Pharma CFO zeros in on managing risk and dealing with uncertainty
Editor’s note: This article is part of the “Top Finance Skills” series, featuring insights from finance leaders across industries on skills finance professionals need to have to be competitive in the future. To receive weekly updates on this series, sign up for our CGMA Advantage newsletter.
Darren Snellgrove juggles a lot of responsibilities as chief finance and operations officer and vice-president of finance at Janssen Global R&D, the pharmaceutical research-and-development (R&D) group for US multinational Johnson & Johnson.
Janssen Global R&D has the largest R&D budget within J&J. In 2020, J&J invested more than $9 billion in pharmaceutical R&D, compared with about $2.2 billion in medical device R&D, and $422 million in R&D of consumer health products, according to filings with the US Securities and Exchange Commission.
Snellgrove is tasked with making sure investments across the portfolio of pharmaceuticals in development are likely to generate products that provide maximum benefits to patients and steady, sustainable growth in J&J revenue. That’s not an easy task, considering that Janssen Global R&D is currently testing promising pharmaceuticals in nearly 400 clinical trials.
And recently Janssen had the added responsibility of developing a single-dose COVID-19 vaccine, which was approved for emergency use in the US in February 2021.
“I’ve probably spent between 35% and 50% of my time on this vaccine programme over the last year,” Snellgrove said. “But I have to also make sure everything else is still moving.”
Being asked to take on new responsibilities and adapt to quickly changing circumstances is a challenge that finance professionals will have to get used to, he told FM. Technology such as data analytics, machine learning, and automation are helpful tools, he said, but finance professionals will also need a broad set of skills to influence tomorrow’s business decisions.
If you were just starting out in your management accounting career, which skills or aspects of finance would you be focusing on to get a competitive edge?
Snellgrove: It’s always important to start with a broad base of skills early in your career and get lots of diverse experiences and training and education. But then I think you want to zero in on those skills that are going to make a difference. The ones I would pick out would be strong analytical skills and particularly evaluation and risk analysis. Learning a variety of different techniques and approaches to financial analysis and risk analysis and knowing when to apply those can be really important.
The right type of analysis at the right time for the right situation to really influence the business decisions I think is what gives you a competitive edge. And the other thing I would say is if you can take that a step further and use analysis to understand value creation and what drives value for your business. Then that’s going to be a game changer.
Can you give me a quick example?
Snellgrove: One that I’ve used a lot is on the business development side. When you do an early investment in an R&D programme in pharmaceutical, it’s super high-risk, super long timelines. You don’t know what indications it’s going to work in. If you try to do a full-blown analysis, you’re making things up. It’s almost false precision. Yes, you could do some benchmarking analysis and some high-level analysis for what could be potentially delivered in the long term. But what I push my teams to do is focus instead on the efficiency of the investment to get to proof of concept.
How much are you going to have to spend, if you do this business development deal relative to other courses of action, either doing the programme internally or investing in something else? Is that an efficient investment to get to that inflection point? What do we know at that point, and then what is the opportunity likely to look like once we’ve reached that proof of concept? You don’t know what the expected net present value (ENPV) is. But you do know what the investment is to the next decision point. If you multiply that kind of approach out across multiple investments, you can actually make better decisions and create more value than if you try to just kind of make stuff up.
How do you see the role and responsibilities of finance changing in the next five years?
Snellgrove: I think it’s going to be an acceleration. At J&J, I would say a lot of our finance professionals in many ways operate as mini COOs for the business partners they support. We get pulled into a lot of strategy and operations, almost as much as we do finance. Finance professionals are in a unique position to be able to offer that service and capability to our business partners. Our business partners trust and respect that at the end of the day, we make good investment decisions. They look to us, therefore, to inform their strategies.
Things like automation, artificial intelligence, data science are the reason why I see that only accelerating over the next five years. If we can use those tools well, it gives us more time and bandwidth to engage in strategy and operations and less in the tracking and gathering and crunching and all the kind of basics of finance.
And I think the ability to pull in nontraditional data sources is going to be another skillset that is going to be important.
I would say data science is almost becoming a new sub-function. If you have finance skills and data science skills, you’re going to be in high demand.
In many ways finance people are data scientists to begin with. A lot of what we do is working with and manipulating data. We can just do that to a higher level with the way things are progressing.
What my business partners care about is what’s going on with our competitive programmes: What does pricing look like? What’s reimbursement look like? What are the latest innovation trends and areas of scientific interest? And pairing those types of nontraditional information together with the financials and being able to provide insights in new ways with new benchmarks and new comparisons is going to be really important. It’s going to be really important to be fluent — even more fluent — in the language of your business partners.
