I N T E R O F FI C E M E M O R A N D U M TO: DAVID GOECKELER, EXECUTIVE VP AND GM, SECURITY BUSINESS FROM: _______________, SECURITY BUSINESS ANALYST SUBJECT: INVEST NOW IN CYBER SECURITY INFRASTRUCTURE DATE: 7/25/2018 There is an urgent need for Cisco to invest in cyber security infrastructure to meet rapidly growing demand in the marketplace. If the company does not act quickly to accelerate the speed of cyber-security application deployment, we will forgo the tremendous untapped market opportunities that exist within this space. The global market demand for cyber security products and services is expected to increase by 169.4 percent in the next eight years reaching 205.8 billion dollars1. This rapid growth is being fueled by increased consumer awareness and strong market influences. Most recently, the massive Equifax breech has increased market potential and rate of entry after companies across the globe have witnessed the terrifying effects of inadequate security practices2. In response to these market developments, Cisco should invest in accelerating the timeto-deployment of its security products and services. Analysis shows that the current security application infrastructure will be insufficient in meeting future market demand.3 I would therefore like to discuss potential options for Cisco’s resource allocation and production capabilities to to the expanding market. Please provide some available times you have to meet this week and I will send a calendar invite. 1 www.militaryaerospace.com/articles/2017/06/cyber-security-market-demand.html www.wsj.com/articles/fbi-looking-into-equifax-data-breach-1504902745 3 https://firmware.intel.com/sites/default/files/resources/Platform_Security_Review_Intel_Cisco_White_Pap er.pdf 2 References “Market Demand for Cyber Security Products and Services to Hit $205.8 Billion in next Eight Years.” Military and Aerospace Electronics, PennWell Corporation, 29 June 2017, www.militaryaerospace.com/articles/2017/06/cyber-security-market-demand.html. “Security Services.” Cisco, 18 Sept. 2017, www.cisco.com/c/en/us/products/security/servicelisting.html. Shankleman, Jessica, et al. “We're Going to Need More Lithium.” Bloomberg.com, Bloomberg, 7 Sept. 2017, www.bloomberg.com/graphics/2017-lithium-battery-future/. Viswanatha, Aruna, and Brent Kendall. “FBI Looking Into Equifax Data Breach.” The Wall Street Journal, Dow Jones & Company, 8 Sept. 2017, www.wsj.com/articles/fbi-looking-intoequifax-data-breach-1504902745. 2 Marketing Glossary Affordability budgeting - Method in which companies budget for marketing based on what they believe they can afford. Annual plan control - Type of marketing control used to assess the progress and performance of the current year’s marketing plan. Attitudes - An individual’s lasting evaluations of and feelings toward something. B2B marketing - Business-to-business marketing Benefits - Need-satisfaction outcomes customers desire from the product. Brand equity - Extra value perceived in a brand that enhances long-term loyalty among customers. Brand extension - Putting an established brand on a new product in a different category, aimed at a new customer segment; also known as category extension. Branding - Using words, designs, or symbols to give a product a distinct identity and differentiate it from competing products. Break-even point - Point at which revenues cover costs and beyond which the product becomes profitable. Budget - Time-defined allocation of financial outlays for a specific function or program. Business market - Companies, non-profit organizations, and institutions that buy products for operations or as supplies for production; also known as the organizational market. Cannibalization - Allowing a new product to cut into sales of one or more existing products. Cause-related marketing - Marketing a product or brand through a link to benefiting a charitable cause. Channel - The set of functions and structure of organizations performing them outbound on the value chain to make a particular good or service available to customers in each market; also known as the distribution channel. Competitive-parity budgeting - Method in which company creates a budget by matching what competitors spend, as a percentage of sales or a specific dollar amount. Concentrated marketing - Focusing one marketing strategy on one attractive market segment. Consumer market - Individuals and families that buy products for themselves Contingency plan - Plan that is ready to implement if significant, unexpected changes in the situation disrupt one (or more) of the organization’s strategies or programs. Core competencies - The set of skills, technologies, and processes that allow a company to effectively and efficiently satisfy its customers. Cost leadership strategy - Generic competitive strategy in which the company seeks to become the lowest-cost producer in its industry. Customer churn - Turnover in customers during a specific period; often expressed as a percentage of the organization’s total customer base. Marketing Glossary Customer lifetime value - Total amount a customer spends with a company over the course of a long-term relationship. Derived demand - In B2B marketing, the principle that demand for a business product is based on demand for a related consumer product. Differentiated marketing - Creating a separate marketing strategy for each targeted segment. Differentiation strategy - Generic competitive strategy in which the company creates a unique differentiation for itself or its product based on some factor prized by the target market. Diversification - Growth strategy of offering new products to new markets through internal product development capabilities or by starting (or buying) a business for diversification purposes. Dynamic pricing - Prices vary from customer to customer or situation to situation. Emotional appeal - Message strategy that relies on