Pharmaceutical Industry Dynamics that drove the formation

1
Pharmaceutical Industry Dynamicsthat drove the
formation growthof the Competitive
Intelligence function

• Neil Mahoney President

Global Business Management Concepts 126 Clinton
Road Fairfield, NJ 07004 973-882-1201
2
Agenda for Presentation

• Government Impact on Industry Dynamics
• Portfolio Planning Impact
• CI Function and its Operations
• Role of Internal CI versus Consultants
• Key Counter Intelligence Concepts
• Summary and Conclusions

3
Index of CPI versus HCPI from 1962-2001
GATT Update 1995
Clinton Healthcare Debacle 1992
Nixon Wage Price Controls
Hatch Waxman Act of 1984
Kefauver Hearings Impact
HMO Acts of 1973,76,78
EU Created 1993
Index based on 1964 Prices
Medicare 1965
Prescription Drug User Fee Act 1992
1962
1974
1992
1984
2001
CPI Consumer Price Index HCPI Healthcare
CPI (Rx and Medical Supplies )
Source Bureau of Labor Statistics
4
Total Drug Development Time from Synthesis to
Approval
14.2
14.2
11.6
8.1
Source DiMasi, J.A., New Drug Development in
U.S. 1963-1999, Clinical Pharmacology
Therapeutics 2001.
5
Generic Share of U.S. Rx Unit Market
Source IMS Health 2001
6
NCE Lifecycle Sales AnalysisAverage Percent of
Peak Sales Potential
Hatch Waxman Exclusivity
Source IMS (Based on 816 NCEs launched since
1983) NCE New Chemical Entity New Molecular
Entity
7
NCE Lifecycle Sales AnalysisAverage Percent of
Peak Sales Potentialby Brand and Generic Share
Hatch Waxman Exclusivity
100
96
95
76
71
Source IMS (Based on 816 NCEs launched since
1983) NCE New Chemical Entity New Molecular
Entity
8
USA is key to NCE Success
Sales of NCE Launches 1997-2001
Source IMS Health, MIDAS
9
Comparison of Average Price Per Rx in
2000Indexed to 1995 Pricing for NME and IMD
Pre 1995
Standard IMD
Standard NME
Priority IMD
Priority NME
NME New Molecular Entity IMD Incrementally
Modified Drug
Sources Scott-Levin SPA data Internal analysis
10
Field Force Expansions Exemplify Increased
Investment Spend to Accelerate Market Penetration
Thousands of Field Reps
Source Scott-Levins Sales Force Trends
11
Industry Tries to Improve Discovery Process

• Utilizes new Technologies - High Throughput
  Screening
• - Combinatorial Chemistry - Genomics for
  Target and Lead Finding
• Evaluate Strategic Opportunities - Disease
  Strategy for Target Areas - Platform
  Technologies - Target Product Profiles

12
Ethical Pharmaceuticals RD Expenditures
30.5
25.7
Billions
15.2
4.1
1.9
13
Clinical Development Projects per Phase
Sources Pharmaprojects, UBS Warburg, CDER/FDA
14
Industry Supplements internal RD with BDL/MA
Activity
Source Evaluate, Internal Analysis
15
The Industry Compensates by ShiftingEmphasis to
Blockbuster Drugs
Lilly
Aventis
SGP
AZN
Merck
Wyeth
Abbott
JJ
Pfizer
GSK
Roche
BMS
Novartis
Sources Evaluate, IMS Health - Midas
16
The trend for blockbusters is improving
Number of products achieving global sales over
500 million
110
91
75
60
Source IMS Health MIDAS, Dec 2001
17
But, only a small of NCEs Become Blockbusters
Achieving
Sales Total Per Annum

• 1.0
• 1.0
• 2.0
• 6.0
• 90.0

• 1.8 Billion or gt
• 920 Million - 1.8 Billion
• 460 Million - 920 Million
• 180 Million - 460 Million
• lt 180 Million

