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Pharmaceutical Industry Dynamicsthat drove the formation & growth
of the Competitive Intelligence function
Neil Mahoney – President
Global Business Management Concepts126 Clinton Road
Fairfield, NJ 07004973-882-1201
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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
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Index of CPI versus HCPI from 1962-2001
-100
0
100
200
300
400
500
600
1962 1974 19921984 2001
Inde
x ba
sed
on 1
964
Pri
ces
KefauverHearingsImpact
NixonWage &
PriceControls
HMOActs of
1973,76,78
HatchWaxman
Act of 1984
ClintonHealthcare
Debacle1992
CPI: Consumer Price Index; HCPI: Healthcare CPI (Rx and Medical Supplies )
Source: Bureau of Labor Statistics
PrescriptionDrug User
Fee Act1992
GATTUpdate
1995
Medicare1965
EUCreated
1993
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Total Drug Development Time from Synthesis to Approval
3.25.1 5.9 6.1
2.5
4.4
5.56.3
1.82.8
2.1
2.1
0
2
4
6
8
10
12
14
16
1960's 1970's 1980's 1990's
Approval PhaseClinical PhasePreclinical Phase
8.1
11.6
14.2 14.2
Source: DiMasi, J.A., “New Drug Development in U.S. 1963-1999”, Clinical Pharmacology & Therapeutics 2001.
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Generic Share of U.S. Rx Unit Market
19%22%
23%
27%
30%32% 33%
35% 35%
40%42% 43% 43% 44%
46%47% 47%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Source: IMS Health 2001
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NCE Lifecycle Sales AnalysisAverage Percent of Peak Sales Potential
6%
21%
32%
41%46%
53%
64%
75%83%
96% 96%95%
100%
76%71%
0%
20%
40%
60%
80%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Years After Launch
Source: IMS (Based on 816 NCE’s launched since 1983)NCE = New Chemical Entity = New Molecular Entity
HatchWaxman
Exclusivity
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NCE Lifecycle Sales AnalysisAverage Percent of Peak Sales Potential
by Brand and Generic % Share
4%8%10%10%
31%
96%
83%75%
64%
53%46%
41%32%
21%
6%
67%68%
90%85%65%
0%
20%
40%
60%
80%
100%
120%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Ethical Share Generic Share
Source: IMS (Based on 816 NCE’s launched since 1983)NCE = New Chemical Entity = New Molecular Entity
HatchWaxman
Exclusivity
96% 95% 100%
76%71%
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USA is key to NCE Success
62%
21%
7% 10%
0%
10%
20%
30%
40%
50%
60%
70%
USA EU Japan ROW
% Sales of NCE Launches – 1997-2001
Source: IMS Health, MIDAS
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Comparison of Average Price Per Rx in 2000Indexed to 1995 Pricing for NME and IMD
1.00
1.75
2.20 2.262.45
0.00
0.50
1.00
1.50
2.00
2.50
Pre1995
StandardIMD
StandardNME
PriorityIMD
PriorityNME
Sources: Scott-Levin SPA data; Internal analysis
NME: New Molecular EntityIMD: Incrementally Modified Drug
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Field Force Expansions Exemplify Increased Investment Spend to Accelerate Market Penetration
41.6 38.6 36.840.6
48.256.4
62.9
74.981.6
89.5
0
10
20
30
40
50
60
70
80
90
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Th
ousa
nds
of F
ield
Rep
s
Source: Scott-Levin’s Sales Force Trends
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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
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Ethical Pharmaceuticals R&D Expenditures
3.4
11.9
20.023.6
1.50.4
0.7
3.3
5.7
6.9
0
5
10
15
20
25
30
35
1980 1985 1990 2000 2001
Ex-USUS
1.9
4.1
15.2
25.7
30.5
$Bil
lion
s
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Clinical Development Projects per Phase
562
631
652
714
873
914
994
1136
121
139
115
98
479
488
453
471
29
24
27
35
0 200 400 600 800 1000 1200
1998
1999
2000
2001
Phase I Phase II Phase III Filed NME Approved
Sources: Pharmaprojects, UBS Warburg, CDER/FDA
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Industry Supplements internal R&D with BD&L/M&A Activity
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Licensed 51% 11% 34% 21% 3% 39% 78% 92% 41% 32% 49% 84% 35%
Reseach 49% 89% 66% 79% 97% 61% 22% 8% 59% 68% 51% 16% 65%
PFE NVS RCH GSK LLY WYE JNJ BMS AVE MRK ABT SGP AZN
Source: Evaluate, Internal Analysis
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The Industry Compensates by ShiftingEmphasis to Blockbuster Drugs
72% 72%
65%
55%53% 53% 53%
46%
38% 36%34%
32%
25%
0%
10%
20%
30%
40%
50%
60%
70%
80%% Top 5 Drugs
Lilly
Mer
ck
SGP
Wye
th
AZ
N
J&J
BM
S
Ave
ntis
Abb
ott
GSK
Nov
arti
s
Roc
he
Sources: Evaluate, IMS Health - Midas
Pfiz
er
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The trend for blockbusters is improving
40 48 57 66
2027
3444
0
20
40
60
80
100
120
1998 1999 2000 2001
500 million -1billion >1billion
6075
91
110
Source: IMS Health: MIDAS, Dec 2001
Number of products achieving global sales over $500 million
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But, only a small % of NCEs Become Blockbusters
• $1.8 Billion or >• $920 Million - $1.8 Billion• $460 Million - $920 Million• $180 Million - $460 Million• < $180 Million
1.0%
1.0%
2.0%
6.0%
90.0%
Sales Total Per Annum % Achieving
Average for all Drugs -- $265 Million per Annum
Sources: PriceWaterhouse Coopers, SCRIP
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History of Key Pharmaceutical Mergers1989Bristol-Myers SquibbSmithkline Beecham
1993Rhone Poulenc-Rorer
2000Pharmacia/MonsantoPfizer/Warner-LambertGlaxo & SmithKline
2003Pfizer/Pharmacia
1995Glaxo WellcomePharmacia & UpjohnHoechst Marion Roussel
