- Over a decade ago, major pharmaceutical companies owned medical device divisions but operated them autonomously with little synergy between the two. This led most pharmaceutical companies to sell their device divisions. - Recently, some life sciences companies have shifted strategy to developing drug-device combination products, driven by the success of drug-eluting stents. Key examples are drug-eluting stents from Johnson & Johnson and Boston Scientific. - For companies developing drug-device combinations, effectively executing this strategy requires collaboration between key functions like regulatory affairs, R&D, and manufacturing that have expertise in both drugs and devices. However, talent with experience in both fields is extremely limited.

1. Drug and Device Combinations - The Leadership Challenge
by Dr. Richard M. Arons and Robert Ferguson
KORN/FERRY INTERNATIONAL
Over a decade ago, many major medical device companies were divisions of broad life sci-
ence companies having both pharmaceutical and medical device product offerings. To cite
a few examples, Pfizer owned Valley Lab, Schneider and Howmedica. Eli Lilly's assets includ-
ed ACS, Physiocontrol, IVAC, and Cardiac Pacemakers Inc. IMED and Reichert were part of
Warner Lambert, and Squibb counted Edward Weck and Zimmer among its holdings.
These medical device divisions, in general, operated autonomously. Little synergy or interac-
tion with the parent company occurred, as the parent's business strategy primarily focused on
the development of blockbuster drugs.
Consequently, career opportunities for executives at medical device divisions were usually lim-
ited to those within the division. Talent within the pharmaceutical divisions pursued a track spe-
cific to the pharmaceutical industry.
Segregation of the pharmaceutical and device entities eventually leant support to the conven-
tional wisdom of the day: device companies were a drag on earnings and a distraction from the
more lucrative pharmaceutical side of the business. Most pharmaceuticals sold their medical
device divisions or spun them off into separate organizations like Guidant. Only a handful of
diversified life science companies kept their device entities, the most notable being Johnson &
Johnson.
Current Strategy - Drug/Device Combinations
Fast forward to 2003. Business strategies of select life sciences companies have shifted from
an exclusive focus on creation of blockbuster drugs to development of products combining
pharmaceuticals and devices. Why the shift now? The boom in the drug-coated stent market
has drawn attention to drug infused medical devices and the tremendous growth potential for
such products.
Never before has there been such great interest in the synergies offered by combining phar-
maceuticals and devices. Witness the unprecedented impact of a single type of product, J&J's
drug-eluting Cypher stent and the soon-to-follow TAXUS stent from Boston Scientific.
Combined revenue forecasts for these two products exceed a stunning $4 billion. This recep-
tion signifies not only the tremendous clinical importance of bundling active molecules and
medical devices into a single product, but the market influence on organizational strategy and
the need for effective execution.

