How to Build Strategic Alliance Strategies

How to Build Strategic □ Alliance Strategies? Presenter: Mr. Rongjin Lin Date: November 6, 2003 TTY Biopharm Co., Ltd Developing the Science from Humanity… Current Approach Will Produce Minimal Shareholder Returns 3 NCEs Per Year With Current Model Will Not Suffice Sensitivity to Changing Key Variables in Pipeline Model Total Shareholder Returns For Top 20 Pharma Companies Is Continued Reliance On Blockbuster Drugs Enough? Exposed to New Challenges and Pressures R&D Productivity Increasing Therapeutically Competition Decreasing Exclusivity Patent Expirations Increasing pressure for reaching sales top Government Intervention & Price Control 5 Forces in Global Pharma Today Threat of New Entrants Low Future Same Power of Suppliers Today Low Future Same Competition in the Pharmaceutical Industry Power of Customers Today Future Increasing Today High Future Increasing Medium Threat of substitutes Today Medium Future Same 5 Forces in Global Pharma High and increasing rivalry within the industry + High growth, esp. in new markets (i.e. neutraceuticals, lifestyle drugs) + Increased pressure on margins because of health reforms + High excess capacities + Industry consolidation and concentration (M&A) - Increase in product differentiation Power of Suppliers Today Future Same Today High Future Increasing Competition in the Pharmaceutical Industry Power of Customers Today Threat of New Entrants Low Future Same Today Medium Future Increasing Low power of suppliers + Some downstream integration of Biotechs - High number of suppliers globally - Low switching costs / few differentiation of supplies Low Threat of substitutes Today Future Same - Low production costs (25% of sales) - Low power of unions Medium 5 Forces in Global Pharma Medium but increasing power of customers + Highly degree of concentration (Few customers: Government, Medical Care Organizations, Wholesaler) + Increase in market transparency through the internet / better education + Increased demand of patients for participation in decision making + Increase of expectations + Individualization of therapies Power of Suppliers Competition in the Pharmaceutical Industry Power of Customers Today Threat of New Entrants Low Future Same Today Low Future Same Today High Future Increasing Today Medium Future Increasing Low threat of substitutes + Decreased time of product exclusivity Threat of substitutes + Generics/ improved products + Genomics + Parallel imports + Trend towards self medication (OTC) - Substitution only partly possible Today Medium Future Same 5 Forces in Global Pharma Low threat of new entrants + Advances in information management, technology and science enable small companies to access the market + After patent expiry low costs of switching to generics + Biotechs (capital market funded) + Economies of scale less important in some New Technologies (i.e. Genomics) Power of Suppliers Today Threat of New Entrants Low Future Same Competition in the Pharmaceutical Industry Power of Customers - High barriers to entry because of capital intensity and sunk costs - High product differentiation - Patent protection - Difficulty to set up own sales channels (access to doctors) - Regulatory environment very difficult (i.e. safety and environment regulations) Today Low Future Same Today High Future Increasing Today Medium Future Increasing Threat of substitutes Today Medium Future Same Global Trend: Shift of the Pharma Paradigm TTY Approach Economies of “Size” Traditional Strategy Structure Excellence in R&D Centralized profit centers Economies of “Market Orientation” Market-oriented Market profitability Decentralized profit responsibility (markets, products, brands) Key components Focus Reaction to competition R&D plans, market launch plans Product performance Product improvements Integrated marketing plans Market share of end consumers Marketing intelligence, planning, market tests Maxim “Best product wins” What do the customers want of what we can offer? Source: A. T. Kearney (1997) Various Key Drivers for International Pharma Companies  Rising costs of bringing new products to market activities (pre-launch, post-approval)  Impact of government intervention on industry operations (price control, regulation)  Increasing role of consumer influencing health decisions.  Intellectual property protection / management  Declining R&D productivity  Increasing global competition in pharma industry (within therapeutic categories, influencers in purchasing decision) Key Issues for International Pharmaceutical Companies  Timely development of new products & effective management of R&D pipeline  Effectively launch to peak sales  Improving success rates of strategic alliances and become a preferred partner for alliances  Develop marketing strategy and identify opportunities Multi-National Companies MNCs are getting stronger in product development, marketing & sales in each area To overcome the bottleneck of new product productivity MNCs are eager to grab any business opportunities everywhere MNC dominate the potential blockbusters Taiwanese Pharma is in a difficult position for R&D Difficulty of Pharmaceutical Research for Small Pharma Costs  The average cost to develop a new drug has grown from US$ 138 million in 1975 to US$ 802 million in 2000 (Source: Accenture) Risks  Only 1 of 5,000 screened compounds is approved as a new medicine. (Source: Accenture)  Only 3 of 10 marketed drugs produce revenues that match or exceed average R&D costs. (Source: Accenture)  80% of R&D expenses result in only marginal improved treatments (Source unverified)  250 drugs constitute 90% of the world need for drugs. 