www.plg-uk.com Business Development & Licensing Journal For the Pharmaceutical Licensing Groups Consolidation in the generics sector Integrating business development Cross-cultural negotiations Self-reporting Competitive intelligence
Competitive intelligence: when ignorance is not bliss The competitive intelligence (CI) function has undergone a dramatic transformation over the past decade, from being a reactive information provider to becoming the privileged partner of senior management in elaborating and implementing strategies. CI has evolved into a proactive function intimately engaged in key strategic processes, particularly in contributing to corporate development. Historically, the CI group in most organisations was library-oriented and provided information solely upon request. Recently, however, the pressure on organisations for external growth, the scarcity of attractive opportunities and a reduced tolerance for risk have enhanced organisations requirements for information that is fact-based, unbiased, accurate and timely. This need, in turn, has resulted in an increase in the importance of the CI function, has transformed the roles and responsibilities of CI and has spurred organisations to develop more active CI groups. What is CI? While there are many interpretations of the term competitive intelligence, the definition provided by the Society of Competitive Intelligence Professionals (SCIP) offers an appropriate framework: Competitive intelligence is a systematic and ethical programme for gathering, analysing and managing external information that can affect your company s plans, decisions and operations. Another widely accepted definition is by Dr Ben Gilad of the Academy of Competitive Intelligence: Competitive intelligence is the gathering and analysis of information from human and published sources about market trends and industry developments that allows for advanced identification of risks and opportunities in the competitive arena. Effective CI is a continuous process involving the legal and ethical collection of information, its analysis and the controlled dissemination of actionable intelligence to key stakeholders (see Figure 1). CI activities should always be defined by a framework comprising of the five key parameters: process workflow (ad hoc, project or systematic monitoring programme) type (internal resources only or input from external consultant) scope (strategic versus tactical) time frame (short term versus long term) object (product, company, market, landscape). It should not be assumed that CI is synonymous with business intelligence (BI), although in many cases there are commonalities between the two. CI, as its name indicates, focuses on competitorrelated intelligence topics (eg products, manufacturing, research and development (R&D) strategies, partnering strategies, etc), whereas BI focuses more on market-related activities at the macro level (eg competitors marketing strategies, understanding market dynamics, market forecasts, therapeutic area landscape, etc). Figure 1: The intelligence cycle Intelligence requirements Dissemination The two terms are often used interchangeably and are employed based on the location of the intelligence function and/or on the nature of its internal customers. For the purposes of this article we will use a definition of CI that includes BI as well, keeping in mind that this is not always the case. Now and then Planning and organisation of resources The intelligence cycle Analysis and production Collection of information Processing The manner in which CI is carried out today has changed dramatically since its beginnings in the pharmaceutical industry; the emphasis is now on by Gael L Heveder, Roche It should not be assumed that competitive intelligence is synonymous with business intelligence: CI, as its name indicates, focuses on competitor-related intelligence topics, whereas BI focuses more on marketrelated activities at the macro level. 19
Business Development & Licensing Journal interpretation of available information in a specific context and no longer on the actual gathering of that information. The earlier mission of CI focused very much on acquiring a broad set of information without the expectation that the CI professional would provide great insight into, or perspective for, the data. Recently, the mission has evolved to emphasise the analysis of the information gathered and the impact on the company s strategy. Figure 2 shows how CI has evolved along the data value chain over the past few years. The earlier mission of CI focused on acquiring information without the expectation that the CI professional would provide great insight into the data; recently, the mission has evolved to emphasise the impact on the company s strategy. Figure 2: Evolution of CI Wisdom professionals have degrees in science and/or business and CI is a stepping stone to another position in marketing or business development. Competitive intelligence professionals are increasingly required to assess complex situations and make recommendations. In the past, competitive intelligence analysts used to be generalists doing information dissemination, says Richard Withers, president of Deallus Inc, a healthcare research and analysis consultancy.this is no longer the case. He adds: CI professionals must have strong personal skills and a very strong expertise in the industry, even in a specific therapeutic area or franchise. The standards have been raised because CI clients expect more in an environment where it is increasingly more