Partnering for Success

Contributed by:

Robin Robinson

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Mitigate risk by reading red flags Creating effective partnerships is more crucial than ever, so being able to spot red flags from a distance, and knowing how to deal with potential problems close up is of great value today. Careful planning, goal setting, and communication can improve the success rate of any union. Atkins. Endo. We try to monitor for cracks in the alliance by detecting and managing risks as they develop by doing a health assessment survey of each alliance on an annual basis. We’ve developed our own survey consisting of a standard set of questions that not only compares the individual team’s assessment of the alliance, but that can also be used to compare alliance to alliance across the entire partnership portfolio. At this point, we have analyzed survey responses for four years, pulling data from our alliances with 15 different partners over those years. We independently and confidentially compare how the individual teams score the alliance based on several red-flag metrics: executive support, trust, decision making, cooperation, goal alignment, and planning. If the results show a significant disconnect, the alliance is headed for failure. We then work on implementing action plans on the categories where the teams show significantly divergent scores, and monitor progress at the team level. Brue. Sanofi Pasteur. Indicators of failure are easy to spot when the relationship is bad — teams not speaking, late responses from a partner, missed deliverables because of unclear expectations — but early indicators are more difficult to spot. Some examples to watch out for would be scheduling delays for a joint meeting, reduced number of joint team participants, and replacements sent to team meetings. These are just a few examples that relate to one relationship metric — commitment — but there are many others. These red flags can be identified and avoided through careful observation, in addition to activities that build other areas of the alliance, such as governance structure, for example. Gabrielsen. Astellas. Because no two companies are exactly the same, there will always be some degree of cultural incompatibility between partners. This is not usually why an alliance fails, but the inability to recognize and address the cultural differences between partners early on can be a warning sign. When differing expectations between partners are not sufficiently communicated, acknowledged, and addressed, these cultural differences will lead to problems. As an ever-larger percentage of pharma companies’ revenue is coming from products that did not originate in their own pipelines, it is imperative that these firms do not mismanage their strategic alliances. Greene. Ernst & Young. Pitfalls can be mitigated if companies approach a partnership with the same process as an M&A transaction and conduct the appropriate level of due diligence with each party. It’s like going out on a few dates before getting married, if approached in this manner. Each company has the opportunity to interact on multiple levels, and this allows more time to determine the compatibility. It’s more than just assessing the technology and science; companies need to gain an understanding of the core competency and the cultural fit, and to make sure there is a quality management team in place. Partners need to balance the financial risk with the strategy to make sure that each party is properly motivated to do well. Proper diligence leads to making sure the appropriate structure is in place both from an operating perspective and a financial perspective, and ensuring each party is well represented and everyone is working toward a common goal. Steering committees need to make sure that people who have the decision-making authority can move forward freely to ensure the joint venture doesn’t get caught up in bureaucracy. In some cases, this due diligence paves the way for the option of an acquisition. Hörning. Novartis. For pharmaceuticals, failure is often equivalent to significant delays; therefore, an effective decision-making model is important, both in terms of quality and timing of decisions. Clear ownership of strategic decisions can be achieved by creating a new organizational entity that owns the partners’ assets, or by joint decision making in committees, with preagreed decision-making and tie-breaking rules for key aspects of the research, development, or commercialization. Leonetti. Boehringer Ingelheim. Some of the biggest risks associated with an alliance are that they are inappropriate or lack of the use of alliance management best practices. These best practices are typically represented by the implementation of processes and tools designed to ensure alliance success. Of course, one of the simplest best processes to implement is to assure dedicated alliance managers are in place to manage the partnerships. Up to 80% of the companies surveyed in ASAP’s 2007 State of Alliance Management study indicated they have dedicated alliance management functions in their companies. Other processes and tools that are critical to alliance success include alliance metrics, partner health surveys, alliance training, and alliance incentives, to name just a few. These tools, when implemented properly, can help define a problem in time to course correct before any real damage