75% of them are available as generics. (Source unverified)  Taiwanese companies lack any competitive advantage to deal with such a situation - Small size of the home market - Small size of Taiwanese science clusters - Lack of research specialists compared to international standards Opportunity  Value of patents expired between 1997 and 2002: US$ 19 billion (Source unverified)  Value of patents expired between 2003 and 2005: US$ 26 billion (Source unverified)  Meanwhile Taiwanese Pharma should focus on the feasible: No research, but development of improved generics and licensed drugs by applied formulation  Goals: Know-how + capital accumulation The Trend of Global Pharmaceutical Market  MNCs are getting bigger through industry consolidation  Market opportunities for multinational niche player are growing  Localization will be the competitive advantage of generic market  Industry collaboration and contract services of value chain activities will be the trend of pharmaceutical R&D Position of Company type Multi-national pharmaceutical companies Pfizer, GSK…… Generic companies Local players (regional) TTY Niche players (international) Develop Regional Niche Core Competencies Product (D) Marketing Sales Area (C) Manufacture Innovalue MNC Niche (International) Niche (Regional) Generics Conventional The Trend of Taiwan Pharmaceutical Market  Only top 3 generic companies can survive  Few generic companies could build competitive advantages or unique capabilities and survive  Top 20 multinational companies can survive in Taiwan The Trend of China Pharmaceutical Market  Multinational companies can fill these needs and survive  China will become the fifth-largest pharmaceutical market with the estimated revenues of over USD24 billion by 2010. (3X of current size)  Top 100 generic companies can survive in China  Lots of generic companies with competitive advantages or unique capabilities can survive  Focusing the head of Chinese operations on assessing and shaping local abilities are essential  Only Taiwanese can do success business in China market  building the abilities to support Chinese operation with worldclass regulatory specialists and marketers can win What Asia Means for MNC  Large & rapidly growing markets  Across the board – software, components, services, content, etc.  Demographics – highly attractive long-term opportunity  Favorable government policy – fostering biopharmaceutical industry a top priority  Key production base  Cost-efficient supplier of labors Key Success Factors of Biopharm Companies  Develop and accumulate human capital and knowledge capital  Leverage the networks of value chain  Build self-learning organization  The guarantee of success survive longer enough till the new innovation launched Key Issues for Big Pharma  Timely development of new products & effective management of R&D pipeline  Effectively launch to peak sales  Improving success rates of strategic alliances and become a preferred partner for alliances  Develop marketing strategy and identify opportunities TTY‟s Visions Becoming one of the most innovative biopharmaceutical companies, specialising in anti-cancer drugs in Asia, and specialising in new formulation technology Becoming the first international pharmaceutical company focusing on prevalent Chinese disease. Focusing on marketing and new drug development (M&D) Strategic Plans for 2005 to 2010 Our planning Profit New Entity Special formulation Technology platform 2010 New formulation New Indication 2000 2005 Generic 1996 Risk Applicability of Alliances to TTY  Alliances can be build along each function of the value chain, in case of the existence of:   A clear win-win situation C (mutual benefit) l P A situation where a prisoners dilemma rcan be avoided (avoidance of mutual harm) i P r o d u c t   n o i General Management d c u S a c a Human Resource Management l t l T i e L M Purchase and Finance Management r o s o a i n g r a & Screening & D i k l & Licensing in e s e v t t & S e i i C e l c n The most critically functions are theomost interesting for international alliances R r o s g n v  R&D Alliances: Licensingeand product development p g f i m  Marketing and Sales Alliances: Market e knowledge and coverage u c e e National alliances can bel used for a c maximum leverage of n a t t  Clinical trials t i  Production i o o n n TTY‟s Specific R&D Development Strategy Discovery Concept Approval Pre-Clinical Phase I Phase II a Phase II b Phase III Marketing lead candidate Taiwan China US & EU ？ TTY‟s Position  TTY is focusing on marketing and new drug development (M&D)  Position in the industry value chain  Be the best Asia partner of international biopharmceutical companies – – – Geography focus on Taiwan & China Build core competences of channel management & new drug development Speed, speed & speed  Co-develop the early phase new drug with international biopharmceutical companies to create and share the IP right Key Successful Factors  Bringing corporate strategies into operation 落實企業策略於組織運作中  Training and recruiting right people 培訓, 招募對的人做對的事  Effective management (PDCA) of pipeline and portfolio. 