1998Roche/Boehringer Mannheim
2001Abbott/KnollBMS/Dupont
1999AventisAstraZenecaSanofi-Synthelabo
1996Novartis
1994Roche/SyntexWyeth/Cyanamid
1992Marion Merrell Dow Functional
Portfolio/Geographic
Portfolio
Geographic
Functional
Critical Mass
Functional/Geographic
2004Sanofi-Aventis
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0
50
100
150
200
250
300
0.0 10.0 20.0 30.0 40.0 50.0
Pharmaceutical Industry Stratification ($Billions)Pre Cox-2 Issues
Pfizer
GSK
J&J
Merck
Novartis
RocheAZN
Lilly
BMSAbbott
Wyeth
Bayer
Sanofi-Aventis
TakedaSGP
Pharmaceutical Revenues for 2004
Mar
ket C
apit
aliz
atio
n 9/
04
Sources: Lotus-One-Source, Evaluate, Internal Analysis
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Pharmaceutical Industry Stratification ($Billions)Post Cox-2 Issues
0
50
100
150
200
250
0.0 10.0 20.0 30.0 40.0 50.0
Mar
ket C
apit
aliz
atio
n 2/
05
Pharmaceutical Revenues for 2004
PfizerJ&J
GSK
Sanofi-AventisRoche
Novartis
Merck
AZN
BMSWyeth
LillyAbbott
SGPBayer
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What are the next set of Gov’t 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
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Price Pressures will Drive Consolidationsin order to Maintain Earning Levels
Sales
M&S
R&D
G&A
Price
Units
EBIT
Sales Units
Price
M&S
R&D
G&A
EBIT
Price Pressures limitsIndustry ability to use
price for growth
Industry continues toconsolidate in order tocut infrastructure costs:
-Reduce sales reps - Eliminate TA areas
in Research-Reduce duplication in
support functions
Consolidations protectsEarnings growth &
Capital value
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Summary Points on Industry Dynamics
• Gov’t regulations have changed the industry dynamics requiring it to become more efficient
• Gov’t 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
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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
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Portfolio Planning Process
1. PerformEnvironmental
Analysis
3. ConductInternal
Assessment
2. Create a Vision of
the Future
4. Decide on a Strategic
Position
5. DevelopStrategyActions
7. Manage the Planning Process
6. Developa Plan
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Planning Process in the 1980’s
• 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
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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
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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
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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
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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
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CI supports Portfolio Management
1. PerformEnvironmental
Analysis
3. ConductInternal
Assessment
2. Create a Vision of
the Future
4. Decide on a Strategic
Position
5. DevelopStrategyActions
7. Manage the Planning Process – CI tracks competitor activity to ensure achievement of plan objectives
- Monitor competitor activity at tactical/product level to ensure no
major impact on environmental view
6. Developa Plan
Competitive Intelligencesupports optimization of
future portfolio
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Strategic and Operational Levels
Senior Management - M&A EvaluationsInvestor Relations - Wall Street MonitoringCorporate Planning - Divisional Challenges
Licensing - Product EvaluationsDevelopment - Clinical TrackingMarketing - Market Dynamics
Strategic Level Support
Operational Level Support
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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
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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
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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
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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
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CI needs and focus varies across the business chain
Research Licensing Development Tech Ops Marketing LCM
Disease AnalysisPlatformsTechnologiesTargets
Potential ProductsMechanism of ActionCompany ReviewsCompetitive Bidders
Clinical EndpointsPotential ClaimsTime to MarketClinical Issues
Bulk SourcesCost AnalysesTechnical Assessments
Phase III & IV Market DynamicsEnvironment
New FormulationsPatentsRegulatory issuesGeneric Launches
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CI Work Process Model
R&D - PrivateADIS R&D Insight
R&D FocusIDdb3
PharmaprojectsDecision Resources – DB4
Product/CompanyInvestment Reports
SEC ReportsIMS Audits
Promotional Audits
ExternalHuman
Collection
InternalHuman
Collection
ProductEvaluations
DetailedReports
SummaryReports
SummarizeAnalyze
Recommend
DatabasesDissemination
AlertsInternetPublications
ClinicalTrialsDisease Advocates
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Three Levels of Databases
Private R&D DatabasesSeveral vendors gather information from publications,
congresses, press releases, R&D days, and patent filings toreflect pipeline developments in Pharma and Biotech industries.
Private Commercial DatabasesSeveral vendors gather information from surveys and auditson such items as revenues, units, prescriptions, sales forces,product detailing, promotional spending, CME, and journals.
Agencies sell analyst reports and other published data.
