Roadmapping as a Planning Tool to Assess Strategies in a Rapidly Changing Market

1. Roadmapping as a Planning Tool to Assess Strategies in a Rapidly Changing Market Bob McCarthy, Ph.D. Director, Strategic Market Planning Roche Molecular Biochemicals Phone: 317-576-7475, Fax: 317-576-7317 e mail: robert-c.mccarthy@roche.com

2. “Commentators have sought to set the project in a historical context by likening to the..Manhattan Project and the moon shot...Rather, the Human Genome project aims to produce biology’s periodic table- not 100 elements, but 100,000 genes…. The challenge ahead is to turn the periodic table produced by the era of structural genomics into tools for the coming era of functional genomics” Eric S. Lander, Science 274:536 (1996) “We used to think the future was in the stars. Now we know its in our genes.” James Watson, Visions (1997)

3. “There’s a gene rush on out there. In the next three years or so, the entire human genome will be known, and all the interesting targets claimed. Companies that don’t invest and secure rights to disease-modifying gene discoveries will be shut out.” J Hartwig,WSJ 24 Sept. 1998 “We used to think the future was in the stars. Now we know its in our genes.” James Watson, Visions (1997)

4. Scale of Human Genome Project World 5.8 billion people Nucleus 23 chromosomes 3 billion base pairs 6 billion bases USA 270 million Indiana 5.8 million 1 Chromosome 200 million bp 400 million bases Marion County 800 K Marion County Genes within chromosome 1.5 to 2000 K bases

5. Analogy does not Reflect Complexity of Genome • Every cell contains entire genome • Only 3% of genome codes for protein • Cells function determined by proteins produced DNA messenger RNA protein synthesized Blueprint Extract portion of plans Protein function DNA mRNA Protein Structural Genomics: analysis of the blueprint = structure of DNA in the genome Functional Genomics: analysis of the work carried out by subcontractors = biology

6. Cell Circuitry:Implications for Functional Genomics Ligands Receptors Ion channels DNA Protein Pathways mRNA Protein Most cells are unique (differentiated state), live in communities (tissue and organs) and have sensors to react to specific changes in the environment (e.g., ligand receptor interactions, ion channels); the appropriate response is mediated by pathways of complex proteins (cellular circuitry)

7. Cell Circuitry:Implications for Functional Genomics Ligands Receptors Ion channels DNA Protein Pathways mRNA Protein • Disease occurs when proteins in key pathways malfunction or arechanged by mutation (e.g., cancer), this leads to an abnormal state and these changes are detected by appearance of clinical symptoms • Goal of functional genomics is to first identify and analyze the cellular circuits that control the cellular response, identify changes in disease, then manipulate this circuitry with drugs to control the disease

8. A B B A C C Proteins Key Focal Point for Functional Genomics Key Biological Activity A, B, and C are unique proteins, when aggregated into a complex, generate key biological activity • Key proteins can be identified by an increasing number • of methods • The ultimate goal in genomic biology is to identify all • the proteins that participate in key biological pathways

9. A B B A C C Proteins Key Focal Point for Functional Genomics Key Biological Activity A, B, and C are unique proteins, when aggregated into a complex, generate key biological activity “It is important to note that the target validation process may determine that any number of genes identified as gene targets are not appropriate as therapeutic targets. However, during the process of target validation new genes functionally related to the original gene targets may be identified as useful for investigation as new prospective therapeutic targets.” J.W. Hawkins, Genomics: A Brave New World for Therapeutics Development, Drug & Market Dev. 9 (3) p. 72 (1998)

10. Pre-Genomic Genomic Era DNA Universal Code of Life S. cerevisiae S. cerevisiae E. coli E. coli Paradigm Shift: Biological information and function strongly conserved

11. Genentech fromed Hybritech formed Genentech IPO Humulin marketed HGP initiated SKB-HGS alliance Pharmacogenomics Abbott-Genset PE/Ventner collaboration Pace for Development is Accelerating Funding/ Commerical Development DNA SV40 seq 5 Kb DNA seq. Improved Somatostatin produced Lambda DNA seq 48 Kb PCR, phage display Automated DNA seq. Two hybrid system in yeast Combinatorial chemistry Yeaset chromo. 3 3.2 Mb DNA Microchip, H. Infl 1.8 M S cerev. Seq. 12 Mb.icrorg. Seq 6 microrg. seq PE/Ventner target for HGP NIH target for HGP Technology/ Milestones Asilomar Conf. Guidelines relaxed Guidelines relaxed Gene Therapy Gudielines Regulatory 1970 1975 1980 1985 1990 1995 2000 2005

12. Cell pharmacology/ molecular biology Innovations Genetic Engineering Chronic degenernative disease associated with aging, inflammation, & cancer Enzymes Receptors Biotech Drugs Lipid Lowerers ACE inhibitors H-2 Antgonists Beta blockers NSAID’s New Therapeutic Cycles Pharmaceutical Growth Knowledge Dependent 500 drug targets 3000-10,000 drug targets