feelings rather than facts to motivate audience response. Ethnographic research - Type of marketing research in which customers are observed in actual product purchase or usage situations. Features - Specific attributes that enable the product to perform its function. Financial objectives -Targets for performance in managing specific financial results. Fixed pricing - Pricing that does not vary; the customer pays the price set by the marketer. Focus strategy - Generic competitive strategy in which the company narrows its competitive scope to achieve a competitive advantage in its chosen segments. Forecast - Future projection of what sales and costs are likely to be in the period covered by the plan. Frequency - How many times, on average, the target audience is exposed to the message during a given period. Goals - Longer-term performance targets for the organization or a particular unit. Integrated marketing communication - Coordinating content and delivery so all marketing messages are consistent and support the positioning and direction in the marketing plan. Internal marketing - Marketing that targets managers and employees inside the organization to support the marketing mix in the marketing plan. Lifestyle - The pattern of living that an individual exhibits through activities and interests. Line extension - Putting an established brand on a new product added to the existing product line. Logistics - Managing the movement of goods, services, and related information from the point of origin to the point of sale or consumption and balancing the level of service with the cost. Macroenvironment - Largely uncontrollable external elements that can potentially influence the ability to reach goals; these include demographic, economic, ecological, technological, political-legal, and social-cultural forces. Market - All the potential buyers for a particular product. Marketing Glossary Market development - Growth strategy in which the company identifies and taps new segments or markets for existing products. Market penetration - Growth strategy in which the company sells more of its existing products to customers in existing markets or segments. Market segmentation - Grouping customers within a market according to similar needs, habits or attitudes that can be addressed through marketing. Market share - The percentage of sales in a given market held by a particular company, brand, or product; can be calculated in dollars or units. Marketing audit - A detailed, systematic analysis of an organization’s marketing capabilities and performance. Marketing control - The process of setting goals and standards, measuring and diagnosing results, and taking corrective action when needed to keep marketing plan performance on track. Marketing objectives - Targets for performance in managing specific marketing relationships and activities. Marketing plan - A document that summarizes marketplace knowledge and the strategies and steps to be taken in achieving the objectives set by marketing managers for a particular period. Marketing planning -The process of researching and analyzing the market and situation and developing marketing objectives, goals, strategies, and plans that are appropriate for the organization’s resources, competencies, mission, and objectives. Mass customization - Creating products, on a large scale, with features tailored to individual customers. Metrics - Numerical measures of specific performance-related activities and outcomes. Microenvironment - Groups that have a more direct effect on the organization’s ability to reach its goals: customers, competitors, channel members, partners, suppliers, and employees. Mission - Statement of the organization’s fundamental purpose, its focus, and how it will add value for customers and other stakeholders. Motivation - What drives the consumer to satisfy needs and wants. Niche - Smaller segment within a market that exhibits distinct needs or benefit requirements. Objective-and-task budgeting - Method in which budget is determined by totaling the cost of all marketing tasks needed to achieve the marketing mix objectives and marketing plan objectives. Objectives - Shorter-term performance targets that support the achievement of an organization’s or unit’s goals. Penetration pricing - Pricing a product relatively low to gain market share rapidly. Percentage-of-sales budgeting - Method in which company allocates a certain percentage of sales revenues to fund marketing programs. Perception - How the individual organizes environmental inputs such as ads and derives meaning from the data. Positioning - Using marketing to create a distinctive place or image for a brand or product in the mind of Marketing Glossary customers. Price elasticity of demand Percentage change in unit sales of demand divided by the percentage change in price; where customers are price-sensitive and demand changes considerably due to small price changes, the demand is elastic. Primary research - Research conducted specifically to address a certain situation or answer a particular question. Product development - Growth strategy in which the company sells new products to customers in existing markets or segments. Product life cycle - The stages of introduction, growth, maturity, and decline through which a product moves in the marketplace. Product line – A Group of products made by one company that are related in some way. Product mix – An assortment of all the product lines marketed by one company. Productivity control - Type of marketing control used to assess the organization’s performance and progress in managing the efficiency of key marketing areas. Profitability control - Type of marketing control used to assess the organization’s progress and performance based on profitability measures. Psychographic characteristics - Variables used to analyze consumer lifestyle patterns. Pull strategy - Using marketing