Organization of a “Typical” Pharmaceutical Company

Organization of a “Typical” Pharmaceutical Company Jim Geddes

Topics to be Discussed Business Goals Organizational Structures Core Functions Sample Organization/Key Responsibilities Case Study

The Key Business Goal of the company is to create financial value for the shareholders Business Goals • Other Business Goals include: • Discover, develop, and bring to market products to improve human health, patient satisfaction, and the quality of life around the world, as well as to reduce the overall cost of health care.

Organizational Structures The two most important issues when deciding how to organize a pharmaceutical company are: Personnel - individuals in the organization Functions - activities that must be accomplished to achieve the company’s goals

Organizational Structures (cont.) Common organizational structures of a pharmaceutical company include: Functional Structure Product-Oriented Structure Matrix Structure

Organizational Structures (cont.) Functional Structure • This organizational structure is present to some extent in most major pharmaceutical companies • Each function within the company is organized separately • Each function reports to a specific function/department head

Organizational Structures (cont.) Functional Structure (cont.) - Major advantages: expertise is concentrated and individuals deal with common issues and interact with others with common skills - Major disadvantages: less communication with groups in other functional areas and fewer people have a thorough understanding of the whole organization and how what they do “fits”

Organizational Structures (cont.) Functional Structure (cont.)

Organizational Structures (cont.) Product-Oriented Structure • This structure organizes a company into self-contained business units focused around specific products, therapeutic areas, customers, etc. (e.g., Prilosec, Gastrointestinal Business, Hospital Products, etc.)

Organizational Structures (cont.) Product-Oriented Structure (cont.) - Major advantages: individuals are expert in their specific business and have clear and full responsibility for all aspects of their business - Major disadvantages: individual expertise is limited to one area and there is duplication of functions (and expenses) that could be centralized

Organizational Structures (cont.) Product-Oriented Structure (cont.)

Organizational Structures (cont.) Matrix Structure Incorporates both the Functional and Product-Oriented structures Recognizes business interdependencies and may offer greater flexibility than other structures Is now the most common structure in the Pharmaceutical Industry

Organizational Structures (cont.) Matrix Structure (cont.) - Major advantages: addresses functions and products collectively, less duplication of effort, and increased efficiency - Major disadvantages: lack of direct control and requires full cooperation of “function” managers

Organizational Structures (cont.) Matrix Structure (cont.) Head of President Business Areas Research & Marketing Production Finance Development Business Area A x x x x Business Area B x x x x Business Area C x x x x Business Area D x x x x

Core Functions Regardless of the organizational structure, certain functions must exist All functions have specific key responsibilities At times, the responsibilities of one function may overlap with another function The quality of interaction between functions strongly influences company performance

Core Functions (cont.) “Corporate Functions” Functions which are responsible for meeting overall Corporate goals and providing consistent direction and support across the entire Corporation.

Core Functions (cont.) “Corporate” Functions Shareholders Board of Directors Chairman/Chief Executive Officer (CEO) Public Relations (PR) Investor Relations (IR) President/Chief Operating Officer (COO) Finance Legal Human Resources (HR) Information Technology (IT) “Line Functions”

Sample Organization/Key Responsibilities “Corporate Functions” Shareholders Board of Directors Chairman/ Chief Executive Officer President/ Chief Operating Officer Investor Relations Public Relations Finance Human Resources Information Technology “Line Functions” Legal

Core Functions (cont.) “Line Functions” Operational functions which are responsible for implementing the strategies required to achieve the overall Corporate goals.

Core Functions (cont.) “Line” Functions U.S. Pharmaceuticals International Pharmaceuticals Research and Development (R&D) Regulatory Marketing Sales Medical Affairs Manufacturing

Sample Organization/Key Responsibilities “Corporate Functions” (cont.) Shareholders Board of Directors Chairman/ Chief Executive Officer President/ Chief Operating Officer Investor Relations Public Relations Finance Human Resources Information Technology “Line Functions” Legal

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) Shareholders The individual and institutional investors who own stock in the company and are looking for Earnings Per Share (EPS) and share price appreciation.

