Implementation of Portfolio Strategy in Today s Global Economy Kurtis Klein, RPh Vice President Corporate Strategy & Business Development ALCON LABORATORIES, INC.
Agenda Corporate overview Alcon Laboratories Corporate Strategy Strategic Process at a Multi-national Company Business Development & Licensing Our role to support the Global Strategy Case Study Pursuing a Mid-tier Intraocular Lens for the China Market
A Overview World s Premier Eye Care Company with Leading Positions in Three Major Categories Pharmaceuticals Surgical Devices and Instrumentation Consumer Products Recently acquired by Novartis $9 Billion business unit
A Today (before integration) Sales $7.2 billion in 2010 Scope Share Science 17,000 global employees 4,000+ person sales force 75+ local operating companies Products distributed in 180+ countries 72 countries with physician training centers #1 or #2 position in majority of key therapeutic areas At least $4.0 billion planned R&D investment over next 5 years
Global Reach (before integration) 5 Major Research Centers 17 Manufacturing Plants 75+ Operating Companies 72 Countries with Physician Training Centers 17,000 Employees Alcon Headquarter Office Alcon Research Facility Alcon Manufacturing Plant Alcon Operating Company
Broad Product Line PHARMACEUTICAL Glaucoma SURGICAL Intraocular Lenses (IOLs) CONSUMER Contact Lens Care Infection & Inflammation Cataract & Vitreoretinal Equipment Artificial Tears Allergy Refractive Other Nasal / Otic
Corporate Strategy Alcon s Mission: To discover and develop innovative eye care products that improve the quality of life by helping people see better. Our only business is vision care Provide market with differentiated technology for unmet medical needs Surround the eye care professional with a portfolio of products Deliver superior financial returns
Corporate Strategy Define what this strategy means to you Highly focused One industry Technology / R&D based Customer Centric Premier Price Strategy Market Leader / Innovation What would you take into consideration when looking at market entry based on this corporate strategy?
Corporate Strategy Market Entry General Considerations Market Development Patent rights / regulatory climate Economic capability of health care system Socio Economics of the population Growth potential Customer Development Alcon s current relationship brand image with customers Sophistication of practice of medicine Current Alcon brands available
Corporate Strategy Market Entry General Considerations Competitive Environment Current competitors Market pricing Alcon capabilities on ground
Corporate Strategy Implementation Example: Decisions on Entry Mode What factors would you consider when deciding on an entry mode for this product? EXPORT High shipping cost! Control over manufacturing quality / cost Potential tariffs Protects proprietary knowledge / intellectual property LICENSE Low start-up costs Loss of control over manufacturing Higher cost of goods due to low volume Know how transfer to potential competitor
Corporate Strategy Implementation Example: Decisions on Entry Mode FRANCHISE Low start-up costs Less control of quality Risk to brand reputation JOINT VENTURE Local market expertise Accelerated entry due to political acceptability Lowers entry costs Risk of technology / knowledge transfer
Corporate Strategy Implementation Example: Decisions on Entry Mode WHOLLY OWNED SUBSIDIARY Control of quality / technology Profit control Most costly Experience curve slowest
STRATEGIC PROCESS AT ALCON
Strategic Process Sr. Managment annually reviews Alcon s Corporate Strategy Business strategy Financial objectives Gap definition Target selection Annual implementation plan
Strategic Process Deep Dive process Portfolio Assessment R&D pipeline Gaps?» Business Development & Licensing Market Assessment Alcon positioning in key markets? Established Emerging Gaps?» Business Development & Licensing Technology Assessment Game changing technology? Business Development & Licensing
Business Development & Licensing Function Senior Management provides Target list Key products / product candidates Key technologies Market specific needs Search R&D team identifies Conduct technical assessments Transaction Management Value target Build business case Transaction strategy Conduct negotiations Due diligence Deal closure
Case Study Alcon only competes in the premium segment for cataract surgery in China Premier IOLs $X Mid-Tier IOLs $X/2 Low end IOLs $X/20
Case Study - Background Significant emerging middle class which over the next ten years will demand (and can afford) higher quality health care Today, less than 10% of their population can afford a premier lens
Case Study Identification of a portfolio gap in China Mid-Tier Intraocular Lens (IOL)
Additional Information Do not want to use any current Alcon IOL materials Too difficult to differentiate Might be detrimental to sales of current premier lens Believe we can up-sell doctors if they begin using Alcon product
Strategic Issue Should Alcon enter the mid-tier IOL market? Why or why not? How does this support Alcon s corporate strategy?