Public DatabasesGovernment agencies, industry groups, patient advocacy groups,
individuals, special interest groups, university sites, andmedical sites offer multiple opportunities to gather information.
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Uses of Various Databases• R&D 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
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Review of Private R&D Databases
Database Publisher
Start Date Updates Records
ADIS R&D Insight ADIS Int’l 1986 Weekly 7,182
IDdb3 Current Drugs 1991 Daily 17,500
IMS R&D 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
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Key R&D 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
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Private R&D 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 competitor’s drug
• Phase IV trials rarely identified
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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
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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
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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 analyst’s base for projecting the competitive situation
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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
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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– R&D days– Wall Street meetings– Industry meetings
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Landscape Sweep by Franchise
ClinicalDevelopment
Pipelines
MarketingAnd SalesActivities
GenericActivities
•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
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Landscape Sweep Sources
• Secondary data sources– R&D: Adis, IDdb3, R&D Focus, Prous, Centerwatch– M&S: IMS, Verispan, PDDA, Scott Levin– Generic: Orange Book, Patent Filings, Paragraph IV– Publications
• Primary interviews– R&D: KOLs, Clinical Investigators, CROs– M&S: Physicians, Pharmacy Directors, MCO– Generic: API producers, import/export agents
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Summary of CI Process• It takes various sources to build the story around
a competitor’s product
• No one source usually gives the entire story, but enough pieces and an experienced CI expert can provide excellent projections of a company’s 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
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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
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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
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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
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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
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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
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There are different levels of exposures
Questions at R&D dayQuestions on Wall StreetQuestions at CongressesPhysician interviewsIndustry Meetings
Hacking into systemsBreaking into buildingsStealing documentsBribing employees
Patent filingsCMPM MinutesWeb SitesPress ReleasesGov’t Reporting
Bugging meeting roomsBreaking into hotelsStealing documentsIntercepting faxesPlanting a mole
Legal
Illegal
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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
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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
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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
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Selling the company’s potential and meeting reporting requirements can’t 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 firm’s stock
• SEC reporting is required by government agencies
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But some sort of balance is needed!
Selling and Promoting Protecting your strategies
TIMING IS THE KEY!!!
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Misinformation can be dangerous
• Misinformation can be illegal if it misleads investors
• SEC filed fraud case against Germany’s E.On AG (holding company) when it issued false statements in Germany since it also had stock on U.S. exchange
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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
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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
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Points to Remember
• You can’t protect everything
• You can’t protect anything forever
BUT
• Never make it easy!
• Never make it cheap!
• Don’t just give it away!
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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
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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
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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
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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
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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
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Thank You …..
Q&A