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
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Phase 2
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R&D Global Expansion Planning 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
Planning leads to implementation – A plan is only as good as the implementation – Process is important – Control mechanisms
Corporate support is required – Actions by R&D affect other functions – Key strategies towards commercialization – Buy-in by all of Amgen
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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 Define “Engine Size” – Where do we want to be in five, ten years? – Balance of top-down & bottom–up approaches – Assumptions Model
Refine Location – Criteria to determine location – Key factors – Strategies to fully enable – critical mass, etc…
Match Demand to Existing Capacity – Gap Analysis – Refined by space typology, Modality, organizational structure – Baseline of Long Range Plan – M&A / In-license factors
Define timing necessary to initiate decision-making – Time to fund, design, and construct – Decision points for “Go / No-Go”
Scope definition – Short-term / long-term – rate defined – Specific space typology – Means to implement 13
Capital Investment Process Project Origination
PreProject Planning
Originate through Master Planning & Development
All projects must be fully scoped before execution
Money can not move between projects
BOD approved LRP/Budget is basis for all new projects
All projects must have independent cost & schedule assessment
All projects must have strong, clear business justification
Results in a not-to-exceed cost estimate
Scope changes must follow Forced close-out at the Project Change [180] days after Notification (PCN) process occupancy (and should be minimal)
Project Execution
Project Closeout 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 14
A permanent Capital Review Committee oversees the Capital Investment Process
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Strategic Planning and Execution Process Partners 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…
Finance – Ownership of demand model – Financial Long Range Plan – Financial analysis support
Human Resources – Intellectual Capital factors – location , availability, cost – Attract and retain the best and brightest
Capital Projects – Execution of building – On-time / On-budget
Standards and Training – Ensure quick effectiveness of new staff – Compliance adherence 16
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
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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?
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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?
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Long Range Capital Planning
Long Range Capital Planning • The ISPE SF Bay Area Chapter
expresses their gratitude to the panelists
•Q&A