What are the strengths that you see amongst new talent?
Snellgrove: I’m always impressed by the new talent coming into our industry and our finance discipline. We have a finance leaders development programme which recruits people out of college. They do two or three years of different rotations and training and education. It’s a great programme, and the talent that comes in is just amazing. The thirst for knowledge, the desire to have an impact right out of the gate, the questioning that some people complain about — I love that.
I always encourage people to not lose that, to ask why things are done this way. Try to learn and understand and try to improve. Don’t ever lose that as you go through your career. The thing that stands out is maybe an obvious answer, but it has an impact in the way we do business: They’ve been born and bred with technology. The new talent coming in just is leaps and bounds ahead of older generations that maybe are not quite so comfortable or have had to adapt to new technology. And they push the boundaries on the technology front because they’re used to having everything on their mobile phone, instant access to information.
When they come into the business environment, they have that same expectation that they should be able to just have the information at their fingertips. There’s a desire to find ways to make that the way we do things. It’s super refreshing.
In some ways you find yourself defending why you can’t have the information quite the way they’re used to having it on their mobile phone, but you can see their point of view. If we can push the boundaries, there’s no reason that we shouldn’t be able to get to that point.
The other thing I would say is, I think folks are so accomplished at an early age. They’ve started up businesses while they were in high school or college. I think it’s a function of the amount of competition and just the drive that there is in society.
Do you see that worldwide?
Snellgrove: I do. We’re a global company, and my role is a global role. I don’t see much differentiation. Everyone is tapped into way more information through technology no matter what the location.
In your work, which skills best deal with uncertainty?
Snellgrove: My role every day is dealing with uncertainty. We have just about 400 clinical trials, a massive portfolio. J&J is very dependent on Janssen R&D delivering programmes into commercial and long-term growth. I have to make sure we’re optimising decisions and investments across that whole portfolio, not only to maximise the benefit to patients, but also to drive value creation and strike the right balance of short- and long-term investment and growth. The goal is to not have boom-bust cycles you often see in the pharmaceutical industry, but to have steady, sustainable growth. And that’s not easy to do when you have so much uncertainty in all these programmes.
The way that I deal with that is figuring out how to do the right analysis for the right situation at the right time. Learning those skills and how to apply them and then scaling them across a big portfolio is really important.
The risk piece is also really important. Identifying risks, analysing risks, trying to mitigate risks is a really important way finance professionals can help to add value. If you can reduce risk but preserve the upside value mathematically, you’re driving a lot of value creation. But this is not to be confused with avoiding risk, because I think risk and return go hand in hand. It’s a question of taking the right risk at the right time, and you’re not always going to get it right.
Have a plan A and a plan B. Have contingency plans. I think you have to do that to deal with uncertainty and preserve optionality.
How much is dealing with uncertainty science and how much is it art?
Snellgrove: A lot is art, honestly. If it was science, everyone would do it well and every company would be successful, and that’s clearly not the case. A lot of it is art, and it comes down to the leadership of the business, the business leaders, and the finance professionals working with them to figuring out what's the right data to help inform the decision.
Experience helps, but I think education helps. Having the right tools at your disposal and continually educating yourself on new techniques and approaches helps. It doesn’t always have to be the most complex approach, but try to help provide a structure to drive the right discussion and think about the decision in a logical way I think is what’s most important.
How can finance executives promote collaboration and business partnering across the company?
Snellgrove: Finance is in a unique position to do this because, at the end of the day, most business decisions have a financial component or can be distilled down into a financial outcome. To do a good financial analysis, you have to collaborate across different functions. You can’t make decisions in silos.
At J&J, our business partners look to finance as the function that can help obtain input from all the different stakeholders. We call it “walking the square”, which is something we do with big decisions or big analyses. We make sure we cover the basics with a lot of different stakeholders.
That can be really good if done the right way. I mean, you have to make sure you’re not in analysis paralysis, or avoiding making decisions, or not able to make a decision because you have too many cooks in the kitchen. Done the right way, walking the square can facilitate collaboration. You provide transparency to the people you’re talking to. You provide feedback and show how you put the analysis together. You tell them, “Here’s the decision we made and why.” Then, the next time they come to us for information, they want to collaborate because they know their voice was heard and they had a chance to influence the decision.
Are there processes, guidelines, or benchmarks that help keep you on track?
Snellgrove: We do have procedures we use. Let’s take, for example, a facilities investment. We need to make sure we involve worldwide engineering. We need to involve certain folks in the treasury group. We need to, obviously, involve the business partners and understand the headcount needs and the space requirements and all of that. And then there are certain approvals depending on the dollar limits.
