Long Range Capital Planning
May 18, 2006
Long Range Capital Planning
Facilitator:
Vic Warren, Architect, bioTechure
Panelists :
Patricia Turney
Director of R&D Strategic Operations, Amgen
Jim Andrews
Associate Director, Nektar Therapeutics
Bubba Brueil
Chief Financial Officer, Codexis
Lid Sodbinow
Director of Capital Projects, Engineering, Novartis
Long Range Capital Planning
Some facts
• The combined “market cap” of Amgen,
Novartis, Nektar & Codexis is > $250B
• From 1982 through December 2005
254 Drugs Approved for 385 Indications
source: www.BIO.org
Long Range Capital Planning
Long Range Capital Planning
Patricia Turney
Strategic Planning
Jim Andrews
Translating the Strategic > Long Range Capital Plan
Bubba Breuil
Internal Project Financing
Lid Sodbinow
The effectiveness & accuracy of Long Range Capital Planning
Strategic Planning
Patricia Turney
Director of R&D Strategic Operations, Amgen
Strategic Planning
Overview
Patricia Turney
May 18, 2006
Amgen’s Global Presence
Cambridge, MA (410)
Toronto (260)
West Greenwich, RI (1,895)
Washington, DC (46)
Bothell, WA
Seattle, WA
Copenhagen (9)
Oslo (17)
Lucerne (198)
Helsinki (19)
Breda (536)
Stockholm (79)
Brussels (83)
> (1,195)
Cambridge (762)
Prague (30)
Paris (248)
Warsaw (69)
Budapest (29)
Tokyo (109)
Longmont, CO
Boulder, CO
> (1,803)
Vienna (104)
Regensburg (17)
Thousand Oaks, CA (10,021)
San Francisco, CA (395)
Louisville, KY (52)
Munich (263)
Milan (211)
Barcelona (163)
Juncos, Puerto Rico (2,295)
Lisbon (58)
(#) represents number of staff
(includes RFT and contingent staff, data collected 5/23/05 from Core Database)
8
Melbourne (64)
Sydney (83)
South San Francisco – R&D Site Growth
Amgen
Bldgs 1 & 2
Bldg E
Gateway Bldgs
9
Phase 2
10
R&D Global Expansion Planning
ƒ Growth at a global level is iterative and multi-faceted
– Planning vs. a “Plan” – never complete
– It will change as information becomes available
– External factors are important
ƒ Planning leads to implementation
– A plan is only as good as the implementation
– Process is important
– Control mechanisms
ƒ Corporate support is required
– Actions by R&D affect other functions
– Key strategies towards commercialization
– Buy-in by all of Amgen
11
Master Planning and Development
Charter: Execute against developed strategies, with reasonable flexibility, to
allow for necessary business changes
Acquisitions
Pipeline
Business Drivers
LRP / LE
Full-Time
Site Impacts
Contingent
Headcount
ILM / CRC
EVP Reviews
Capital
Expense
Spend
12
Expansion Planning Process
ƒ Define “Engine Size”
– Where do we want to be in five, ten years?
– Balance of top-down & bottom–up approaches
– Assumptions Model
ƒ Refine Location
– Criteria to determine location
– Key factors
– Strategies to fully enable – critical mass, etc…
ƒ Match Demand to Existing Capacity – Gap Analysis
– Refined by space typology, Modality, organizational structure
– Baseline of Long Range Plan
– M&A / In-license factors
ƒ Define timing necessary to initiate decision-making
– Time to fund, design, and construct
– Decision points for “Go / No-Go”
ƒ Scope definition
– Short-term / long-term – rate defined
– Specific space typology
– Means to implement
13
Capital Investment Process
Project Origination
PreProject Planning
ƒ Originate through Master
Planning & Development
ƒ All projects must be fully
scoped before execution
ƒ Money can not move
between projects
ƒ BOD approved
LRP/Budget is basis for
all new projects
ƒ All projects must have
independent cost &
schedule assessment
ƒ All projects must have
strong, clear business
justification
ƒ Results in a not-to-exceed
cost estimate
ƒ Scope changes must follow ƒ Forced close-out at
the Project Change
[180] days after
Notification (PCN) process occupancy
(and should be minimal)
Project Execution
Project Closeout
ƒ Closeout will be driven
by a definitive process
– Re-start ILM if change of
business case or add’l
funding required
Scope: Any project > $600k or any project which has
strategic implications
Clear ownership and control points for all phases
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A permanent Capital Review Committee oversees
the Capital Investment Process
$
$
15
Strategic Planning and Execution Process
Partners
ƒ Executive Management – Ownership of Strategy, Champion
–
–
–
–
Where do we want to be in five, ten years?