to encourage customers to ask intermediaries for the product, thereby pulling it through the channel. Push strategy - Using marketing to encourage channel members to stock the product, thereby pushing it through the channel to customers. Quality - How well the product satisfies customer needs. Rational appeal - Message strategy that relies on facts or logic to motivate audience response. Reach - How many people in the target audience are exposed to the message during a particular period. Schedule - Time-defined plan for completing work that relates to a specific purpose or program. Secondary research - Research data already gathered for another purpose. Segments - Groups within a market having distinct needs or characteristics that can be effectively addressed by specific marketing offers and programs. Service recovery - How an organization plans to recover from a service lapse and satisfy its customers Skimming pricing - Pricing a new product high to establish an image and more quickly recover development costs in line with profitability objectives. Societal objectives - Targets for achieving specific results in social responsibility. Stakeholders - People and organizations that are influenced by or that can influence an organization’s Marketing Glossary performance. Strategic control - Type of marketing control used to assess the organization’s performance and progress in the strategic areas of marketing effectiveness, customer relationship management, and social responsibility and ethics. Subcultures - Distinct groups within a larger culture that exhibit and preserve distinct cultural identities through a common religion, nationality, ethnic background, or lifestyle. Sustainable marketing - Forming, maintaining, and enhancing customer relationships to meet all parties’ objectives without compromising the achievement of future generations’ objectives. SWOT analysis - Summary of an organization’s strengths, weaknesses, opportunities, and threats in preparation for marketing planning. Target costing - Using research to determine what customers want in a product, the price they will pay, then finding ways of producing the product at a cost that will accommodate that price and return a profit. Target market - Segment of the overall market that a company chooses to pursue. Targeting - Decisions about which market segments to enter and in what order, and how to use marketing in each. Undifferentiated marketing -Targeting all market segments with the same marketing strategy. Value - The difference between total benefits and total costs, as perceived by customers. Value chain - The series of interrelated, value-added functions and the structure of organizations that perform these functions to get the right product to the right markets and customers at the right time, place, and price; also known as supply chain. Value-based pricing - Setting prices by starting with customers’ perspective of the product’s value and the price they are willing to pay, then working backwards to make the product at a cost that will also meet the company’s objectives. Word-of-mouth communication - People telling other people about an organization, a brand, a product, or a marketing message. Bloomberg Businessweek Sign InSubscribe Everything That Could Go Wrong for This Drugmaker Did Endo is beset by patient lawsuits, regulatory challenges, and looming debt payments. By Cynthia Koons and Jef Feeley January 26, 2018, 6:00 AM EST ILLUSTRATOR: KHYLIN WOODROW FOR BLOOMBERG BUSINESSWEEK SHARE THIS ARTICLE Opioids. Vaginal mesh. Testosterone. These have become some of the ugliest words in the pharmaceutical industry, telegraphing medical treatments gone awry, in some cases leaving behind disabled customers, epic legal battles, and vast capital destruction. Some of the industry’s largest companies have been mired in lawsuits and government probes over these issues. But no company has been haunted by the drug industry’s worst nightmares as mercilessly as Endo International Plc. Just about everything that can go wrong in the world of pharma has gone wrong at Endo, which makes both branded and generic drugs. Through a deal making spree largely led by its former chief executive officer, the company amassed debt of more than $8 billion—five times its market capitalization. That might be tolerable for a high-growth company, but Endo faces cratering prices for generic medicines even as it must deal with a slew of litigation involving its products. The new leadership says the Dublin, Ireland-based company can fix all this; it will just take time. “It’s very important to know that we’re not running or hiding from our challenges,” says CEO Paul Campanelli. “We’re well-equipped to handle these types of issues.” That includes writing massive checks to get beyond some of Endo’s legal woes. As of November 2017 company officials have agreed to pay more than $3.5 billion in settlements in more than 46,000 suits over its vaginal mesh inserts alone. Endo may have to shell out more to resolve all the mesh cases, according to its U.S. Securities and Exchange Commission filings. Analysts say that should largely contain the problems over the vaginal device, but it will still drain much-needed cash. “This is not a growth story,” Gabelli & Co.analyst Kevin Kedra says. “There’s significant pressures, mostly stemming from the debt load, and they’re probably not going to be able to make a significant dent in that until 2019.” Campanelli has been slashing costs to help keep Endo’s finances in check. The company now operates with a staff of around 2,700, down from about 6,000 before he took the job in September 2016. It also stopped marketing its opioid pain drugs at the end of 2016. Opana PHOTOGRAPHER: RICH PEDRONCELLI/AP Litigation related to Endo’s marketing of opioids remains the biggest wild card. The drugmaker faces at least 125 cases filed by U.S. state attorneys