difficult to gather primary information. The CI professional must be able to draw conclusions independently based on scarce information. CI and business development Good intelligence can render business development efforts significantly more effective by helping to identify licensing and acquisition targets which meet strategic criteria, and by supporting evaluation and negotiation activities through provision of background information on competitive compounds and potential partners, says Chris Piggott, vice-president of business intelligence at Sanofi-aventis. Ten years ago Intelligence Analysis Information Meaningful patterns Data Disorganised sludge Today Indeed, the main role of CI in support of business development (BD) is to minimise the risks inherent in deal making. During a transaction process, CI can provide more certainty around issues or uncertainties, says Daniel Pascheles, vice-president of global competitive intelligence at Merck & Co. In this case, CI becomes an integrated piece of the BD process and one of the required ingredients for a successful strategy. CI can also play a more proactive role, as Pascheles explains: CI can identify BD opportunities before all the competitors have them on their radar screen. Competitive intelligence staff used to be information seekers with backgrounds in database research and degrees in library sciences, according to John Gladish, managing director for Europe at Pennside Partners, a global healthcare consultancy. He goes on to discuss the changes in the function, saying: Today most CI More specifically, how can CI add value to the business development team? Well, there are many areas along the business development decision-making process where CI can make significant contributions. CI experts are often brought into the BD process at the strategic or operational levels (see Figure 3). Figure 3: Strategic and operational business development process Strategic process Operational process Define corporation goals Gap analysis Options assessment Identify targets Conduct preliminary due diligence Approach targets and initiate contact Enter negotiations Conduct due diligence Legal and regulatory process 20
Figure 4: CI input along the drug development value chain Licensing M&A Research Development Marketing LCM Corporate Disease analysis Technology platforms Targets Product evaluation Market share Market dynamics Strategic positioning Industry dynamics Business evaluation Clinical end-points Time to market Clinical issues New formulations Patents Regulatory issues Generic launches By providing early insight about the target, CI allows the company to make minimal contacts at the early stage of the process and maintain an acceptable level of discretion. CI can bring value to M&A and licensing efforts by performing due diligence exercises in advance of contacting potential candidates, says Pascheles. He adds: CI can identify problem areas very early in the process which can be used in the up-front negotiations. The possibilities for CI participation in the BD process are numerous and vary depending on the nature of the deal (eg acquisition, product licensing, technology licensing), the stage of development of the product(s) being in-licensed or acquired, or the size of the acquisition (see Figure 4). CI and in-licensing CI s primary responsibility in this process is now fully recognised. In most pharmaceutical companies, project teams working on a licensing project include a CI specialist. This person is often accountable for providing: a competitive profile of the product; a timeline for registration and approval; a market landscape analysis; and, sometimes, an estimate of the probability of approval by benchmarking approvals of products in the same class, etc. Depending on the product s development phase, the CI professional will also supply the team with financial data (eg potential peak sales) and an analysis of the generic threat. If the opportunity is a technology platform, a competitive analysis of that specific space should be conducted. Another area which often involves the CI team is the review of the partnership history of the target company (this is true for both in-licensing and M&A). In this investigation, the intent is to pin down two important factors. First, the financial impact of the acquisition: what are the current contractual financial obligations of the target company and what are their current and future impacts? Second, the relationship to come: what can we learn about management s commitment from past partnering experiences? CI and M&A Once the strategic intent to acquire, or merge with, a company has been confirmed, the CI team following the process shown in Figure 3 can start working on the pre-due-diligence investigation. This research includes conducting a portfolio and pipeline analysis of the target company, confirming a match between the two companies portfolios and pipelines, and also making sure that there will not be any major antitrust (product overlap) issues with regulatory authorities (eg the US Federal Trade Commission or the European Commission). The next area of CI involvement is the review of the target company s operations and management. The management review allows for the anticipation of any potential integration issues at senior management level (eg board members and management team). A key insight to gain is the way in which members of the senior management team are perceived, both inside and outside the company. In a research-driven industry the same analysis applies to top