Average for all Drugs -- 265 Million per Annum
Sources PriceWaterhouse Coopers, SCRIP
18
History of Key Pharmaceutical Mergers
1989 Bristol-Myers Squibb Smithkline Beecham
1992 Marion Merrell Dow
Functional
Functional
1994 Roche/Syntex Wyeth/Cyanamid
Geographic
1993 Rhone Poulenc-Rorer
Critical Mass
1995 Glaxo Wellcome Pharmacia Upjohn Hoechst
Marion Roussel
1996 Novartis
Portfolio
1999 Aventis AstraZeneca Sanofi-Synthelabo
Portfolio/ Geographic
1998 Roche/Boehringer Mannheim
Functional/ Geographic
2000 Pharmacia/Monsanto Pfizer/Warner-Lambert Glax
o SmithKline
2001 Abbott/Knoll BMS/Dupont
2003 Pfizer/Pharmacia
2004 Sanofi-Aventis
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Pharmaceutical Industry Stratification
(Billions) Pre Cox-2 Issues
Pfizer
JJ
GSK
Market Capitalization 9/04
Novartis
Sanofi-Aventis
Merck
Roche
Lilly
AZN
Abbott
Wyeth
BMS
Takeda
SGP
Bayer
Pharmaceutical Revenues for 2004
Sources Lotus-One-Source, Evaluate, Internal
Analysis
20
Pharmaceutical Industry Stratification
(Billions)Post Cox-2 Issues
JJ
Pfizer
GSK
Novartis
Market Capitalization 2/05
Sanofi-Aventis
Roche
Lilly
Abbott
AZN
Merck
BMS
Wyeth
Bayer
SGP
Pharmaceutical Revenues for 2004
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What are the next set of Govt actions?

• Medicare adding drug benefit for elderly will put
  more burden on the Federal budgets and spur
  Congress to find ways to reduce price of
  prescriptions
• Import of medication from foreign sources where
  local government dictates pricing will undermine
  freedom of pricing in the U.S. market

22
Price Pressures will Drive Consolidationsin
order to Maintain Earning Levels
Sales
Price Pressures limits Industry ability to use
price for growth
Price
Sales
Price
Units
Units
MS

• Industry continues to
• consolidate in order to
• cut infrastructure costs
• Reduce sales reps
• Eliminate TA areas
• in Research
• Reduce duplication in
• support functions

MS
RD
RD
GA
GA
EBIT
EBIT
Consolidations protects Earnings growth
Capital value
23
Summary Points on Industry Dynamics

• Govt regulations have changed the industry
  dynamics requiring it to become more efficient
• Govt price pressures will increase as Rx drug
  benefit is expanded and parallel importation
  rules are relaxed, which will drive more
  consolidations
• These dynamics forced the industry to improve the
  planning processes

24
Agenda for Presentation

• Government impact on Industry Dynamics
• Portfolio Planning Impact
• CI Function and its Operations
• Role of Internal CI versus Consultants
• Key Counter Intelligence Concepts
• Summary and Conclusions

25
Portfolio Planning Process
1. Perform Environmental Analysis
2. Create a Vision of the Future
3. Conduct Internal Assessment
4. Decide on a Strategic Position
6. Develop a Plan
5. Develop Strategy Actions
7. Manage the Planning Process
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Planning Process in the 1980s

• Focus was on internal portfolio opportunities
• External view emphasized market research data for
  current competitors (Static View)
• A cursory run from PharmaProjects constituted
  competitive assessment for future environment
• A Plan was more of a wish list of what
  management needed to meet growth rates and not
  what could be accomplished in a changing
  competitive environment

27
What does Market Research tell you?

• The met and unmet needs of the current customers
  (focus on providers)
• The perception of current products
• The marketing positioning and differentiation
  among current products
• Pricing
• Key attributes
• Promotion program
• Detailing support

28
This Static View was inadequate for Impactful
Portfolio Planning

• It failed to predict changes in the market place
  due to
• New technologies
• Process improvements by competitors
• New competitive segments (Generics, Biotech)
• Managed Care impact on segmentation of market
• Which resulted in misallocation of resources for
  optimizing portfolio

29
Changes to Improve Planning Process

• Evaluate Strategic Opportunities - Disease
  Strategy for Target Areas - Platform
  Technologies - Target Product Profiles
• More analysis on pipeline developments (ethical,
  biotech and generic segment) to determine impact
  on internal development portfolio

30
Management Recognized Need forBetter Insights on
Competitors Activities

• Thus, CI units began to emerge in different
  functions within organizations to address the
  competitive issues that had blindsided them
• CI functions required broader skill sets than
  Market Research departments since the scope
  encompassed responsibilities and issues across
  the business chain, including processes as well
  as product issues

