Stephan Wiet, Ph.D.
Director – R&D Consumer Sciences
McNeil Consumer & Specialty Pharmaceuticals

•
The Need For Innovation - Signs, Signals, and
Reality
•
Organizing for Strategic Growth
– Goals, Structure, and Managing Risk
•
Sustaining an Innovative R&D Organization
– Innovation Audits & Critical Enablers
•
Leveraging Consumer Knowledge
– Defining Product Development
–
Uncovering & Building Product Benefits
– Healthcare Trends & Implications for New Growth
–
Methods & Examples

OTC Pharmaceutical Arm of J&J
Current Annual OTC Sales: $1.35B

• Markets are generally well segmented and stagnant.
•
Power retailers have gained enormous market leverage.
•
Consumers are increasingly pro-active, educated, and demanding.
•
Cost effectiveness activities have been fruitful but are reaching points of diminishing returns.
•
Technology rarely leads to sustainable advantages.

The Need for OTC Innovation
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
US Prescription Market
($ Billions)
2000 2002 2004
$160
$140
$120
$100
$80
$60
$40
$20
$0
US OTC Market
($ Billions)
2000 2002 2004

Most CPG/OTC companies are having difficulty achieving sustainable volume driven profit growth……..
BUT
How are they innovating?

Breakdown of Package Goods Launches
Avg. 1995-2004 2004
Substantially
New Products
Line & brand extensions
0
Source: Information Resources Inc.
20 40 60 80 100 %

% Package Goods Launches Hitting
$7.5 M Year 1 Sales
Avg. 1995-2004 2004
Substantially
New Products
Line & brand extensions
0
Source: Information Resources Inc.
5 10 15 20 25 30 %

The Attraction of Line Extensions
Package Goods
Annual Sales
Average Cost
Success Rate
Avg. Time To
Market
Avg. Time To Payback
Investment
Source: Deutsche Bank, McKinsey
Line
Extensions
$24M
$10M
51%
10 mos.
12 mos.
Substantially
New Products
$53M
$25M
26%
15 mos.
20 mos.

Company-Level

•
Grow Base Brands
–
Minimize erosion of current OTC products
– Enhance base brands through incremental innovations (line extensions)
– Strengthen adjacency areas
•
Invest in New White Space Opportunities
–
New healthcare solutions
–
New disease states
–
New technology platforms

Focus: New to
Company, New to
World
Goals: Explore White
Space, Business
Acceleration
Strategic
Marketing
Base
Brands
Focus: Sustaining
Core Business
Goal: Maintenance of Short- and
Mid-Term
Pipeline
Focus: New Product
Ideas, White Space
Partners, Technology
Goals:Technology
Brokering, Product
Optimization
R&D

• Manages portfolio Company Board
• Unclear business models
• Venture capital funding approach
• Much ambiguity
• Manages risk
Growth
Board
OTC
Board
Base Brands
• Well-understood business models
• Standard financial assessment
• Follows NPD process
• Little ambiguity
Strategic
Marketing
Idea Mining

• Jobs-Based Consumer Research
•
Trend Analysis & Market Segmentation
• Existing Ideas
•
Expert Panels
• Emerging Technologies
•
Technology Brokering
• Internal Brainstorming
•
Fallen Angels

Today - Primarily Disease Treatment Focused
Prevention Early Detection Management Emergencies

Tomorrow Trend from “After-the-Fact Treatment” to “Before Onset Care”
Prevention Early Detection Management Emergencies

Aging Population Increased Affluence
Buying Back Health
Disease Prevention
Remote Monitoring
Home Exercise Equipment
Home Diagnostics
Nutritional Supplements
Vanity Products / Services

NPD vs. Growth Board Process
Concept Feasibility Development
Brand Growth
Ideas
Projected
Profitability
Mkt. Research &
Prelim. Financials
Complete Bus. Plan
New Business
High-level screen
Base vs. New
Pattern
Recognition
Opportunity
Initial
Assessment
Refined
Assessment
Learn
Development
Learn
Execution
Business Concept
Pitch
Early Opportunity Generation Opportunity Evaluation & Development

R&D

2004 Credo Results
The Innovation System
Employee Innovation
Company Innovation
Climate for Innovation
J&J Worldw ide Norm
J&J Worldwide Norm
0 10 20 30
Research & Development
R&D
40 50 60 70
J&J Worldw ide Goal
80 90 100
J&J Worldwide Benchmark