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) Board of Directors (BOD) • Key Responsibilities: • Oversee the company’s financial progress to ensure that shareholder’s expectations are met • Approve the selection of Chairman/Chief Executive Officer • Approve and monitor the company’s strategic direction • As appropriate, address major business issues and allocation of resources • Add value to the company

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) Chairman/Chief Executive Officer (CEO) Key Responsibilities: Chairman of the Board of Directors Head of the organization Sets the overall strategic direction Main spokesperson to the shareholders Must be a strategic thinker, plus understand finance, product discovery and development, marketing, and sales

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) Public Relations (PR) Key Responsibility: Set and manage overall Corporate PR strategy Support the achievement of business goals Manage the external image of the company

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) Investor Relations (IR) Key Responsibility: Set and manage overall Corporate IR strategy Support the achievement of business goals Ensure individual and institutional investors understand the company’s strategic and financial goals and performance vs. those goals

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) President/Chief Operating Officer (COO) Key Responsibilities: Operational head of organization Manage “Line Functions” Implement operational plans to achieve overall strategic direction Achieve financial targets Primary interface with employees Must know how to get things done Must know the products, the marketplace, the customers, the competition, etc. Should be candidate for Chairman/Chief Executive Officer position

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) Finance The head is the Chief Financial Officer (CFO) Key Responsibilities: Set and manage overall Corporate Financial strategy Support the achievement of business goals Work with Corporate and Line management to set, manage, and achieve financial targets Report financial performance (externally - Shareholders, SEC, etc. and internally - Board of Directors, Corporate and Line managers, etc.) Evaluate new business opportunities, mergers, acquisitions, licensing agreements, etc.

Sample Organization/Key Responsibilities (cont.) Functions within Finance include: Finance Accounts Payable Accounts Receivable Accounting Payroll Auditing Budgeting and Planning

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) Legal The head is usually the General Counsel Key Responsibilities: Set and manage overall Corporate Legal strategy Support the achievement of business goals Provide legal advice to the organization on strategic direction and business activities Review key business documents e.g. (licensing agreements, acquisition contracts, etc.) Review marketing and sales materials Review regulatory submissions Provide liability insurance, develop and file patents, etc. Often serves as Secretary to the Board of Directors

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) Human Resources (HR) Key Responsibility: Set and manage overall Corporate HR strategy Support the achievement of business goals Maximize effectiveness of employees

Sample Organization/Key Responsibilities (cont.) Functions within Human Resources include: Human Resources (HR) Recruiting Employee Relations Benefits Compensation

Sample Organization/Key Responsibilities (cont.) “Corporate Functions” (cont.) Information Technology (IT) The head may be the Chief Information Officer (CIO) Key Responsibilities: Set and manage overall Corporate IT strategy Support the achievement of business goals Manage and support IT systems

Sample Organization/Key Responsibilities (cont.) “Line Functions” (cont.) Key Responsibility: Implement the strategies required to achieve the overall Corporate goals

Sample Organization/Key Responsibilities (cont.) “Line Functions” “Line Functions” U. S. Pharmaceuticals International Pharmaceuticals Research and Development

Sample Organization/Key Responsibilities (cont.) “Line Functions” (cont.) U.S. Pharmaceuticals President/ General Manager Medical Affairs Manufacturing Marketing Sales “Local” Human Resources Regulatory Affairs “Local” Finance

Sample Organization/Key Responsibilities (cont.) “Line Functions” (cont.) U.S. Pharmaceuticals (cont.) President/ General Manager Medical Affairs Manufacturing Marketing Sales “Local” Human Resources Regulatory Affairs “Local” Finance

Sample Organization/Key Responsibilities (cont.) “Line Functions” (cont.) U. S. Pharmaceuticals (cont.) The head is the President/General Manager of U.S. Pharmaceutical Business Key Responsibilities: Full Profit and Loss (P&L) responsibility for the business in the U.S. (could include all of North America e.g. Canada, Mexico, etc.) Locally implement Corporate Strategies

Sample Organization/Key Responsibilities (cont.) “Line Functions” (cont.) U.S. Pharmaceuticals (cont.) President/ General Manager Medical Affairs Manufacturing Marketing Sales “Local” Human Resources Regulatory Affairs “Local” Finance

Sample Organization/Key Responsibilities (cont.) “Line Functions” (cont.) U.S. Pharmaceuticals - Marketing Key Responsibilities: Set and manage overall Marketing strategy Develop and implement product Marketing Plans to maximize market share, sales, and profits Identify market needs/demands Identify new product opportunities Develop strategies, messages, and materials for sales force

Organization of a “Typical” Pharmaceutical Company