is done. Melo-Pereira. Skila. Lack of insight and knowledge regarding the alliance has implications that eventually show up as red flags. Some of these gaps in knowledge may be contractual, but others may be relationship- or communication-based. One of the biggest red flags that we have witnessed in our years of working with alliance management teams is the failure to manage all of the contractual commitments that are often tied to some type of milestone payment, especially since one person manages many alliances. We have found that it is extremely important for alliance managers to be able to track and manage contractual commitments, not just of the individual alliances they manage, but also for their alliance portfolio as a whole. Alliance managers need to be able to understand which milestones must be met when, as a way to manage the commitments they have to their partners and demonstrate the value of the alliance portfolio to the organization. Shew. IMS HEalth. Significant changes in a partner’s decision making can be a big red flag. New players lack the history of the collaboration and, sometimes, the same level of commitment to the alliance that is needed to overcome standard challenges. A significant issue for alliances is a lack of a shared vision and priority. These issues can certainly be sorted out before a deal is signed, but the alignment can erode as the situation changes, both for the shared asset and the individual partners. The first signs of a problem are typically minor issues, for example: arguing about individual incremental investments, slow follow-through on commitments, reducing resources on one side of the alliance, and slower internal approvals. These may simply be small issues, but can often point to bigger issues. Zabrowski. Roche. Honesty, transparency, and mutual respect are paramount. We realize that different partners have different needs, ambitions, and pressures. All too often there can be a temptation for a big pharma company to take a one-size-fits-all approach and ignore the needs of the partner; as in any walk of life, this is when a relationship can turn sour. So our approach is to tailor any deal we make with a partner from the outset to ensure all parties get what they want. We assign an alliance director to a partner, even before the deal is signed, to ensure continuity and make sure the interests of the partner are fully understood throughout the lifetime of the partnership. Melo-Pereira. Skila. Many alliance management teams are still tracking commitments with spreadsheets that are not integrated with the systems or departments responsible for meeting the milestone or making the payment to the partner. Automating this process with a single touch point that offers a knowledge base to store historical partner information and dashboards that track commitments not only alerts an alliance manager to potential issues and captures relevant information, but shows the value of the portfolio and is a way to mitigate these risks. The ability to monitor commitments by using leading and lagging indicators allows alliance managers to be proactive and better prepared when dealing with conflict resolution and to quickly communicate any issues that arise during the life cycle of the alliance. Elements of a successful partnership Many factors go into a successful alliance, but a few emerge as crucial to the working relationship. They are the same criteria for any successful partnership: trust, communication, common goals, and planning. Our experts say it’s probably smart to also throw in a prenuptial agreement for good measure. Atkins. Endo. We’ve done some thinking about the elements of a successful partnership from analysis of our own data across four years of detailed surveys of our alliance portfolio teams. We found that there were three key factors predicting our teams’ and our partners’ perceptions of a good alliance: trust, planning, and cooperation. These showed up consistently, and we focus on these three factors throughout the life cycle of an alliance. We manage near-term perceptions by investing time early on to build trust, and we closely assess our efforts on planning together in the early stages for the working relationship rather than jumping in and working just on the technical challenge. The relationship between the partners will not just take care of itself. Building an effective working process requires planning from the start, followed up with ongoing management. We also manage longer-term perceptions by improving planning activities around milestones, and by improving decision-making and cooperation by assessing how the alliance and the two companies are doing against explicit goals. Brue. Sanofi Pasteur. There are several elements to a successful alliance. Sanofi Pasteur has 16 metrics that we use to assess health of the alliance. Examples are communication, flexibility, availability, joint problem-solving, transparency, alignment, and so on. Overall, in our experience, communication is the most important element because it transverses multiple dimensions and groups. Gabrielsen. Astellas. For a partnership to be successful, it is critical that both partners are committed to a collaborative strategy, even if the objectives of each party are different, as is often the case. What is important is that each party benefits from the valuable currencies that are created and exchanged by the