Research & Development
2004 Credo Results
Key Takeaways
• R&D Is Seeking Innovative Solutions
• Difficulty Moving Big Ideas Forward
•
Our Current Culture and Processes Limit our
Ability to Create a High Performance Company
Capable of Unleashing Breakthrough
Innovations

R&D Innovation Steering Committee
Mission: Create sustainable connections that drive innovation at all levels of R&D
•
Cross Functional – Includes Key Business
Partners
•
Creates “R&D Innovation Captains”
•
Provides Focus & Direction For Hunting
Grounds
•
Improves Collaboration
•
Identifies Idea Champions

R&D Innovation Steering Committee
Getting to the heart of the matter!
R&D Innovation Audit
3 Areas of Focus (Leadership, Culture, Process)
3 Functional R&D Groups
117 Respondents (62% response rate)
R&D Focus Groups
3 Functional R&D Groups
20 Respondents

Leadership Category Results
Percent Agree
Encourages and Supports Ideas
Honors Creative Thinking
Shared Ownership of Ideas
Properly Resourced
Functionally Organized
Clear Vision
Perception of Drivers of Innovation
0 10 20 30 40 50 60 70 80
Avg. “Don’t Know” = 7.8%

Cultural Category Results
Percent Agree
Can Collaborate Openly
Not Afraid Of Failure
R&D Is Driver of Innovation
Empowered to Initiate Ideas
Know How to Move Ideas Forward
Fair Reward & Recognition
0 10 20 30 40 50 60 70 80
Avg. “Don’t Know” = 4.5%

Process Category Results
Percent Agree
Easy Access To Information
Studies Projects For Lessons Learned
Process To Stay Current On Trends
Process To Transfer Ideas
Process To Capture & Catalog Ideas
Avg. “Don’t Know” = 20.2%
0 10 20 30 40 50 60 70 80

Point Action Plan
• Establish Clear Innovation Definition
•
Establish Robust Communications Program
• Establish R&D Collaborative Innovation
Forums & Activities
•
Develop Idea Transfer Process
•
Implement Idea Cataloging System
•
Improve Reward and Recognition Program

u r c
S o e s
Individual Teams
Product IDEA
R&D Forums t p u i n R&D Innovation
Captain
R&D Innovation Steering Committee
R&D
Innovation
Coordinator
O u t p u t
No-GO
OTC Science
Board
Marketing
Innovation
Captains
OTC Board
GO
Business development/L&A
Rx Board POC
Innovation Captain
Pharma
Pipeline
Development
Board
Management board
V
A
T
I
O
I
N
N
O
N
R
&
D
E
R o o m
2

Product Development
Creating a Relationship Between a Product and a Consumer using Technology,
Psychology, and Art.
2

Why This??

Is it the Shuffle?

“Sell the Emotion”
- Coco Chanel

Truly successful products satisfy our emotional needs as much as our functional needs
2

Product Benefit Hierarchy
OTC Pharmaceuticals
Greater
Product
Power
Comfort
Me
Make It For Me
Let Me Know It’s Working
Make It Safe, Effective, & Reliable

•
Emerging Trends
•
Unmet Needs
•
Unarticulated
Needs
•
Triggers of Use
•
Environmental
Interactions
•
Compensatory
Behaviors
•
Customizations
•
Intangible Product
Attributes

• Improved dosing accuracy
• Non-spill feature
• Design addressed secondary benefit:
– “Dropper prop”

Real Value-Added Benefit

EZ Open Cap

Insights For Clear Aesthetic Direction

• Great Sweet
Fruity Flavor
• Soft, Smooth
Chewy Textures
• Non-Sticky, Non-
Tooth Packing
• Quick Breakdown and Easy to
Swallow
TEXTURE PREFERENCE
100%
80%
60%
40%
20%
0%
Sm So oo th ft
C hew y
Ha rd
C runchy

Incremental Evolution of
Children’s Chewables
Children’s
Tylenol
Chewable Tablets
1992
1998
PipeLGP11-98:29
Softer
&
Smoother
2004

Vanilla Coated
Minty Menthol Coated

A Matter of Indulgence
Calcium Supplements
2

•
Strategic Innovation Requires
Maintaining a Healthy Balance Between
Continuity and New Business Growth.
•
Parameters of Managing Base Business and New Growth Are Different
•
Innovation Requires Collaboration and
Connection
•
Create Deeper Consumer Knowledge To
Drive Business Growth