general, counties, and municipalities, alleging its salespeople downplayed the health risks of the extended-release version of its painkiller Opana while overstating its benefits, according to SEC filings. Other opioid makers, such as Johnson & Johnsonand Purdue Pharma LP, face identical claims. The companies have denied the allegations. The states and local governments have hired lawyers who helped negotiate the tobacco industry’s $246 billion master settlement in the late 1990s to handle the opioid suits. There’s no exact figure for the damages sought, and estimates of potential damages vary widely. Bloomberg Intelligence litigation analyst Holly Froum figures the total liability for all opioid makers, including Endo, could be as little as $5 billion or as high as $50 billion. “It’s obviously in a very early stage, and these things typically take years to resolve,” Campanelli says. The company has shown it can be proactive when the need arises. Its extended version of Opana became the subject of controversy: The drug has been linked to outbreaks of viral infections like HIV as people abusing it spread diseases by sharing needles. U.S. regulators took the unprecedented step last June of asking the company to take the drug off the market. Endo could have appealed that decision, but Campanelli opted to comply—cutting off a drug that racked up around $533 million in sales in a three-year period starting in 2014. Campanelli is busy putting out fires that were years in the making. In 2013 the drugmaker hired Rajiv De Silva, an exValeant Pharmaceuticals International Inc. executive and former McKinsey & Co. consultant. At the time, Valeant was blazing a new trail for Big Pharma expansion: buying up other companies, cutting research, and jacking up drug prices. With De Silva as CEO, Endo became a prolific dealmaker, acquiring companies and drug rights—from acquisitions in the hundreds of millions of dollars to vying for assets in the $10 billion-plus range against Valeant. De Silva insisted at the time that Endo wasn’t another Valeant, which ran into massive financial and legal troubles, and said he was doing deals to build a company that didn’t need to rely on deals to grow. He declined to comment for this story. De Silva’s biggest acquisition was the $8.05 billion purchase of Par Pharmaceutical in May 2015, which gave Endo a large foothold in the generics business. Endo, which assumed Par’s debt, financed the deal with borrowings and proceeds from a $2.3 billion equity offering. The Par buyout came at the height of the company’s run: Endo’s stock price peaked around $96 in April 2015. That was more than triple the level when De Silva took over. But concerns over litigation and debt, as well as postValeant angst over specialty drugmakers, conspired to drive the stock down over the following year. Ultimately, Campanelli replaced De Silva. “We said from Day One, we’re not fixing this in 12 months,” Campanelli says. Testim testosterone gel. PHOTOGRAPHER: JACQUELINE LARMA/AP PHOTO Another hangover from the De Silva era is Endo’s testosterone litigation. The company faces about 1,300 patient suits claiming its testosterone-boosting gels caused fatal heart attacks in some users. How those suits might fare remains uncertain. Two federal court juries in Chicago last year held AbbVie Inc. responsible for injuries suffered by men taking its AndroGel testosterone booster—a product similar to Endo’s—and awarded a total of $290 million in damages. But one of those verdicts was later thrown out by a judge. In November, Endo’s Auxilium unit won the first case to come to trial over its Testim testosterone gel. Still, Endo’s problems could get worse. The company is likely to face many more Opana suits before any settlement is reached, says Richard Ausness, a University of Kentucky law professor, and Endo may be forced to take extreme measures to pay them out. It could adopt the playbook used by companies sued for selling asbestos-laced products in the 1980s and 1990s by setting up a bankruptcy trust to resolve opioid cases, according to Ausness. That would allow the company to hold down settlement amounts, he says. “Their debt numbers look terrible. And when you factor in the thousands of opioid suits they may wind up facing, they may have no choice but to ask the bankruptcy courts to help them dispose of those cases,” he says. Campanelli has heard the B-word before. “The use of the word ‘bankruptcy’—it’s not something that we’re contemplating at this point in time,” he says. “We’re looking to collaborate to deal with the opioid situation. If we ever got to that process, and I’m not saying that we’re thinking of it, it would be years and years before we would be addressing it.” It’s also possible that any opioid manufacturer settlement could be structured in such a way that Endo doesn’t end up underwater. “There could be some giant master settlement—it would just make life that much more difficult for Endo, but I don’t think these state AGs are going to make Endo go out of business,” says Gabelli’s Kedra. Despite the financial and legal clouds, Endo officials say they’re concentrating on expanding the business and working on new injectable drugs. The company is also developing one of its key products, Xiaflex, which is used to treat a hand deformity and curvature of the penis, for new uses such as improving the appearance of cellulite. Cosmetic drugs, such as Allergan Plc’s Botox, have turned into powerhouses for pharma companies, and Campanelli has been praising Xiaflex’s prospects. “It fits the model of the new Endo,” he says. Campanelli, however, still has plenty of problems from the old Endo to fix first. BOTTOM LINE - Generic drugmaker Endo has agreed to pay billions of dollars in settlements for vaginal mesh suits—and possibly faces much more for testosterone and opioid claims.
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