13. Changes in the Pharmaceutical Industry • Vertical industry 1950-1970’s • Expertise kept in house • Drug development based on serendipity Big Pharma • Biotech era 1980’s • Collaborations established to protect existing markets and expand into new markets • Drug development move towards applying fruits of biotechnology • Genomic era 1990’s • Collaborations essential to gain knowledge about key biological pathways • Drug development restructured to gain knowledge faster than competition

14. Changes in the Pharmaceutical Industry RB Reagent Gene Hunters RB Reag/Inst. Testing Services Anal. Instrum. Combinat. Chem. Chem. Company Assemblers Tier 1 Tier 2 Animal/clinical studies I.d. biological targets Testing drug libraries Special reagent/instrum. Provide chem. libraries Regulat. & reimbursement Platforms increase thruput Toxicology testing Sales and marketing Big Pharma Collaborationsbased on focus & speed

15. 1993 2010? Genomic Era Andy Grove’s Strategic Inflection Point “Let’s not mince words: A strategic inflection point can be deadly when unattended to. Companies that begin a decline as a result of its changes rarely recover their previous greatness.” (p. 4, Only the Paranoid Survive) Business goes to new heights Inflection Point Business Declines

16. Team Composition R&D, Marketing (central) German & U.S. Biounit (country) Team Composition Molecular biologists Proteomics experts Roadmap Working Team Internal Cell biologists Developmental biologists Roadmap Expert Group Internal-External. Bioinformatics experts Functions Functions Respond to surveys Recommend & approve experts Review drafts of roadmap Review format of surveys Participate in discussion groups Review raw & condensed data Provide updated knowledge Input conclusions into roadmap Composition of Roadmap Teams

17. Roadmap Process Market Trends M1 M2 Root Needs RN1 RN2 RN3 RN? Technology T1 T2 T3 T4 T? Competitive CA CA CA CA Assessment P3 Technology P1 P4 P2 Projects Planning Time Years

18. Biological information restricted to specific applications/model systems Biological studies based on phenomenology Shotgun mutation methods screened for gross observable changes Ultimate goal is to understand function of biological molecules in their proper context Assembling biological information infrastructure, data mining to focus on biological and/or disease models Developing integrated knowledge of biological pathways and networks in context of cell and organism Performing detailed structure-function studies in context of biological disease model Goal is to understand differential gene expression in disease states or biological model systems Saturation mutagenesis to evaluate function of specific molecules M1 M2

19. Root Needs

20. Technology

21. Technology Technology characteristics • Pacing: potential to change entire basis of competition • Key: critical to competitive success, differentiation • Base: necessary/essential, little competitive advantage Technology maturity • Embryonic: visionary, scientific tumult & contradiction • Growth: vision sharpened, realistic forecasts • Mature: advances slow down, technology shared • Aging: only small incremental changes in technology Technology return on investment • Amount of $ spent to gain competitive position (H, M, L) Match with internal skills = synergies

22. Preparation of Technology Brief, 1 Competitive Assess. Description & state of technology • Characteristics, maturity, ROI, internal synergies Rationale for technology investment: gaps, unmet needs, etc... Competitive advantage: ability to influence environment Powerful leader by technology commitment & reputation (dominant design?), others always catching up Dominant Able to set take independent action, set new technological direction; committed to support development and distinguished from competitors by this action Strong Can sustain technological competitiveness and can exploit technology to improve position, not leader but focus on niche Favorable Catch up mode, unable to set independent course, can maintain competitiveness but weak at differentiation Tenable Weak • Declining quality of technical output, short term/firefighting

23. Preparation of Technology Brief, 2 Competitive Assess. • Sources of competitive advantage: intellectual property, know how, etc... • Competitor profiles by company  Intellectual capital  Breadth of products, number of new introductions  Evaluation of past and future strategy  Response against introduction of technology • Recommendations, next steps

24. Projects Project Proposal for Investment • Fit with business strategy (excellent to poor) • Inventive merit, strategic importance to business (high to low)  Improves competitive position?  Applicable to more than one business?  Provides foundation for new business? • Reward: NPV’s: worst, base, and best case • Competitive impact of technology  Technology characteristics and maturity • Uncertainty  Probability of technical success (0.1-0.9)  Probability of commercial success (0.1-0.9)  Probability of overall success (0.1-0.9)

25. Projects Project Proposal for Investment, 2 • Implementation plan  Proposal for resources and competencies required to complete the project • Propose timing for technology reviews: agreement on specifics that drives the review (e.g, time, dollars, achievements, etc…) • Risk  R&D costs to first milestone and costs to completion (range if appropriate)  Time to first milestone and to completion (range if appropriate)  Capital and/or marketing investment required to exploit technical success (range if appropriate)

26. Technology Portfolio Maps NPV Low Probability of Success High Long Time to Launch Zero Builds on competency, improves position Builds new competency & extends business Builds new competency & new business

27. Benefits of Roadmaps • Cross-functional understanding of strategic issues • Sensitization to following • Technology trends • Gaps in technology in meeting needs • Competitive position for technology • Easily understood process to communicate issues regarding allocation of resources • Proposal that includes management of projects through structured technology review • Learning that can be applied when evaluating future technology opportunities