alliance. A lot of work is required to develop a successful alliance, and that includes the proper training and deployment of dedicated alliance management professionals. These are individuals who are equipped to not only identify and address the differences that exist between partners, but also among the employees of their own company, who may not be fully aligned with the goals of the partnership. Partnership is a key component of our corporate strategy. To that end, we continually strive to improve the business development and alliance management functions, as their effectiveness is so important to our future success. Greene. Ernst & Young. Besides creating a joint-venture organization with decision-making capabilities that operates from a detailed plan and financial commitment, a good partnership also needs to have the appropriate termination conditions. For example, a big pharma company might re-evaluate its own R&D portfolio and change its goals; as a result, the original alignment of the two parties is changed. Or, a company might have had a cardio focus, but it exits this category and some of the projects it had in place will not be funded. The other partner needs to be sure that it is covered should this occur. In other words, there needs to be a good prenuptial agreement in place. Leonetti. Boehringer Ingelheim. The most successful partnerships always seem to contain a strong element of mutual trust. This trust typically allows partners to express their innovative ideas freely, without fear of inappropriate use or loss. This trust typically can facilitate alignment where culture or past practices may drive unique approaches to decision making, creating disagreement or undue alliance team storming. In cases where trust had been previously established, reaching a compromise decision or an alliance “norm” can be rapidly achieved in a climate where mutual trust exists. Melo-Pereira. Skila. A recent study conducted by the ASAP found that the overall success rate of alliances is 49.5%. Within that study, a small group of companies that employ alliance management best practices had an 80% success rate for their alliances, while companies that did not employ any alliance tools at all had failure rates of 80%. Our experience has shown that team alignment, open communication, internal-external collaboration, and trust are the main elements of a successful partnership. The most important of these elements is trust, because without trust, there is no true communication and collaboration between partners. An alliance that is built on trust and managed in a neutral environment, where both partners are treated as equals, allows each partner to openly share their ideas, discuss their frustrations when things are not going as planned, and truly understand the benefits that the alliance brings to both partners. This, in turn, helps to ensure that the alliance is a win-win situation for all. Shew. ims health. The most critical element is a shared vision and priority for the alliance. Clear communication channels and norms are also critical, both between the partners and within the partner companies. Beyond this, a truly collaborative approach and attitude where differences are not stamped out but leveraged is crucial, and this takes true collaboration to achieve. A strong governance process, with leaders who are engaged from both organizations, is another necessary element. Finally, alliances need flexibility. Managers need to be able to work effectively with others in a changing environment and to respond quickly to changes in the situation. The vision and strategy outlined in the contract typically need to evolve, and the key participants in the alliance need to have the flexibility to change with it. Zabrowski. Roche. It’s important to always put the interests of the product first and keep a clear line of sight to the patient. It’s also critical to be flexible and creative in deal-making so that all parties can realize their growth ambitions. It’s also important to offer the partner a seat at the table to ensure the skills and expertise of all sides are maximized. Business models and strategies in a state of evolution As is common in most pharmaceutical strategies, there is no one-size-fits-all partnership formula; however, in-licensing and copromotions top the current list. Our experts say expect a brand-new business model for the future. Atkins. Endo. Our path to success up to this point was through in-licensing. For years, we were one of the purest examples of the specialty pharmaceutical model — no “R,” just “D” in our R&D. With a laser-sharp focus on staying virtual and flexible, and owning absolutely no manufacturing, distribution, or research labs of our own, but instead performing all of those tasks through alliances, we’ve grown from $300 million enterprise value to $3 billion market value in 10 years. Today we can say that 100% of our revenue is either from an alliance-sourced product or from products that are manufactured or distributed through a strategic alliance. But that will change quickly. Having passed the $1 billion revenue milestone in our first 10 years means that Endo has had to reassess whether the strategies that got us to this point are sufficient to get us quickly enough to our next billion dollars in sales. We have recently been focusing business development activities on further diversifying our revenue base through product