Case Study Alcon decides to pursue the mid-tier IOL market segment in China What are the potential market entry strategies? Which would you recommend? Pros / Cons
Case Study Export
Case Study Export Quality Control PROs CONs
Case Study Export Quality Control PROs CONs License
Case Study Export Quality Control PROs CONs License Rapid market entry Regulatory approval of Chinese technology Low development cost Established manufacturing process Quality control No experience curve opportunity Shared profits
Case Study PROs CONs Export Quality Control Do not want to utilize current company materials License Rapid market entry Regulatory approval of Chinese technology Low development cost Established manufacturing process Quality control No experience curve opportunity Shared profits Turn-Key
Case Study PROs CONs Export Quality Control Do not want to utilize current company materials License Rapid market entry Regulatory approval of Chinese technology Low development cost Established manufacturing process Quality control No experience curve opportunity Shared profits Turn-Key N/A N/A
Case Study PROs CONs Export Quality Control Do not want to utilize current company materials License Rapid market entry Regulatory approval of Chinese technology Low development cost Established manufacturing process Quality control No experience curve opportunity Shared profits Turn-Key N/A N/A Franchise
Case Study PROs CONs Export Quality Control Do not want to utilize current company materials License Rapid market entry Regulatory approval of Chinese technology Low development cost Established manufacturing process Quality control No experience curve opportunity Shared profits Turn-Key N/A N/A Franchise Low entry cost No technology to franchise
Case Study PROs CONs Export Quality Control Do not want to utilize current company materials License Rapid market entry Regulatory approval of Chinese technology Low development cost Established manufacturing process Quality control No experience curve opportunity Shared profits Turn-Key N/A N/A Franchise Low entry cost No technology to franchise Joint Venture
Case Study PROs CONs Export Quality Control Do not want to utilize current company materials License Rapid market entry Regulatory approval of Chinese technology Low development cost Established manufacturing process Quality control No experience curve opportunity Shared profits Turn-Key N/A N/A Franchise Low entry cost No technology to franchise Joint Venture Access local technology / market access / manufacturing Quality control Nominal experience curve Competitors?
Case Study PROs CONs Export Quality Control Do not want to utilize current company materials License Rapid market entry Regulatory approval of Chinese technology Low development cost Established manufacturing process Quality control No experience curve opportunity Shared profits Turn-Key N/A N/A Franchise Low entry cost No technology to franchise Joint Venture Access local technology / market access / manufacturing Quality control Nominal experience curve Competitors? Acquisition
Case Study PROs CONs Export Quality Control Do not want to utilize current company materials License Rapid market entry Regulatory approval of Chinese technology Low development cost Established manufacturing process Quality control No experience curve opportunity Shared profits Turn-Key N/A N/A Franchise Low entry cost No technology to franchise Joint Venture Access local technology / market access / manufacturing Quality control Nominal experience curve Competitors? Acquisition Control of technology Marketed product Profitability Price What are you buying? Due diligence
Action: Acquisition Pursue a Chinese company with: Manufacturing capability Material patents Regulatory approvals Market share
Key Learnings Profit ex-patriation a challenge This affects strategy Requires sophisticated tax strategies Chinese structures can be difficult to understand Discovered government is 25% owner! Multiple subsidiaries holding components of IP Patents / Regulatory approval process Greatly impacts revenue potential
Conclusion CRITICAL TO UNDERSTAND AND IMPLEMENT YOUR CORPORATE STRATEGIES Critical to define your company s crown jewel assets, attributes, and structure entry strategies to protect against core competency transfer Carefully analyze the true market potential often sales teams are too optimistic DUE DILIGENCE!
THANK YOU!