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Organization and Strategy at Millennium (Situation in 2004…
Organization and Strategy
at Millennium
Deborah Dunsire
M. D.
Attended Interviews at Millenium
Pharma
Jan 2005
Assessment of Challenges
at Millenium
As a potential successor
To Mark Levin
CEO and Founder
Bring Mellinum to Profitability
Rapidly establish productive relationship
WIth M's Management Team
Reevaluate
Number of disease classes M can feasibly tackle
WIll help to determine
Allocation of limited resources
Value chain activities
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Millenium Pharmacuticals
Cambridge based Bio-Pharma
Firm
To present her plans to Board Monday Morning
Pharma Industry Background
Modern Pharma industry
traced to 19th Centry
WIlliam Henry Perkins
Searched for Maleria drug
Developed first synthetic Dye
Heralded new era of Chemical-based drug development
Later Louis Pasteur
Developed Germ Thoery and Vaccination
technology
Later
Bayer AG released Aspirin product
Paul Ehrilch developed first anti-biotic
During first half of 20th century
Many chemical companies ventured into pharma
Governments brought about many strict regulations
1953
Discovery of Moelcular Structure
Double Helix
By Francis Crick and
James Watson
Led to paradigm shift in Pharma
Industry
Potential to unlock
in early stage discovery steps of
Value chain
1970s
Herbert Boyer and Stanley Cohen
Used knowledge of
DNA
to develop Genetic ENgineering
Techniques
Led to Biotechnology
industry creation
Genentech
Developed first Biotech drug, Humulin,
a Genetically engineered insulin
1983
Humulin was Launched by Eli Lilly
1988
Only 9 Biotech drugs wereapproved by
US.
Technology was much complex than
earlier thought
1990s
New wave of BioTech firms started
Significant progress
in mapping DNA of
human Genome
Pharm focus
chemical composition to heal symptoms
BioTech firms
Study of biology to identify
targets responsible for disease
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Pharma was able to analyze only 500 targets
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Chemical Pharma Industry issues
Move block buster drugs off patent
Competition from emerging Generic
drug industry
Falling productivity
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Tufts University
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Experts estimates
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In response
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Founding and Evolution
of Millenum
1993
Levin founded M
At Cambridge MA
Team
Daniel Cohen
MD, PHD, Prof Univerysity of Paris
Co-Founder France's Centre
Eric Lander
Phd
Founder Whitefield Institute
Jeffrey Friedman
MD
Obesity researcher at
Rockefeller
Raju Kucher
Phd
Albert Einstei
Raised 8.5 Million
Seed Financing
Mayfield Fund
Greylock Limited
Venrock
Perkins
Caufield
Interim CEO that lasted till 2005
Levin
Biomedical Engineer
Ran Genetec's Process Engineering
in 1980s
Co founded Cell Genesys in California
Partner at Mayfield fund
California based VCF
Founded nearly dozen businesses
Phase I
Build it and They Will Come
Early 1990
Field of Genetics and IT rapidly evolved
Levin envisioned to
combine the two fields
and address root cause
of diseases rather than addressing symptoms
Developed RADE
Platform
Rapid Analysis of Differential
Gene Expression
Technology
Combined Hard Sciences
with powerful computer systems
Helped in large scale DNA sequencing
and high-throughput expression
cloning
Combined field such as
Genetics
Biology
Chemistry
Robotics
Computer Systems
Involved
top researches from Harvard
and MIT
He believed platform will
Revolutionise
Pharma industry
By Improving Speed, effectiveness, and reducing cost of drug discovery
His vision was see by executives as Bold, Audacious
He was the ultimate visionary
M's Technology platform
Superior platform
Helped to leapfrog ahead of competition
in Biotech area
In early stage drug target identification
Finding biological molecules
in body that were
responsible for disease
By 1995
Levin was leveraging
firm's vision and technology platform
To forge strategic alliances with
Pharma firms
Alliance
M would do early stage
discovery research
Pharma would pay upfront fee
Make milestone payments
on pre-specified milestone are reached
Pharma would take responsibility
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Maximized value of its platform
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By Sept 1998
M' ability to negotiate research
alliances was key driver for
its competitive advantage
Over Dozen alliance
Just entered largest alliance in the
history of Biotech with
Bayer
$465 Million
$100 Million Equity
Investment by Bayer
in the firm
5 year agreement
Collect $365 Million
Providing 225 drug targets
in Therapeutic Areas