licensing and company acquisitions, targeting products that are clinically innovative and differentiated, and ones that now include earlier-stage opportunities. Acquisitions would allow Endo to enter into adjacent areas of therapeutic interest to pain management that will have the potential to provide more near-term diversification and growth. In this way, the past Endo model of being a virtually integrated, purely licensing-driven company will likely be modified or transformed over the next few years. Leonetti. Boehringer Ingelheim. Partnership strategies are very diverse, and it’s difficult to say what the most dominant strategies are. Certainly, we have seen an era of copromotion between pharma companies as well as development and commercialization alliances between pharma and biotech companies or specialty pharma and biotech companies. In-licensing has long been the backbone of pharma’s ability to fill development pipelines where organic growth was not able to meet new product demands. Of highest importance in any partnership, and those that have proved most successful, are alliances that create value and meet both partners’ needs. While simple in concept, having a strategy that meets only the needs of a dominant partner will likely lead to failure of the alliance. Each collaborator must gain value to be a winner. This ideal will surely prompt new and innovative structures and strategies for today’s partnerships. Gabrielsen. Astellas. There are numerous types of partnerships in the pharma industry, including in-licenses, copromotions, comarketing arrangements, mergers and acquisitions, joint ventures, collaborations in research and/or development, and platform technology agreements. There is probably no single type of partnership that can be considered most successful, but alliances generally have the greatest chances for success when they are managed as if they are distinct businesses, where it is easier to focus on achieving their strategic intent. To do this, alliance managers need to understand what is important to and creates value for each partner, and they must effectively communicate these key concepts to all alliance stakeholders. Greene. Ernst & Young. Historically, what has happened is not necessarily what will be the model of the future. I think over the next five years, there will be more transactions and divestitures driven by business model experimentation — what works and what doesn’t work. There may also be more combinations of second-tier players and consolidation in the generic space. There have been a number of transactions in recent years that represent innovative partnership structures. The reason may be that pharma companies are looking for alternative avenues to finance as they reinvigorate their own R&D structures. By bringing in private equity, they share the risk as well as the upside as a result of some of those structures. Shew. IMS HEALTH. The most successful partnerships in the pharma industry continue to be straight licensing deals in which the incentives are aligned 50-50. This is a matter of incentives, experience, priority, time frame, and scope to manage. Wassmann. SourceMDx. The pharma industry in general and the biotech industry in particular tend to be very cyclical in terms of valuations by Wall Street and the ability to raise capital. Both the number and types of pharma partnerships that are formed also follow the cyclical trends. In a good financial market environment, a successful deal of any type may start a trend of many copycat deals involving large amounts of money. To the extent that the increase in deals is based on the availability of easy money rather than the quality of the science, the deals will result in a higher failure rate. In a difficult economic market, such as the current environment, companies are much more conservative relative to cash commitments and the impact of these strategies on their profit and loss statement. In general, strategic partnerships done in tough economic times have a higher probability of success, as they are limited to deals of high importance and have to pass higher levels of scientific and financial scrutiny. Zabrowski. Roche. When my team looks at a partnering opportunity, if it’s not innovative, first in class, or best in class we will not pursue it. In the future, payers will no longer reimburse “me-too” drugs — they will be looking for clear medical benefits. Roche is in a position to deliver on these expectations by working closely with our colleagues in the diagnostic business to bring forward personalized healthcare solutions that fit the treatment to the patient. Greene. Ernst & Young. Some pharma companies are saying they may not be able to fund all of the Phase II drugs that are in their pipelines. As a result, the industry is starting to think that the way to help maximize value may be through out-licensing in participation with other big pharma companies, or participating with private equity as a way to share capital, risk, and the upside. We anticipate that more of the larger brand-name and mainstream private equity houses will play a greater role in the life-sciences space in the future. Our recent private equity survey showed that 17%, or one in five, private equity firms identified healthcare as their No. 1 sector to invest in the future. F PharmaVOICE welcomes comments about this article. E-mail us at feedback@pharmavoice.com. Experts