidly in their respective segments. And really, response to the market and productivity are the rationales behind all the recent splits and divestitures.

Rapid Response

Invariably, once a company decides to split, it wants to move fast, often setting targets of just a few months. This begs the question: how do you split a global life sciences company in a short timeframe? This question becomes all the more important given the rapid rate of M&As, splits, divestitures, reverse mergers, etc. taking place in the industry. As shareholders look for a greater ROI, as more patents expire, and as the R&D race becomes more complex, the trend will only accelerate, so it’s important to get the process right.

Any change of this magnitude – and this goes for mergers too – requires knowing how to prioritize, being able to identify which systems you will need and how to transition them, and managing your key people, who are the experts within your organization that you simply can’t afford to lose.

System Selection

As part of any split, it’s vital that you go through an application portfolio rationalization and optimization plan very rapidly. This means sitting down and deciding which systems to use where, what is critical, and what to sunset, and putting together recommendations for the operational plans of each of the separate businesses. To do so requires a clear understanding of the operating model of the new business or businesses: How will it be run? What are the fundamentals behind the business?

If, for example, we talk about a company that is separating medical device operations from the pharmaceutical business, it’s clear that some of the approaches to QA and RIM are different in device companies versus biotech. So scaling systems to those different needs will be a priority.

People Selection

Companies understand that their people are their most important asset, but when a company splits, the challenge is to ensure those key personnel are evenly distributed between the new entities. The difficulty becomes in ensuring there are enough resources in each of the businesses to manage effectively. Given the enormity of the task involved in splitting processes and systems, it’s probable that companies going through the process will need to hire, at least temporarily, or look to outsourcing partners to take on some of the heavy lifting.

My advice to companies going through this process is to focus on what is core and work with partners and suppliers to take on non-core activities to help keep the lights on. With limited resources and funding, there just isn’t the time to do it all yourself.

Supplier Management

The next question then is how do you intelligently outsource such an endeavor? That’s where supplier management becomes a critical skill set. You don’t necessarily need to know how to get the job done, but you do need to know how to bring together and manage your partners.  Most enterprises underestimate the importance of supplier management skills, but these are essential in M&As, reverse mergers, divestitures, and spin offs.

By supplier management, I don’t mean traditional procurement-oriented supplier management; rather it has to be business-driven supplier management.

Best Practices

Having worked to help many companies through significant change – M&A, divestitures, splits, etc. – my advice is that it’s important to follow best practices with regards to systems, processes and people. Ensure you are following the best path for the enterprise, and fine-tune your best practices to the specific needs of the emerging businesses. Changes to the company’s business mean that there will inevitably be differences in systems, standard operating procedures, and in personnel. Planning for all these differences and preparing for change will smooth the transition process.

Finally, trying to manage the entire process internally, especially in a tight timeframe, can undermine a project. A best practice approach is to focus, plan, and work with partners who can help with the IT systems transition while you focus on transforming your business.

 

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