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Very successful in forgin alliances
Collected over 2 Billion
Helped to build worldclass
Research platform
1000 scientists
performing cutting edge
research
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Levin's Comments on Alliances
It is hard to tell when to stop
when firms come with upfront
payments with future opportunities
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Anna Protopapas, SVP, of Corp Deve
Alliances resulted in some disadvantages
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Phase II
Envisioning a Fully Integrated
Biopharmaceutical firm
Late 1990's early 2000's
Levin saw M's competitive advantage reducing
IT and Technology was more available
Competitors and partners learned from M
Governments & Privately Sponsred Scientist
Working towards Humar Genome
Could soon become public information
This would make companies like M
redundant
Levin started steering
M away from early stage Discovery
alliance (Upstream) and towards drug development
and commercialization (Downstream)
WIth this new Strategy of Levin, M pursued acquisitions
Marsha Fanucci, CFO,
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M's first acquisition 1997
ChemGenics Pharma, MA based
For $90 Million in stock
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1999 Acquisition LeukoSite
$750 mi in stock
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2000 was a successful year for M
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Phase III
Refocus (Early to Mid 2000s)
Tide turned quickly south
Levin realised the difficult in building
expertise in broad areas
Ms stock headed down to pre-bubble levels
Levin started to focus resources
in areas of competitive advatage
2001 Wound down discovery efforts
in infectious diseases and
central nervous system
Helped focus the firm and
reduced cash burn
As per CFO Fanucci
Several potential
blockbuster drugs
closed down
2002, M started looking at COR
COR added 50 to 75 Millio
to bottomline and helped
in making M profitable
COR's INTEGRELIN
was a mixed success due to heavy
competiton
Levin regrets entering into Cardiovascular
Appointed CEO of COR as Head of R&D
Charles Homcy
Homcy left in 2003
Subsequently
he was appointed to
Board
In 2002
M Spent 511 Million in R&D
Booked net loss of
590 Million
Had 1 Billion in Cash
Partnerships were falling
given company's move away from discovery research
to integrated player focussed on its pipeline
Raising capital was an issue given weak
markets
In 2003
Major restructuring
Wound down operations
in UK and San Fransisco
Reduce head count from 2300
to 1700
Focussed on reducing reducing
early stage discovery research
Terminating metabolic research efforts
Until this stage 50% of R&D
budget was on research
Much higher than industry
avg of 25 to 35%
Maintains strength in
downstream activities
Animal testing and human testing
M added additional resource to
Commercail Org
To improve Integrilin sales
Prepare for 2003 commercail launch
of Velcade
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Booked 191 Million in restructuring charges
and clocked a net loss of 484 Million
Culture, Organization and Incentives
Culture
Most of employee thought M was exciting
and intense place to work
Employees rallied around Levin's
evolving vision of Biotechnology
Employee enjoyed working on tough
problem forefront of science
Early culture Focussed on open environment
Tag line "Great people do great things"
Firm's Vision
Levin spent lot of time
thinking about firm's vision
Each year, Levin formulates a vision and
takes steps to propagate the vision to team
One of the reason's why M maanged to be enterprenural
T-Shirts were distributed every year with Vision statement
Nothings Impossible (1994)
Prime the Pipelin with Products (1998)
Focussed Execution (2001)
Informal Organization process used to maintain creative culture and evolutionary vision
M succeeded in maintaining Enterprenural culture
Employees were passionate about
Levin's vision and worked long hours
and weekends
Organization
M had an informal org structure and processes
Relied on informal committees and ad-hoc systems
throughtout the firm
Executive committe consisted of
Levin, Heads of Commercial, R&D, Finance, Legal, HR,
Responsible for 1) Corp strategy 2) Resource allocation
In early days of M
Few committee meetings required
Preapproved agendas and preparation
Meetings were informal and treated as
potential idea generators
Levin attempted to professionalize meetings as they headed closer to Velcade release and for restructuring business
Lot of people resented the change
in culture
They wanted a voice
without accountability
Clear roles, responsibilities, Governance structure,
of individuals and teams did not evolve
M 2005 employee survey was favourable but some frustration
M a consensus driven culture. Therefore, slow to move.