31
CI supports Portfolio Management
Competitive Intelligence supports optimization of
future portfolio
1. Perform Environmental Analysis
2. Create a Vision of the Future
- Monitor competitor activity at tactical/product
level to ensure no major impact on environmental
view
3. Conduct Internal Assessment
4. Decide on a Strategic Position
6. Develop a Plan
5. Develop Strategy Actions

• Manage the Planning Process
• CI tracks competitor activity to ensure
  achievement of plan objectives

32
Strategic and Operational Levels
Strategic Level Support
Senior Management - MA Evaluations Investor
Relations - Wall Street Monitoring Corporate
Planning - Divisional Challenges
Operational Level Support
Licensing - Product Evaluations Development - Cl
inical Tracking Marketing - Market Dynamics
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Goal for CI Functions

• CI ultimate goal is to serve as backbone of
  portfolio and operational planning process
• Tactical collection of competitive processes and
  product developments should result in
  projections of future competitive environment
• This allows management to allocate resources to
  win or hold market share in the future
  environment and maximize return on investments

34
Agenda for Presentation

• Government impact on Industry Dynamics
• Portfolio Planning Impact
• CI Function and its Operations
• Role of Internal CI versus Consultants
• Key Counter Intelligence Concepts
• Summary and Conclusions

35
What is Competitive Intelligence?

• Competitive Intelligence is a process that
  gathers and analyses information from various
  sources on specific business issues to develop
  insights that management can use in decision
  making
• Competitive Intelligence improves various aspects
  of the planning process including product
  positioning, sales forecasting, and resource
  allocation to enhance portfolio optimization,
  thus improving financial performance

36
CI has various mandates

• Benchmarking Across Competitors
• Comparison across group of competitors
  
• Company Level Analysis
• Portfolio view of key competitors
• Functional Issues
• Explore process, system, or structure
• Product Level Support
• Licensing evaluations
• Competitive pipeline tracking
• Promotional support or message changes

37
CI needs and focus varies across the business
chain
Research





Licensing
Development
Tech Ops
Marketing
LCM
Disease Analysis Platforms Technologies Targets
Clinical Endpoints Potential Claims Time to
Market Clinical Issues
Phase III IV Market Dynamics Environment
Potential Products Mechanism of Action Company
Reviews Competitive Bidders
Bulk Sources Cost Analyses Technical Assessments
New Formulations Patents Regulatory
issues Generic Launches
38
CI Work Process Model
Databases
Internal Human Collection
Dissemination
RD - Private ADIS RD Insight RD
Focus IDdb3 Pharmaprojects Decision Resources
DB4
Summary Reports
Detailed Reports
Summarize Analyze Recommend
Product/Company Investment Reports SEC
Reports IMS Audits Promotional Audits
Product Evaluations
External Human Collection
Alerts
Internet Publications ClinicalTrials Disease
Advocates
39
Three Levels of Databases
Private RD Databases Several vendors gather
information from publications, congresses, press
releases, RD days, and patent filings to reflect
pipeline developments in Pharma and Biotech
industries.
Private Commercial Databases Several vendors
gather information from surveys and audits on
such items as revenues, units, prescriptions,
sales forces, product detailing, promotional
spending, CME, and journals. Agencies sell
analyst reports and other published data.
Public Databases Government agencies, industry
groups, patient advocacy groups, individuals,
special interest groups, university sites,
and medical sites offer multiple opportunities to
gather information.
40
Uses of Various Databases

• RD databases establishes framework of players in
  area, some insights on progress and positioning,
  possibly hospitals and physicians involved
• Private commercial databases provides insights
  into portfolio developments and promotional
  support levels and priorities
• Public databases give insight into portfolio,
  possible trial locations, physicians involved,
  and provides leads for primary interviewing

41
Review of Private RD Databases
Database Publisher Start Date Updates Records
ADIS RD Insight ADIS Intl 1986 Weekly 7,182
IDdb3 Current Drugs 1991 Daily 17,500
IMS RD Focus IMS Health 1991 Weekly 13,600
NDA Pipeline F-D-C Reports 1990 Monthly 14,589
Pharmaproject PJB Publications 1980 Weekly 20,090
Note Record totals are from January 2002, except
IDdb3 from 2001
42
Key RD Database Features

• Drug name
• Trade name
• Originator
• Licensee/licensor
• Patent Assignee
• CAS Registry Number
• Laboratory Code
• Pharmacological Action
• Therapeutic Class

