Inside P&Gs Innovation Machine

Jeff D. Davis
Global New Business Development
P&G Pharmaceuticals
Mason, Ohio

Agenda
P&Gthe worlds largest consumer
packaged goods company
Inside P&Gs innovation journey
Inside P&G Pharmaceuticals new
innovation strategy

Who are we?

Over $68 billion in global sales
300 brands in over 160 countries
#1 or #2 in 80% of our categories
140,000 employees

P&Gs 22 Billion-Dollar
Brands

99%

of US households
purchased a
P&G product
in 2005.

Three Global Business Units

Household & Family
Care

Beauty &
Health Care

$33.5 Billion
Baby Care
Family Care
Fabric Care
Home Care
Pet Health & Nutrition
Snacks & Coffee

$29 Billion
Cosmetics
Deodorants
Feminine Care
Hair Care
Personal Cleansing
Skin Care
Oral Care
Personal Health Care
Pharmaceuticals

Gillette
$6.4 Billion
Razors & Blades
Duracell
Braun

P&G Growth Strategies

1
2
3

Core business: leading brands,

biggest countries, winning customers
Portfolio shift toward faster
growing, higher margin,
asset efficient categories

Developing markets and

lower income consumers

Leveraging P&Gs Core Strengths

Innovation

Branding

Scale

Consumer
Understanding

Go-toMarket

10,000
market research studies each year

Understanding
Consumers

Agenda
P&Gthe worlds largest consumer
packaged goods company
Inside P&Gs innovation journey
Inside P&G Pharmaceuticals new
innovation strategy

Historically P&G has Grown Through

Internal Innovation

What Happens if You Dont Grow?

Year 2000 wake up call
>50% drop in stock price

Sustainable Sales Growth

Organic
Target
thru
FY 2010

+4% to +6%

Acquisitions & Divestitures

Organic (excludes foreign exchange, acquisition & divestiture impacts)

innovat
how we innovate

A Call to Action . . .
We will acquire 50% of
our innovations from
outside P&G

A.G.Lafley
President and Chief Executive
The Procter & Gamble Company

connect & develop

research
C&D vs R&D

50%

from

our labs

50%

through

our labs

US Industrial R&D by Size of

Enterprise
Company Size

1981

1989

1999

2001

<1000 employees

4.4%

9.2%

22.5%

24.7%

1,000 4,999

6.1%

7.6%

13.6%

13.5%

5,000 9,999

5.8%

5.5%

9.0%

8.8%

10,000 24,999

13.1%

10.0%

13.6%

13.6%

25,000+

70.7%

67.7%

41.3%

39.4%

Source: Open Business Models: How to Thrive in the New Innovation Landscape
by Henry Chesbrough (Harvard Business School Press, 2006), page 22.

Just a few examples of C&D . . .

Crest Scratch N Sniff Pkg.
Mr. Clean Autodry
Pringles Dips

Mr. Clean
Magic Eraser

SK-II Airtouch
Foundation

Swiffer Duster

Metamucil
Capsules

SK-II Facial Mask

Pantene
Sonic
Comb

Olay Vitamins

Kandoo Wipes
Tide Stainbrush

Crest New Tubes

Glad Press N Seal

Prilosec OTC

Charmin
Fresh
Mates
OTC Drug
Registrations

Clairol In-Store
Shade Selector

Olay White
Radiance Facial
Mask
Olay
Regenerist

Pantene Hair
Styling
Products

Olay Daily
Facial Pillows

PuR /
Whirlpool
Refrigerator
Filters

Old Spice
Shave Gel

Visia Beauty Imaging

Crest Liquid
Dentifrice

Connect & Develop

Inside P&Gs Innovation Model

+35% of new products have elements that

originated from outside P&G
Up from 15% in 2000

R&D productivity has increased by nearly 60%

Since 2000 stock collapse
Share price has doubled
Our portfolio has grown to 22 billion-dollar brands

Agenda
P&Gthe worlds largest consumer
packaged goods company
Inside P&Gs innovation journey
Inside P&G Pharmaceuticals new
innovation strategy

Over 100 years old . . .

1887
Vicks VapoRub
launched by
Richardson-Vicks
1901
Pepto-Bismol
launched by
Norwich

P&G Pharmas Strategic Model

Acquire, Develop & Market(Connect & Develop)

Strategic choice to exclusively partner, license or

acquire all of our new drug candidates
How? Our new drugs will come from a network of
academia, biotech and pharmaceutical industry
relationships
Restructured our R&D and commercial
organizations to excel at identifying, evaluating,
negotiating and managing
long-term,
mutually beneficial partnerships.

P&G Pharmas Strategic Model

The Best of Both Worlds
Marketing Expertise
and Unique Insights
of the worlds largest
consumer company
Personal Touch of a
small pharmaceutical
company with deep
experience and
proven capabilities in
our focus areas

You & P&GThink of the possibilities

P&G Pharmas Strategic Model

Acquire, Develop & Market

Our New R&D Structure (July 2006)

We eliminated our Discovery organization (300
people) and most of their laboratories
We retained our complete Development
organization (650 people).

We established a Search & Evaluate organization

(35 scientists) who have responsibility for helping
find and screen licensing opportunities

focus areas
musculoskeletal
gastrointestinal
womens health

P&G Pharmas Strategic Model

Why will it work?
Strategically focused on 3 therapeutic areas
where the patient plays an active role in
managing their health
Musculoskeletal
Osteoporosis, Rheumatoid Arthritis and Osteoarthritis

Gastrointestinal
Ulcerative Colitis, Crohns disease, IBS and GERD

Womens Health
Overactive Bladder, Incontinence, Menopausal symptoms

* Corporate interest: hair growth and skin aging

Our Pharma Partnering Experience

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Recent dealsP&G and Ablynx

April 2006

Recent dealsP&G & ARYx

July 2006

P&G Pharma Partnering Philosophy

The real test of a successful alliance negotiation is not a signed
contract
with all desired terms agreed in full
it is whether the companies
share a common vision, feel like
the deal is fair, are contractually
motivated to do whats right,
and can work together over
the long term!

Negotiate for Implementation

the

best

of both worlds