on this Topic Harry Atkins. Senior Director, Alliance Management, Endo Pharmaceuticals Inc., a specialty pharmaceutical company engaged in the research, development, and marketing of branded and generic prescription pharmaceuticals used primarily to treat and manage pain. For more information, visit endo.com. Kimberly Brue. Director, Alliance Management, Sanofi Pasteur, the vaccines division of Sanofi-Aventis Group, which offers a range of vaccines that protect against 20 infectious diseases. For more information, visit sanofipasteur.us. Gary A. Gabrielsen. VP, Business Development, Astellas US LLC, an affiliate of Astellas Pharma Inc., which is dedicated to improving the health of people around the world through the provision of innovative and reliable pharmaceutical products. For more information, visit us.astellas.com. Jeff Greene. Transaction Advisory Leader Global Pharma Center, Ernst & Young, which helps organizations execute the right alliances, access funding, and gain insight into the market and regulatory environment of today’s dynamic health-sciences market. For more information, visit ey.com. Anthony Hörning. Head Global Alliance Management, Novartis Pharma AG, which provides medicines to treat and prevent diseases, ease suffering, and improve quality of life. For more information, visit pharma.us.novartis.com. Michael Leonetti. Head of Healthcare Partnerships, Boehringer Ingelheim, the largest U.S. subsidiary of Boehringer Ingelheim Corp. and a member of the Boehringer Ingelheim group of companies, one of the world’s 20 leading pharmaceutical companies. For more information, visit us.boehringer-ingelheim.com. Mr. Leonetti also serves as Chairman of the Association of Strategic Alliance Professionals (ASAP) and heads ASAP’s BioPharma Council. For more information, please visit strategic-alliances.org. Sara Melo-Pereira. Director of Global Marketing, Skila, a provider of knowledge-driven management solutions for the pharma industry, including alliance management. For more information, visit skila.com or e-mail saramelo-pereira@skila.com. Bill Shew. Senior Principal, Product and Portfolio Strategy, IMS, which works with global pharmaceutical, biotech, device, and diagnostic companies to meet competitive challenges. For more information, visit imshealth.com. Karl Wassmann. CEO, Source MDx, a privately held molecular diagnostics development company that monitors an individual’s health, disease status, and response to therapy using RNA from whole blood or tissue samples. For more information, visit sourcemdx.com. Daniel Zabrowski. Ph.D. Global Head, Pharma Partnering, Roche, part of the Roche Group, a research-oriented healthcare group with core businesses in pharmaceuticals and diagnostics. For more information, visit rocheusa.com. Best Practices Managing High-Performance Partnerships One essential best practice of alliance management is regular assessment of the well-being or health of partnerships. Studies show that companies that professionalize their alliance management and actively employ best practices realize up to an 80% success rate in their alliance performance, seven times the success rate of companies that rely on ad hoc alliance management practices. The Partner Health Survey (PHS), developed in conjunction between the Association of Strategic Alliance Professionals (ASAP) and CustomerSat measures the well-being of a partnership in multiple dimensions based on the balance scorecard approach. Measuring performance in only one dimension does not give a full perspective of the factors contributing to a partnership’s success or failure. The PHS measures strategic fit, operational fit, relationship/cultural fit, strategic return on investment, and priority alignment. The service offers a library of more than 100 survey questions from which to choose and includes a limited number of customized questions. A sample of questions a partner health survey will answer include: n Are the strategic directions, growth objectives, and expectations aligned? n Do the two companies share a common view of the alliance value proposition? n Are both organizations committed to a win-win relationship? n Are trust and integrity strong between the two organizations? n Does top management from both companies understand and support the alliance? n Are conflicts resolved quickly, reasonably, and fairly? n Are metrics clear, realistic, and accepted by both companies? n Are information and ideas shared on a regular basis? n Are there procedures for addressing breakdowns? n Do both partners believe the alliance is providing a sound return on investment? Source: Association of Strategic Alliance Professionals. For more information, visit strategic-alliances.org or e-mail acanter@strategic-alliances.org 10 Key Facts to Know About Strategic Alliances The Second State of Alliance Management Study (released in 2007), commissioned by the Association of Strategic Alliance Professionals (ASAP) and a recent ASAP Membership Study conducted by CustomerSat, reveal crucial facts about strategic alliances that make these best-kept secrets the new way of doing business in the current economic climate. 1. Strategic alliances are considered a strategic cornerstone for most major companies across all major industries. 2. About 75% of companies view alliances as extremely important to their company’s strategy. 3. The pharma sector has the second-largest number of strategic alliances behind the technology industry. 