2. Other combination products in various stages of development include orthopedics such as
bone morphogenic growth factors coated onto implants and in spinal stabilization devices (i.e.
Medtronic's BMP II); surgical devices for use in infection control, adhesion protection, and tis-
sue growth; and "site-specific" drug delivery, including drugs delivered directly to the central
nervous system and locally implanted chemotherapeutic drugs.
The Human Capital Dimension of Strategic Execution
How do life science companies with combination products position themselves to execute
strategy effectively? In the face of unique market demands, the most critical factor to strategic
success for these organizations is the collaboration and integration of key functional areas to
drive execution. Ideally, the functions must possess the ability to excel in the dual realms of
devices and pharmaceuticals.
Examples of key functional areas include Regulatory Affairs, Quality Assurance, Research &
Development and Manufacturing. With respect to drug and device products, these functions
should have the specific knowledge, competencies and experience vital to business execution
across the two dimensions of the organization.
Especially imperative is Regulatory Affairs, where governmental and consumer pressure to
authorize effective and new modalities of treatment is strongly felt. Regulators, however, are
cautious to initiate new products particularly when drugs from reputable pharmaceutical com-
panies fail in the market place.
The drug-device combinations create new regulatory challenges, causing Regulators to align
with R&D for assistance. The result is a great demand for senior regulatory professionals with
the wisdom and experience to work in partnership with governmental bodies such as the FDA
(Food and Drug Administration), EMEA (European Agency for the Evaluation of Medicinal
Products), CDRH (Center for Devices and Radiological Health, CDER (Center for Drug
Evaluation and Research), and CBER (Center for Biologics Evaluation and Research) to
establish a proper regulatory framework.
At an equal premium is the executive's ability to coordinate vastly different project groups.
More often than not the head of the R&D group may come from device or drugs, but rarely
have experience in both. For an R&D executive to effectively create a strategic research plat-
form, they must understand what drugs are available to treat unmet needs in the market and
also the devices available that can serve as the delivery method for these drugs. R&D is the
combination of product development, business strategies and corporate alliances all unified in
to one key role. In addition to their technical expertise, R&D executives also must possess
superb project management and leadership skills in order to guide functions that may not have
fallen under their management at traditional drug or device companies. Additional functions
include device design, formulations, pharmacology, drug delivery, analytical chemistry, poly-
mers, and materials to name a few.
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3. The ability to function in both the device and pharmaceutical environments is less critical to
other roles. Certain functions such as Legal, Information Technology and Human Resources
can execute their general responsibilities without regard to the complexities imposed by a
drug-device combination.
While the knowledge to operate in the duality of drugs/devices is at a high premium, the talent
that actually possesses this competency is in severely short supply. Today, few organizations
have both drug and device businesses under one umbrella, and those that do often have each
side operating disparately. The challenge to leadership is to bridge the gap between the cul-
tures and knowledge requirements, to foster and secure individuals with both halves of the
puzzle and to supply the talent necessary to drive strategy going forward.
Meeting Leadership Challenges
Companies dedicated to becoming major players in the drug-device market have several
options for meeting leadership challenges. First, they can recruit experienced individuals from
the limited number of organizations having successfully produced drug-device products.
These organizations have already dealt with the specific issues of regulation, product develop-
ment, and manufacturing in a mixed environment. Examples of such recruitment targets are
drug delivery systems companies, or some of the leaders of this new trend in orthopedics, car-
diology, or chemotherapy.
A second strategy is to recruit individuals who have lived in both, albeit separate, worlds of
pharmaceuticals and devices; people who have "crossed over" between drugs and devices.
Such individuals are rare by virtue of the historic separation and decentralization of these enti-
ties.
Page 3
Talent Requirements for Drug/Device Strategy Execution
Availability
Criticality for Execution
Finance
CIO
Mfr.
Quality
R&D/Clin./Med.
Reg.
Gen. Mgmt.
Sales
Marketing
Bus. Dev.
Tech.Service
HR

4. Page 4
About Korn/Ferry International
Korn/Ferry International (NYSE:KFY), with over 70 offices in 36 countries, is the world’s leading provider of
executive human capital solutions. Based in Los Angeles, the firm works closely with clients worldwide to
deliver customized executive search, management assessment and mid-level search services, including the
identification of CEOs, COOs, CFOs, board members and other senior-level executives; the formal evaluation
of senior management teams; and the recruitment of middle managers through its Futurestep subsidiary.
For more information, visit the Korn/Ferry International Web site at
www.kornferry.com or the Futurestep Web site at www.futurestep.com
© Copyright 2003 Korn/Ferry International
A third strategy is to create a dyad of leaders who share responsibility for specific project func-
tions, such as the research or manufacturing organizations. Initially, this option may be viewed
as a costly and inefficient overlap. However, companies choosing this approach find the solu-
tion to be pragmatic and expedient.
Regardless of the option a company selects to meet the leadership challenges of developing,
manufacturing and selling products that incorporate active chemical entities into therapeutic
medical devices, one thing is indisputable. There will be unprecedented competition for the few
people in the industry having the demonstrated competency that can unleash the full potential
of drug-device products!
Dr. Richard M. Arons is Global Leader of the Medical Device Sector at Korn/Ferry International.
Robert Ferguson is Global Leader of the Life Sciences Contract Services Sector.