scientists. From an operational standpoint, one should look at the structure of the manufacturing organisation (eg location of plants) as well as the production capacity and potential regulatory-related issues. If the target company is located in a different country to that of the acquiring company, CI may be able to anticipate some potential labour issues by studying similar M&A activities in that country. The management review allows for the anticipation of any potential integration issues at senior management level; a key insight to gain is the way in which senior management members are perceived inside and outside the company. In addition to having an impact on strategic and operational BD processes, CI is also a very powerful tool to support other core activities of the BD team: Every pharmaceutical and biotech company tries to be perceived as a preferred partner. One of the roles of CI is to study certain metrics to form a fact-based opinion on whether or not a company is indeed a preferred partner. Such metrics include: deal history (ie number of deals, when and at what stage of 21
Business Development & Licensing Journal development); deal outcome (ie success or failure); therapeutic area; and certain benchmarks such as the number of partnered products on the market and their percentage of sales. Looking at deals can even provide a measure of the level of risk the corporation is willing to take (ie is the in-licensed product a strategic fit or is it in a new area). CI provides clarity around the assumptions built into financial models by benchmarking key parameters, such as the risk of failure for a given development phase, financial aspects of recent deals and new market entry. Analysis of the competitor landscape can also contribute to putting a value on the deal. Companies that do not have the competitive intelligence capacity in-house to support its business development activities often work with consultants. Sometimes it s worth it for a double check; companies pay for the peace of mind at night, knowing that we ve done a thorough job and that they have not missed an opportunity on their screen, says Gladish. He concludes: For companies that are seeking in-licensing opportunities outside of core therapeutic areas, our clients have found it helpful to hire us to do due-diligence support. A trend picking up speed is the increasing role of CI in emerging markets deal-making; there are opportunities for Western manufacturers to gain a stronger presence in Central and Eastern European markets. Recent trends for CI A trend that is picking up speed is the increasing role of CI in emerging markets deal-making, particularly in Eastern Europe. There are opportunities for Western manufacturers to gain a stronger presence in Central and Eastern European markets, which are growing. For example, the Russian pharmaceutical market has seen 400% growth since 2001. Charles Rowland, a founding partner of RM Consulting, an international business intelligence consultancy, explains that the key to successful deal-making in this region lies in the deep understanding of the working culture: Differences in decision-making processes can delay business ventures or even render them impossible. By taking the time to understand the different decision-making issues, companies can improve success rates and prevent disappointment and this is where the role of CI is invaluable. The CI expertise is not only required to contribute to drug pipeline growth but more and more into franchise strategy and what it takes to win in a particular segment, says Withers. Indeed, hunting for business development opportunities is only one component of meeting growth targets. Companies are also looking hard at ways to maximise their assets through life cycle management and to include CI in a more holistic approach to external growth (eg drug delivery and new technology to differentiate their marketed products). CI as a career option Following on from the trend within the pharmaceutical industry to develop strong and active CI groups to support the wide range of activities discussed, there are myriad opportunities for dynamic professionals to develop their skills platforms as CI professionals. Large companies are actively growing their CI groups as organisations become more aware of what CI can bring to the team and its role becomes more and more indispensable throughout many aspects of the pharmaceutical business. CI positions will be of particular interest to professionals with both scientific and business backgrounds because, in many ways, CI can be seen as the nexus of these two important areas. Conclusion The CI function has shifted from being a reactive, information-providing function to becoming a strategic asset within the corporation. This transformation is illustrated by the impact CI has had on business development activities. CI delivers value by increasing the comfort level of decision makers. In business development, that translates into helping identify targets and putting the company into a favourable negotiating position.as the current trend suggests, CI is increasingly connected to senior management, and the network developed during the tenure in this position allows for diverse career options. The content of this article reflects the personal views of the author and are not necessarily the views held by Roche. Gael L Heveder was previously with Baxter and will be joining Roche as business development director with effect from September 2007. Tel: +41 61 688 1111 Email: gael.lheveder@roche.com 22