Flexibly financing: Keeping up with technology advances doesn’t have to be overly costly

Chris Wilkinson, head of sales for Healthcare and Public Sector for Siemens Financial Services, UK, writes about the importance for pharma to keep up with technological advancements and how flexible financing can help.

The pharmaceutical industry contributes significantly to the UK economy. Pharmaceutical production has contributed almost 10% of the UK’s GDP, doubling since 1995. The industry has consistently produced a trade surplus, totalling £3 billion in 2014.¹ Similarly, investment in the sector continues to boom; the pharmaceutical industry is responsible for 25% of the total expenditure on research and development by UK businesses.²

In addition to benefiting the UK economy, the pharmaceutical industry also delivers improved health outcomes for patients. Medicines developed by the pharmaceutical industry have helped in the fight to prevent and cure diseases. However, tackling contemporary challenges such as an ageing population, which fundamentally impact the healthcare landscape, will require further research efforts.

If the pharmaceutical sector is to attempt to meet such challenges, it firstly needs to keep up with new phases of the technological revolution.

Investment opportunities

Companies involved in all aspects of the development and manufacture of pharmaceutical products can invest in technologies to increase productivity and efficiency. For instance, in the manufacturing process, improved technologies such as capsule filling machines can help to reduce waste and increase speed of production, resulting in faster output.

Similarly, companies can acquire highly modern and sophisticated test equipment for laboratory analysis. These immunoassay systems improve test productivity, accuracy and detail though optimal sample processing. Used in the early stages of drug development, this technology can assist with workflow, operational efficiency and patient care.³

Harnessing technological innovations can help produce cost savings while ensuring high-quality outputs and waste reduction. Nevertheless, keeping pace with technological advancements requires considerable capital expenditure. More often than not, businesses have to preserve their cash flow and lines of credit to support other working capital requirements. Moreover, access to bank credit has become more restricted following the financial crisis.⁴

For smaller-sized pharmaceutical companies where funds can be scarcer and restrictions on funds tighter, investing in new technology can prove particularly challenging. With downward pressure on drug prices across the world and, specifically, changes to the 2014 Pharmaceutical Price Regulation Scheme,⁵ smaller businesses are likely to feel the squeeze further

Asset finance techniques

This explains why asset finance techniques such as leasing are gaining popularity as a cost-effective investment-enabler. Such financing solutions spread the cost of the equipment over an agreed financing period, with regular finance payments arranged to align with the expected benefit of its use, such as efficiency gains. This removes the need for a large initial outlay, thereby increasing the funds available for operating expenditure.

Asset finance allows pharmaceutical companies access to the latest technologies, without having to commit scarce capital or use traditional lines of credit. Fixed finance payments also eliminate the volatility of interest rates, inflation and credit conditions while assisting with long-term budgeting. In addition, financing arrangements can incorporate other costs such as installation, as well as introduce the possibility of technology upgrades in broad line with developments.

Such tailored, all-encompassing financing packages tend to be offered by specialist financiers who have an in-depth understanding of sector technology and its applications. They are therefore more inclined and more able to create customised financing packages that fit the specific requirements of a business — for instance, flexing the financing period to suit the customer’s cash flow. This contrasts with the standard financing terms usually available from generalist financiers.

Flexible financing for the future

If companies in the UK’s pharmaceutical industry want to remain competitive and keep pace with industry growth, acquiring the latest sector technology is a crucial step. UK pharmaceutical companies should exploit the enhanced potential offered by advanced equipment and modern technology.

Investment, however, should be undertaken under the premise of sustainable financing. Instead of tying up precious capital in equipment acquisition, pharmaceutical companies can use flexible asset financing techniques. This means available financial resources can be deployed more effectively in research and development — a crucial area that underpins the sector’s ability to make a vital contribution to raising healthcare service quality.

References:

1. Roberts, H., and Salvatore, V. (2016). What would BREXIT mean for pharma?, Pharmafile.
2. ONS, Business Enterprise Research and Development, 2012, (November 2013)
3. Siemens Financial Services, International clinical laboratory science specialist acquires state-of-the-art immunoassay system
4. Siemens Financial Services, Taking the Pulse (February 2016)
5. A 5-year voluntary scheme agreed between government and the Association of the British Pharmaceutical Industry effective from 1 January 2014. The 2014 Pharmaceutical Price Regulation Scheme (PPRS) will provide assurance on almost all of the branded medicines bill for the NHS. The bill will stay flat over the first 2 years of the scheme and will grow slowly after that. The industry will make payments to the Department of Health (DH) if NHS spending on branded medicines exceeds the allowed growth rate. For more information see: Department of Health, Pharmaceutical price regulation scheme 2014 (21 December 2015).