4. The Association’s BioPharma Council has the largest number of participants of the four special interest councils within the Association of Strategic Alliance Professionals. 5. Companies involved in strategic alliances reap the benefits of competitive advantage by reducing costs, getting to market faster, and being able to focus on core strengths. At the same time, strategic alliances allow companies to minimize risks inherent to new product development, R&D, and sales particularly in turbulent economic times, because of these partnerships. 6. Most companies expect strategic alliances to generate more than 40% of market value in the next few years. 7. Types of alliances include: comarketing; research; distribution; supplier; technology; and manufacturing. Technology and comarketing alliances make up the highest percentage of alliance types. 8. Despite the strategic importance of these alliances, the overall success rate of alliances is 49.5%. Within a small group of companies, more than 80% of their alliances are a success. The consistent employment of best practices and other alliance tools are the keys to alliance success. Companies that don’t employ alliance tools have success rates of less than 20%. 9. Tools that help strategic alliances succeed include employing a dedicated alliance manager and joint-business planning. In comparison with five years ago, when only 50% of companies with strategic alliances employed an individual to manage their strategic alliances, more than 80% of companies have now implemented this function. 10. In addition, many companies have created alliance departments; on average, firms employ 275 alliance professionals in total (i.e., part-time and full-time). Other tools include individual and joint evaluations, alliance metrics, and alliance best practices. Source: Association of Strategic Alliance Professionals. For more information, visit strategic-alliances.org. January 2009 By Robin Robinson What Are the Chances for Success? Success or Failure: A 50-50 chance With a 50% failure rate from the get-go, initiating a strategic partnership is like getting married these days — half of alliances are bound to fail. Add the unpredictability of science and technology to the mix, and the failure rate soars to more than 70%, according to Ernst & Young. Our experts discuss the high rate of failure and how pharma alliances compare with alliances in other industries. Harry Atkins. Endo Pharmaceuticals. Anyone in alliance management in the pharma industry, as opposed to high-tech or other research-based industries, has to be a dogged optimist as well as extremely patient. A recent Deloitte Research Life Sciences study showed that fewer than 40% of biopharma alliances meet their stated objectives, and about one-third of biopharma alliances are terminated or renegotiated before the end of their intended term. There are some eye-popping examples of the huge stakes in pharma alliances on even single-product plays. For example, Pfizer bought the rights to Exubera for $1.3 billion in 2006 and then had to pull the plug on that same Nektar alliance in October 2007. But the good news is there’s a significant opportunity for those who learn the right way to make these alliances meet expectations over and over. Consistency in codevelopment alliances translates into a greater likelihood of getting a product to market. In a study of more than 500 pharma licensing deals, Wharton researchers found that drugs produced by codevelopment partnerships are more likely to win FDA approval than those developed by a single company. Gary Gabrielsen. Astellas Pharma. While much of the lack of success in pharma partnerships can be attributed to the relatively high failure rate of drug development in general, there are other factors that are just as important. Unfortunately, collaboration does not come easily, especially when the partners are companies that differ in size, scope, geography, strategic focus, and business philosophy. Unless the partners buy in to the concept of true collaboration and devote the personnel and resources necessary to make the collaboration an effective one, it is likely that the alliance will not be able to overcome the companies’ fundamental differences. Jeff Greene. Ernst & Young. Pharma is an industry built on intrinsic risk where 70% of early-stage candidates are not going to make it to market. My sense is that pharma alliances, however, are more successful than the typical 50% across all industries if the science issue is factored out. There is a difference between a successful alliance resulting in a product that doesn’t work versus an alliance where there are disputes among the partners. If the alliance is around a comarketing deal for an already approved drug for example, the majority of these alliances tend to work reasonably well. One of the reasons for the success is pharma’s history in operating by leveraging other peoples’ specialties. Partnering is viewed as a core skill set, and a company wants to have a reputation as a good partner because it wants to continually build and find new relationships that will bring new compounds into the firm. Anthony Hörning. Novartis. The 50% failure rate is likely to be the same in pharma/biotech as in other industries; one reason is that new data relative to the joint-development project emerge over the life of the alliance