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

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

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

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.

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

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

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%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But some sort of balance is needed!

Selling and Promoting Protecting your strategies

TIMING IS THE KEY!!!

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

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

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

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!

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

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

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

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

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

Thank You …..

Q&A