有效規劃, 執行, 控制, 管理研發成效與研發組合  Becoming a preferred partner for alliances in licensing. 成為國際生技創新公司在華人市場的最佳伙伴  Reducing time to reach high sales (fast penetration) 以最短的時間開創最大的營業績效 Competitive Advantage D&C Core Competence New drug commercialization Formulation Process development Pre-clinical study Clinical study Regulation Competitive Advantage – D&C D&C Team – New formulation techniques of slowreleased and liposomal products and new indications – Integrated D&C team Project evaluation Formulation Pre-clinical studies Clinical studies (CRA team) Regulation Project management Competitive Advantage – D&C Core Technologies  Liposome technology  Production technology of liposomal drugs  New-generation liposomal techniques have been developed and patents had been filed.  Lipo-Dox, LAIA97, LIIA01  Sustained release technology  Slow-release product development including high dose and low solubility drugs.  Regrow SR, Lacoxa, GNTA98, TTTA01  New indication development of anti-cancer drugs  New indication clinical studies in oncology  UFUR, Thado, Oxalip, Asadin, Lipo-Dox Competitive Advantage – D&C Brief History of Clinical Trial of TTY 1996 DOH Taiwan issued 1st edition of GCP guideline 1997 JIRB in Taiwan was established 1998 TTY established the SOPs of GCP 2000 The first GCP anti-bacterial drug in Taiwan The first GCP anti-cancer drug in Taiwan 2000 Phase I trial of thalidomide conducted in Taiwan 2000 Eight clinical trials approved by IRB/DOH 2001 Clinical trials on new indications started: 1. Phase III trial of Thado for HCC 2. Phase II trial of Oxalip for GC 3. Phase II/III trial of Asadin for HCC 2003 Phase II trial of Oxalip for NSCLC Competitive Advantage – D&C Clinical studies for anti-cancer drugs No. of Ongoing Trials Centers Cover 17 medical centers Changhua Christian Hospital Chang Gung Memorial Hospital Chi Mei Foundation Hospital General Hospital Taipei, Taichung Mackey Memorial Hospital National Cheng Kung University Hospital National Taiwan University Hospital Veterans Taipei Municipal Jen-Ai Hospirtal Tri-Service General Hospital, etc Sub-Total Phase I 25 3 Phase II Phase III 21 1 40 clinical trial results were published or presented Competitive Advantage – D&C  NDA Registration Experience  According to DOH’s Criteria of New Drug, nine new drugs were launched.  An innovative learning network and professional integration ability to speed up the development and commercialization of new drugs  43 trials are either accomplished and or are in progress Competitive Advantage – Marketing & Sales  Brand marketing ability  Channels penetrated all medical centers & teaching hospitals in Taiwan  Hai-Pu has already extended its channels to East & Central China Why Partner?  „Grow at home, go abroad‟ strategy no longer viable   Partnering makes emerging growth firm‟s move in swift Only large companies can afford time, cost-consuming, mealone penetration U.S. market is their No. 1 target U.S./Asian technology highly compatible/mutually adaptable License your IP in exchange of capital  Lots of partnering opportunities with Asian firms     Survival strategy during recession TTY‟s Alliance Strategies  Know your position  Your partners: Who are they?    Map out how you want alliance to work FIT your position Localized Marketing & Sales  Play to your core competence  Involve the right people  Well Planning, Implementation and Controlling  Leverage the power of niche products  Looking for affordable, safe, and efficacious products  „Grow at home, go abroad with your partners!‟ Who are Potential Strategic Partners?  Pharmaceutical companies  International, national, niche  CROs  Vertical integrators  Big biotech  Consolidators (e.g. Elan)  Other companies which don‟t fit the usual mold  Hospitals, philanthropic organizations, etc. Types of Alliances Definition of alliance: “Explicit agreement to leverage combined resources to achieve a competitive advantage” Types of partnering:  Licensing (benefit for money)  Co-operative alliance (mutual benefit)  Operate typically as virtual organizations; sometimes minority equity investments  Frequent applications – Development – Co-marketing – Co-promotion  Joint venture  Has typically an entity of its own  Frequent application: Collaborative research and development  (Merger) Two directions of partnering  Vertical collaboration, i.e. biotech discovers drug and pharma develops and markets the drug  Horizontal collaboration, i.e. collaborative research of two pharmaceutical companies Conclusions for TTY‟s Business    Impossibility of “New Drug Discovery” TTY focuses on improvement of existing drugs Global pressure on Pharma to assure capitalization of investments in the market by the means of market orientation throughout the value chain  Strategic planning of R&D investments  (...)   Operational excellence of Marketing TTY strives for mastery in Marketing  Fields where alliances can contribute to TTY‟s business: • Formulation • Marketing Problems of Alliance Building   Requirement for alliance building: Complementary competences of the partners Problem: What to bring to the deal?  TTY R&D capabilities (?) + 2 D-technologies: Lipo and SR - no R-technologies - no patents - competencies build for Taiwan  TTY market position (+) + Sales: Strength in important HP channel + Marketing capabilities of personnel + Strength of brand - Size of Taiwanese market - IP protection in Taiwan   TTY financial power (-) TTY production (-) Thank you!