• Clinical indications
• Nomenclature
• Molecular formula
• Development status
• Development history
• Abstracts
• Text
• Chemical structure
• Chemical name

43
Private RD Databases Issues

• Various databases rarely agree on current
  development status of a particular compound
• Data is usually 6-18 months old as it is
  collected from public forums, most of which
  require submission and review months in advance
• Lack specific facts or insights desired by
  management related to a competitors drug
• Phase IV trials rarely identified

44
Private Commercial Databases Issues

• Many managers define the commercial databases as
  competitive intelligence and this is their view
  of the function
• While there is valuable insights available from
  this data, it is retroactive data and it does not
  address all issues (promotional messages, Phase
  IV activity, etc) that may impact the future
  promotion of a product
• It is of value when combined with primary CI to
  give a full picture of product support

45
Value of Internal Human Collection

• Taps into expertise of internal associates to
  confirm database and external human collection
  inputs
• Captures internal experts information picked up
  in the course of working in a therapeutic area
  from attending meetings, congresses, interacting
  with personnel from other pharmaceutical
  companies, and from interactions with external
  vendors

46
Value of External Human Collection

• Primary collection captures more current
  information and potentially gives more relevant
  insight to specific company issues or hypotheses
• Various inputs across a large interview audience
  helps build the CI analysts base for projecting
  the competitive situation

47
Sources for External Human Collection

• Clinical Development Physicians Staff
• Thought Leaders
• Vendors and Suppliers
• Functional Experts
• Ex-employees
• Special Interest Groups
• Industry Organizations
• Supply Chain (Wholesalers, Retailers, MCOs)
• Wall Street Analysts
• Publications

48
Key Collection Opportunities

• Congresses
• Collection of knowledgeable experts and company
  personnel in one location
• Posters have lots of valuable data and insights
  into trail progress and potential product
  positioning
• Company presentations are trying to build
  awareness of new product with physician community
• Company Presentations
• RD days
• Wall Street meetings
• Industry meetings

49
Landscape Sweep by Franchise
Clinical Development Pipelines
Marketing And Sales Activities
Generic Activities

• Competitive Products
• in Phase II/III/IV
• Product Profile
• Protocol Design
• Progress Update
• Trial Issues
• Side Effects
• Potential Impact

• Therapeutic Overview
• Product Ranking
• Product Growth
• Promotion Support
• Detailing Levels
• DTC
• Symposia
• Physician CME Events
• Field pay and incentives

• Patents Evaluation
• Exclusivity Status
• API Status
• Generic Formulations
• Open Issues
• Generic Launch Timing
• Franchise Mgt Plan by
• Brand company

50
Landscape Sweep Sources

• Secondary data sources
• RD Adis, IDdb3, RD Focus, Prous, Centerwatch
• MS IMS, Verispan, PDDA, Scott Levin
• Generic Orange Book, Patent Filings, Paragraph
  IV
• Publications
• Primary interviews
• RD KOLs, Clinical Investigators, CROs
• MS Physicians, Pharmacy Directors, MCO
• Generic API producers, import/export agents

51
Summary of CI Process

• It takes various sources to build the story
  around a competitors product
• No one source usually gives the entire story, but
  enough pieces and an experienced CI expert can
  provide excellent projections of a companys
  product or franchise strategy
• Thus, CI function has a monumental task of
  collecting from numerous sources in an ethical
  manner to draw conclusions about the future,
  often for numerous products and issues

52
Agenda for Presentation

• Government impact on Industry Dynamics
• Portfolio Planning Impact
• CI Function and its Operations
• Role of Internal CI versus Consultants
• Key Counter Intelligence Concepts
• Summary and Conclusions

53
Role of Internal CI Group

• Establish CI role and customer base
• Create CI processes and procedures
• Provide planning support to operational people
  for portfolio planning
• Identify and prioritize Key Intelligence Topics
  (KITs)
• Manage and allocate CI investments
• Enhance and improve the CI process

54
Role of Consultants

• Supply manpower to supplement internal CI group
  to handle workload on timely basis
• Provide expertise and contacts to support
  internal CI projects
• Provide objective view free of internal politics
  and influence
• Serve as anonymous collector of CI for client so
  as not to reveal interest in area
• Ensure focus on key issues as needed