Resource Allocation in R&D
Project 241 started in 2001
Early stage development
with local Biotech Firm
It was decided to stop due to
financial constraints
But it went on to clinical trials
It survived till 2005
In late stages and showed promise
Across the board it was concluded
that success may be low due to side effects
Financial outlook was negative
Some beleved this project
was distracting R&D
Reached Phase II clinical trials
Management established Go/No Go criteria
Criteria
Drop efficacy by 50%
If not terminiate trials
Project did not meet the criteria
M PRC (portfolio review committee)
Included
Senior level R&D team
reviewed data and concluded project has to
be terminated. Presented to Executives
P 241 team started lobbying with executives
Project still continued
Incentives
HR Practices focussed towards creating
Creative and Enterpreneural culture
Employee were encouraged to extend content and
work load
Executies emphasized social gatherings for exchange of ideas
Tried to make employees feel work as fun
Few HR Policies existed and few were applied
Processes were discussed but abandoned for individuals
Performance reviews
No formal goals setting process
Therefore, not possible to hold accountable
Pay differentiation we thin
Everyone was given almost equal raise
It was not possible to differentiate performance
everyone received good reviews
Resulted in reduced motivation of best employees
No accountability on non-performers
Management introduced formal process
But, did not have any system to make managers accountable
Employee compensation was good
Initially, it was a combination of base cash salary +
Stock Options
Popular compensation approach
for resource constrained firms
Provided good upside potential for
employees as well
During Dot Com bubble, many employees became
rich
When bubble burts, M's stock feel and
resulted in hit to employee morale
Stock option was no longer a prefered
compensation
Levin changed compensation
to include Cash salary and Cash Bonus
used by mature Pharma firms
scaled back on stock options to
restart limited activity in 2005
ALthough compensation was important
employees valued quality of work, enterpreneural spirit
and great colleages at M
Leadership
As M migrated towards downstream drug development
M needed a different kind of leader
Passionate for patients well being
had big pharma experience
excited to lead an enterpreneural teal
Tremendous commercial success
Dunsire
Met in Early 2005
Medical doctor by training
Practiced medicine for short duration but
found her niche in commercialization
Launched dozen products
Managed NA Oncology Business of Oncology
Levin reflected it was a perfect match
Situation in 2004
Despite Restructuring
M Spent 430M in R&D and
booked net loss of 252M in 2004
Reserves fell below 600M
Narrowed its focuss to
Cardio, Imflammation, Oncology
Focussed on transforming from
Early stage discovery company to
a vertically integrated BioPharma firm
Commercializing two products
Velcade and Integrilin
Key Functional leadership challenges
needed resolution to make vision a
reality
Commercial Efforts
Research deals were thing of past
M depended on revenues from
commercail products
Culture change from pure science mindset
to commercail mindset was a challenge
Giving commercail folks same level of respect
was a challenge
Oncology drug Velcade had huge
potential due to its low cost competitive
advantage
It had potential to expand to
other treatment areas
Although launch was good
sales fell short of expectations
It was launched with only 65 sales reps
Commercialization efforts had issues
2004 revenues doubled to 143M
But, flattened in 2005
Integrin sales grew by only 12 percent to 206M
in 2004. This was a concern for management
Management Turnover
Resulted in underperformance of sales
Hired Paul hemelin in Dec 2000. He left shortly
Vaughn Kailian for CEO, president of COR
as VC Board and Head commercial Ops
in 2002. He resigned in 2003
M CFO Kenneth Beth moved to Commercail role in July 2003
he resign in Jan 2005
Levin covered vacant position
It was a philosophy issue
Marketers did not have a voice for education and
promotion of products
General belief was good science with data sells
Commercializing two products
In the interim
Two commercial managers who came from CORs
were running the commercial operations
Most of the reps had background in Cardio
but were responsible for both Integrilin(Cardio) and Velcade
(Oncology)
Outsourced International marketing to
Schering Plough and J&J
Domestic growth was stagnant
J&J was clocking robust international sales
Kyle Kuvalanka, VP Investor Relations
Challenges by M
M had small commercial team
Target customer work environments was different
Velcade Oncology Private practices and Out-patient units
Integrelin Cardio in hosp with
critical care facilities
Both areas required keen understanding
of product and clinical data. It was too much to
expect from one rep to master both
Discovery, Research and Development
Focuss on cocommercial
may result in quitting of R&D head
She needs someone immediately
To resolve issues with R&D spend
and rationalize expenditure and avoid cases such as P241
She had option to go out or promote
internal heads. Either would create issues
She can keep to herself
but and flatten org, that would increase span of
her control and reduce her
effectiveness in leadership role for commercial and financial
Investor relations
M's stock price peaked in Nov 7 200 at 85.6 per share
Market cap of 18 Billion before tech bubble burst
Levin tried to appease investors
that M would turn profitabl in 2004
Levin later withdrew his commitment and said
M would turn profitable in 2006
Investors reacted unfavourably
Dec 31 2003
M stock price was at 18.65 down 78%
from peak
Reflected challenges in market and
Biotech industry
In Jan 2004
Integrilin sales guidance at 320-350
Termed by JP Morgan Chase as modestly dissappointing
In APril 2004, SG Cowen noted
both Velcade and Integrilin falling short of expectations
In July, M withdrew initial guidance on Integrilin sales projections
In Sept, promised to provide revised guidance for calendar year
In Oct, could not give the sales projections
Investors were less interested in grand vision and
more interested in profitability
It was not clear to investors how M could become
profitable by 2006
by Jan 21 2005 stock touched all time low of 9.21
one-tenth of all time high
M's longterm investor Fedility lowered its stake from 14.3 to 7.6 in early 2005
Looking forward
Dunsire summarized her thoughts
Is is possible to Professionalize M Org while maintaining Enterprenural vision and culture
How to move from R&D focus to commercial focus
How to optimize commercial opportunities vs
future drug development efforts
How to fill open positions in senior level in connercial and R&D
Hire or promote?
How to gain credibility of investor community
Which of the challenges is most urgent? what is the priority?