Assumptions Model
Location Approval
Strategies to fully enable – critical mass, etc…
ƒ Finance
– Ownership of demand model
– Financial Long Range Plan
– Financial analysis support
ƒ Human Resources
– Intellectual Capital factors – location , availability, cost
– Attract and retain the best and brightest
ƒ Capital Projects
– Execution of building
– On-time / On-budget
ƒ Standards and Training
– Ensure quick effectiveness of new staff
– Compliance adherence
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Translating the Strategic > Long Range Capital Plan
Jim Andrews
Associate Director, Nektar Therapeutics
Translating the Strategic Plan into a Capital Plan
The Strategic Plan broadly defines what Management
wants the future to look like and certain milestones for
getting there
Strategic Plan must be consistently communicated across the
organization from the top down
To develop the Capital Plan, we
need to identify the building
blocks required to reach this
goal
May 18, 2006
Doing the Research
The next step is to determine the pieces required to
assemble the ultimate picture
– Interview the customer groups
– Catalog requests for space, equipment, personnel
– Identify key drivers for each need
Customer representatives
must be on-board with
the Strategic Plan
May 18, 2006
Customer representatives
must have visibility of the
tactical operations and
out to the future
Building a Plan
The information gathered must be distilled into a consistent
and coherent picture
– Assemble the information and reconcile inconsistencies and
conflicts
– Tie capital to product or business milestones
– Define prerequisite items
– Identify “non-scalable” projects
Take the tenor of the
customer into
consideration
Rely on the Law of
Averages to help smooth
out projections
May 18, 2006
Identifying Capital
A “Capital Report Estimate” should be developed for each
customer need.
– Work with the Financial group to determine level of accuracy
required over time
– Access outside parties to develop factor estimates or identify
comparable benchmarks
– Link infrastructure and other prerequisites to driver projects
– Estimate durations and
expenditure profiles
Given the absence of
scope definition, wide
bands should be
maintained around
budgets and durations
May 18, 2006
Communicating the Need
• Include assumptions with the assembled Capital Reports.
• Due to “typical” durations, the reviewing and initiating
processes need to be ongoing.
• Identify exposures or risks for each project.
In the long run, a “Living
Plan” is much easier to
manage than a series of
one-time efforts.
May 18, 2006
Internal Project Financing
Bubba Brueil
Chief Financial Officer, Codexis
Internal Project Financing
Where Academia Collides with Reality
Robert S. Breuil
Chief Financial Officer
Codexis,, Inc.
What they taught me…
{Net
Present Value
{Hurdle Rate
{Weighted Average Cost of Capital
{Monte Carlo Simulation
{Decision Trees
{Option Pricing
What I learned…
{Personal
P&Ls
{Earnings Management
{Execution Risk
{M&A Synergies
{Silos
{Fiefdoms
{Capital Sources vs. ROI
…and RE-learned:
{Crystal Ball/@Risk
{Law of Large Numbers
Personal P&Ls
{What
motivates project funding decision-makers?
zEarnings
growth
zStock appreciation
zDivisional earnings
zEgo/Passion
{How
risk tolerant are they?
zTrack
record
zCareer maturity
{What
are their potential rewards & downsides?
Where are you?
Earnings Lifecycle/
Investors
NYSE + Dividends/
Income Funds
IPO to Nasdaq/
Growth Funds
Private/
VCs
Execution Risk
{What
are the consequences for NOT investing?
zWhat
products might be delayed?
zWhat would be the lost revenues/profits?
zAre there weaknesses in earnings/growth?
zHow might competitors leapfrog you?
zWhat regulatory/safety risks could arise?
zIs there an FTO angle?
zWho could get fired?
M&A Synergies
{Will
this make us more attractive to acquire?
zWho
might acquire us?
zWhat is their earnings outlook?
zWill this put them at a competitive disadvantage?
zDoes this redundantly duplicate their capacity?
{Will
this improve our ability to acquire others?
zIs
it complementary to what they have?
zIs their’s nearing obsolescence?
zDoes ours combined with theirs = critical mass?
= dominance?
Silos vs. Fiefdoms
{Does
this project require:
zCooperation
across distinct chains of command?
zFunding from different business segments?
zOne division bear risk, another to reap rewards?
{Do
critical decision makers/responsible parties:
zHave
similar/compatible egos (Myers-Briggs)?
zShare vision of corporate future?
zFeel fully valued/respected?
zSee opportunities as half-full vs. half-empty?
zHave a balance of:
authority/responsibility/accountability
Sources of Capital
{Is
this project funded by:
zGeneral
corporate funds?
zExcess earnings?
zProject-specific debt?
zPublic debt?
zPublic equity?
zPrivate equity?
Modeling Techniques
{Probability-enhanced
zSequential,
independent
zDistribution (@ Risk)
zSimulation (Monte Carlo)
{Option-based
zQuantitative
zQualitative
{Law
of Large Numbers
zPortfolio
method
zBinary/exogenous risk
The effectiveness & accuracy of Long Range Capital Planning
Lid Sodbinow
Director of Capital Projects, Engineering, Novartis
•
•
•
The size of the Company directly correlates to the Planning
approach
– Example:
• Chiron – (smaller than AMGEN or Genentech)
• Objective –
– Speed to market
– Commercial Success
Constraints –
– Financially driven vs. Clear Understanding of
Manufacturing Operations required to support commercial
products
“What does Manufacturing really need?
35
•
The result is limited manufacturing Capacity and Flexibility
•
The benefit is robust financial controls…but projects are
“justified” many times during the approval process
•
Is this the right model?
•
Does this process encumber manufacturing’s capabilities?
36
Long Range Capital Planning
Long Range Capital Planning
• The ISPE SF Bay Area Chapter
expresses their gratitude to the
panelists
•Q&A