55
CI decides on use of Consultants

• Internal CI group decides on utilization of
  consultants
• Supplement manpower
• Play a specific role
• Partner in CI effort
• Internal CI has more access to private databases
  and must decide on how much to share or provide
  information to consultants

56
Agenda for Presentation

• Government impact on Industry Dynamics
• Portfolio Planning Impact
• CI Function and its Operations
• Role of Internal CI associates and Consultants
• Key Counter Intelligence Concepts
• Summary and Conclusions

57
There are different levels of exposures
Questions at RD day Questions on Wall
Street Questions at Congresses Physician
interviews Industry Meetings
Patent filings CMPM Minutes Web Sites Press
Releases Govt Reporting
Legal
Hacking into systems Breaking into
buildings Stealing documents Bribing employees
Bugging meeting rooms Breaking into
hotels Stealing documents Intercepting
faxes Planting a mole
Illegal
58
What are the initial steps to defend yourself?

1. Identify critical information that needs to be
   protected
2. Analyze the threat of competitor obtaining this
   critical information
3. Analyze the vulnerabilities in the organization
   that a competitor can exploit
4. Assess the risk of a competitor utilizing an
   approach to exploit the vulnerability
5. Apply appropriate countermeasures

59
Why identify critical information?

• A job done everyday becomes mundane
• Thus, the person working on it no longer
  understands that this is proprietary
• So by identifying it as critical and stressing
  this to the individuals involved, the awareness
  is raised back to the correct level of importance

60
Where do leak happen?

• Congresses where scientists or physicians are
  presenting on a compound
• Physicians working on your trials
• Suppliers
• Vendors
• Industry Meetings
• Field Forces
• Investment Analysts

61
Selling the companys potential and meeting
reporting requirements cant be stopped

• Congresses where the company is trying to build
  excitement about its pipeline and build momentum
  with physicians
• Investment Analysts receive a lot of guidance and
  have access to senior management to encourage
  investment in the firms stock
• SEC reporting is required by government agencies

62
But some sort of balance is needed!
Selling and Promoting
Protecting your strategies
TIMING IS THE KEY!!!
63
Misinformation can be dangerous

• Misinformation can be illegal if it misleads
  investors
• SEC filed fraud case against Germanys E.On AG
  (holding company) when it issued false statements
  in Germany since it also had stock on U.S.
  exchange

64
What are some things you can do?

• Form multidisciplinary watch committees
• Assign responsibility for handling suspicious
  phone calls and surveys
• Limit access to sensitive information
• Mark and control documents
• Limit what employees carry on trips
• Assume all international fax, phone and emails
  are intercepted

65
Keep Awareness High

• Regular communications on subject
• Training courses
• Email updates (Pfizer has cartoons to emphasize
  key points sent out weekly)
• Annual renewal of employee confidentiality
  agreements by having each employee sign a new
  form
• Include in staff meetings to discuss any
  suspicious activity or level of balance needed

66
Points to Remember

• You cant protect everything
• You cant protect anything forever
• BUT
• Never make it easy!
• Never make it cheap!
• Dont just give it away!

67
Agenda for Presentation

• Government impact on Industry Dynamics
• Portfolio Planning Impact
• CI Function and its Operations
• Role of Novartis Industry Research (CI) Group
• Role of Consultants
• Key Counter Intelligence Concepts
• Summary and Conclusions

68
CI Creates the Future View

• Projecting how competitive pipeline products are
  progressing in the clinics and what the expected
  positioning will be once it hits the market
• Determining the status of generic threats against
  the portfolio
• Handling special projects across all functions
  when it involves investigating competitors
  activities

69
Thus, the CI Focus is not on Customers

• Clinical Developmental Physicians and Staff
• Thought Leaders
• Vendors and Suppliers
• Functional Experts
• Ex-employees
• Special Interest Groups
• Industry Organizations

70
Goal for CI Functions

• CI ultimate goal should be to serve as backbone
  of strategic and operational planning process
• Tactical collection of competitive processes and
  product developments should result in
  projections of future competitive environment
• This process allows management to better allocate
  resources and maximize return on investments

71
Summary of CI Role

• The CI function was created to improve the
  planning cycle by collecting detailed competitive
  information to project future environments
• Most CI departments started within a functional
  area supported by local management
• The challenge is to expand and integrate the CI
  function across the organization

72
Thank You ..QA