that may significantly change the risk/benefit profile of the business opportunity. Not only that, but the partners may have a very different view of what the data actually mean or what to do about the information. This leads to operational tension and, potentially, strategic misalignment. In other words, things don’t work out. Michael Leonetti. Boehringer Ingelheim. Many alliances fail because of nontechnical issues, such as the processes and behaviors usually addressed in alliance management best practices. The ASAP State of Alliance Management Study conducted in 2007 concluded that 50% or more of alliances fail, and about 15% of the 250 organizations surveyed were pharma and biotech companies. Bill Shew. IMS HEalth. The pharma industry alliance success rate now exceeds most other industries, which hasn’t always been the case. In the last five years or so, the pharmaceutical industry has made significant strides in improving its alliance capabilities partly because of strategic priority and experiences learned over the last decade. Alliances continue to be difficult and time-consuming to manage and to ensure for success, for reasons that are common to many different industries. These include the rapidly changing landscape and misaligned incentives and priorities between the alliance partners, sometimes within the individual companies. In my experience, the biggest destroyer of value in pharmaceutical alliances is the delay in decision making that too often occurs in alliances as the two organizations try to align both individually and as partners. Too often, significant decisions are delayed or suboptimized to build alignment, with the result that a window of opportunity is missed. Daniel Zabrowski. Roche. For a long time, external alliances have played a crucial part in Roche’s innovation strategy, and they are now becoming increasingly important throughout the industry. We recognize that we don’t have a monopoly on innovation, and that’s why my team of 80 partnering professionals around the world is dedicated to strengthening the R&D portfolio through external partnerships. This success is demonstrated by some of Roche’s most significant products resulting from partnerships: cancer drugs such as MabThera, Herceptin, and Avastin from our best-known partnership with Genentech; the new RA drug Actemra originating from our Japanese partner Chugai; and the antiviral Tamiflu, developed with Gilead. As an organization, we’re used to working with partners for many of our projects, and our success has been a result of putting any differences aside to focus on what’s best for the product and, ultimately, the patient. If we lose sight of this goal, even some of the most-promising partnerships can fail. 10 Key Facts to Know About Strategic Alliances The Second State of Alliance Management Study (released in 2007), commissioned by the Association of Strategic Alliance Professionals (ASAP) and a recent ASAP Membership Study conducted by CustomerSat, reveal crucial facts about strategic alliances that make these best-kept secrets the new way of doing business in the current economic climate. 1. Strategic alliances are considered a strategic cornerstone for most major companies across all major industries. 2. About 75% of companies view alliances as extremely important to their company’s strategy. 3. The pharma sector has the second-largest number of strategic alliances behind the technology industry. 4. The Association’s BioPharma Council has the largest number of participants of the four special interest councils within the Association of Strategic Alliance Professionals. 5. Companies involved in strategic alliances reap the benefits of competitive advantage by reducing costs, getting to market faster, and being able to focus on core strengths. At the same time, strategic alliances allow companies to minimize risks inherent to new product development, R&D, and sales particularly in turbulent economic times, because of these partnerships. 6. Most companies expect strategic alliances to generate more than 40% of market value in the next few years. 7. Types of alliances include: comarketing; research; distribution; supplier; technology; and manufacturing. Technology and comarketing alliances make up the highest percentage of alliance types. 8. Despite the strategic importance of these alliances, the overall success rate of alliances is 49.5%. Within a small group of companies, more than 80% of their alliances are a success. The consistent employment of best practices and other alliance tools are the keys to alliance success. Companies that don’t employ alliance tools have success rates of less than 20%. 9. Tools that help strategic alliances succeed include employing a dedicated alliance manager and joint-business planning. In comparison with five years ago, when only 50% of companies with strategic alliances employed an individual to manage their strategic alliances, more than 80% of companies have now implemented this function. 10. In addition, many companies have created alliance departments; on average, firms employ 275 alliance professionals in total (i.e., part-time and full-time). Other tools include individual and joint evaluations, alliance metrics, and alliance best practices. Source: Association of Strategic Alliance Professionals. For more information, visit strategic-alliances.org.

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