Critical Success Factors for Pharmaceutical Industry Alliances Identified in Newly Released Pricewaterhousecoopers' Report.

FLORHAM PARK, N.J.--(BUSINESS WIRE)--Sept. 30, 1999--

Study Reveals That One-Third Of North American Strategic

Alliances Fail or Don't Meet Expectations

C A study of strategic alliances between biotechnology and medical technology companies and pharmaceutical companies released today by PricewaterhouseCoopers LLP revealed that less than 10 percent of alliances observed by senior executive respondents could be categorized as "top performers," while 25-35 percent were judged to be "under-performers."

The 34-page report, entitled "High-Performing Strategic Alliances in the Pharmaceutical, Biotechnology and Medical Device and Diagnostic Industries," also identified the critical factors leading to the success of strategic partnerships, which are growing at an annual rate of 25 percent. The total value of new alliances valued in excess of $20 million in these industries is over $3.5 billion per annum.

"Our study found that only five percent of alliances were rated as having exceeded expectations, what we categorized as `top performers'," said Erik Rule, Partner, PricewaterhouseCoopers and author of the report. "A further 25-35 percent were rated as not having met expectations, or 'under-performers.' The balance was rated as being average. Of these, many did not reach their full potential.

"Alliance failures and unmet expectations can waste a valuable amount of time and resources," noted Mr. Rule. "There is clearly a need to reverse these negative statistics. Part of the remedy is establishing clear expectations for alliances before they're formed. Another is intervening early and with alacrity if the alliance is stumbling."

The report, which includes data from the firm's surveys of alliance participants carried out in 1997 and 1999, concluded that high performing strategic alliances required a balance of skills in the areas of management of the alliance, organization and work processes, and culture. "Successful strategic alliances are characterized by management systems that provide clear direction, responsibility and accountability," Mr. Rule said. The report indicated such alliances make effective use of each partner's capabilities. In addition, the survey found that the three primary drivers for entering strategic alliances were the desire to share resources, to expand sales force coverage and to access a product or process technology.

"Cultural compatibility, trust, positive attitudes and commitment, a clear and consistent strategy, strong functional capabilities and effective communications and information-sharing were identified as important elements of success in alliances." Mr. Rule added, "outstanding performance requires open communications and information sharing as keys to gaining and sustaining trust between partners."

The report also provides a comprehensive description of the forces driving the use of alliances and where they can add to shareholder value. The study was based on surveys of 121 senior executives of companies that have entered more than 650 strategic alliances in the past five years. Ninety percent of respondents reported that their organizations were involved in one or more alliance, tending to reinforce other research estimates that the pace of alliance formation is growing at 25 percent per annum rate on a compound basis.

Ninety percent of respondents in the new report were from North America. More than 75 percent of the respondents had responsibilities at the vice-president, CEO or equivalent levels.

The report indicates that financial pressures are especially important factors motivating the increase in alliances. "Strategic alliances can help companies achieve economies of scale and scope in the face of these pressures," the report notes. "An example of such a case is the joint venture between Perkin-Elmer Corporation and MDS Sciex, a world-class manufacturer of mass spectroscopy equipment used in pharmaceutical laboratories. Perkin-Elmer's worldwide disribution and service network complements MDS Sciex's exceptional research and product development competencies, to form a market leading joint venture."

"Our research has shown," Mr. Rule said, "that industry executives plan to place more emphasis on strategic alliances as a way of doing business. By the year 2000, large pharmaceutical companies will dedicate as much as 30 percent of their R&D expenditures to external partnerships."

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