We’re always checking ourselves. Are we doing the right level of analysis for the decision we’re making? You don’t want to apply a one-size-fits-all. When you’re making a small investment, you shouldn’t be going through the same hoops as when you’re making a larger investment. But sometimes you can get caught up in that trap, and so we try to just always check ourselves on that.
The partners we’re dealing and negotiating with hold us accountable for doing things in a timely fashion. And you have competitive pressures, typically other people bidding for the same opportunity. So that checks you and keeps you in a certain parameter and operating efficiently.
Are there professional skills you learned recently?
Snellgrove: I’ve learned a lot about vaccines in the past year. That’s been a real journey.
There have been a lot of financial pieces to the puzzle for us with the vaccine. We did something called not-for-profit pricing, which is kind of a new financial construct within the context of pricing. We've had a lot of involvement with the US government and government funding, negotiating with the government, working through all the situations on the vaccine. I’ve learned a lot.
We also have this pandemic. We’ve got demand from geographies around the world all at once. Everyone wants the vaccine yesterday.
We had to invest a huge amount of money and manufacturing at risk without even knowing if we had a vaccine. And then it’s never quick enough. Once you have a vaccine, that’s great news. But then everybody is saying, “We need it yesterday. Where are you with manufacturing?”
I’m learning more about data science every day. We’re applying it in all kinds of areas in our company and in our industry. And I’m more and more interested in the applications of data science in finance. I think that’s an emerging area.
I think it’s an area that we all need to pay close attention to. It’s going to have a really big impact on finance in the coming years.
When you say data science, are you talking about machine learning, artificial intelligence, and automation?
Snellgrove: There are a lot of different applications. On the R&D side for us, we’re looking at data science to help do synthetic control arms in clinical trials to accumulate huge amounts of real-world evidence that can be used to compile better insights into the performance of our drugs. We’re looking at it in discovery and how we can process huge amounts of data from images to enhance a discovery. It has given us new insights into biology and chemistry and the interaction of the two.
On the finance side, it’s allowing us to crunch huge amounts of data and supplement the more traditional way of making decisions and doing analysis. Take, for example, a sales forecast or a long-range financial plan. You gather a huge amount of data. You do projections. Now typically, you end up with maybe a couple of scenarios. Data science approaches will allow you to use algorithms, incorporate some of the nontraditional data that I was talking about, look at macroeconomic factors in the context of our business and how changes in reimbursement could impact a variety of parameters in our projections.
We're not at the stage yet where data science replaces finance professionals doing the old-fashioned approach to analysis. But it supplements beautifully, and it allows you to generate questions that maybe you wouldn’t otherwise ask.
How do Janssen and J&J support finance team members in their professional growth? What resources are typically provided for learning, upscaling mentorship, etc.?
Snellgrove: One of the reasons I’ve stayed at J&J for as long as I have is we do an amazing job of developing our finance professionals. We’ve got a huge amount of training classes. I mean on anything and everything you could imagine. We partner with organisations such as the AICPA and CIMA. There’s a lot of investment in education. If you want to do an MBA, a CPA, or any qualification, you can do that to supplement your on-the-job learning. We have a finance leadership development programme for hires coming out of college. We have an MBA leadership development programme. We have an experienced-hire management development programme. We have enterprise leader programmes, and I would say just an outstanding succession planning process.
What do you consider your number one professional challenge and why?
Snellgrove: Allocation of time. Figuring out how to focus on the most critical areas and drive the important decisions. But also allocate time to the breadth of what needs to get done, because you can’t overly focus on any one space.
The vaccine has made that particularly challenging. We have 400 clinical trials, but I’ve probably spent up to 50% of my time on this vaccine over the last year.
Everyone I speak to in finance has a lot of the same challenges. How do you cover all the bases and make sure you’re influencing the right decisions? And the breadth we cover is increasing.
Our portfolio is getting bigger and bigger and more complex. And obviously, we’re not adding finance resources at the speed at which the portfolio is growing. So, it’s finding ways to adapt and be able to handle that higher volume without necessarily adding.
Rapid fire questions
What's the number one skill a finance professional should have?
Snellgrove: I would say analytic skills and probably, if I had to give a subset, valuation.
Soft skills or tech skills, which are more important?
Snellgrove: I’m going to cheat and say both. I think technical skills will do you no good without the ability to influence.
What’s the most important action finance professionals should take to advance their careers?
Snellgrove: I would say never stop learning and developing, and master the art of analysis and value creation.
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— Sabine Vollmer (Sabine.Vollmer@aicpa-cima.com) is an FM magazine senior editor.