Improving Efficiency in Drug Development Impact of Project Management and Strategic Outsourcing

1. Improving Efficiency in Drug DevelopmentImpact of Project ManagementandStrategic Outsourcing Thomas Lander, M.D. & Tom Johns, Ph.D. 1st International Athens Conference on Project Management Best Practices Athens, July 1st, 2006

2. Bain & Company Believes The pharmaceutical industry is missing an opportunity to realize the full potential of clinical development outsourcing. Current outsourcing practices of most big pharmaceutical firms are overly conservative, combined with sub-optimal project management practices. Clinical Capability Sourcing: Trends and Strategies – Point of View, January 2005, Bain & Company

3. The 3 Most Critical Success Factors in Drug Development Speed + Quality + Cost Resource (Budget) Quality (Planned Results) Schedule (Time)

4. Trends in Capitalized Preclinical, Clinical and Total Cost per Approved New Drug J.A. DiMasi et al. Journal of Health Economics 22 (2003) 151–185

5. Risks in Drug Development • Unexpected failures = attrition (e.g. toxicology issues, unsatisfactory bioavailability, adverse events) • Unforeseeable delays (e.g. regulatory hurdles, manufacturing issues) • Lack of feasibility (e.g. inclusion/exclusion criteria, access to patients) • Explosion of cost (e.g. additional studies or long-term outcomes required

6. The Project Life Cycle of Drug Development Attrition Time

7. Expected to Grow Faster than Supply Demand for Clinical Resources 7% Growth in # of investigatorsCAGR (98-02) *No numbers available for the period after 2001 Source: Parexel, 2002-04; Goldman Sachs, 11/04; CenterWatch, 2003

8. Preferred access to investigators and patients increasingly important Access to Patients is Critical Source: CenterWatch, 2003; Cutting Edge, 05/04; Literature search

9. Factors Accounting for an Increasing Trend Towards Outsourcing Increasing pressures on pharma R&D 1 Future capability sourcing Globalization & rise of developing world clinical sourcing Maturation of outsourcing industry 4 2 3 Expected shortages of clinical resources(investigators & patients)

10. What Makes Outsourcing the Preferred Choice? • Strategic shift towards new disease areas • Sub-critical mass of distinct functions, e.g. clinical operations, data management etc. • Temporary need for “one-time” large scale clinical trials, e.g. Phase III/IV • High risk projects with uncertain outcome

11. Approach to Strategic Outsourcing: Two key questions What to outsource? How to outsource? • Preferred provider vs. one-by-one decision? • Full service vs. functional service? • Full delegation of responsibility vs. tight control • Which capabilities/tasks are strategically important and therefore critical to keep in-house? • Is the sponsor prepared to accept full strategic partnership with CROs?

12. Approach to Strategic Outsourcing: Two key questions What to outsource? How to outsource? • Preferred provider vs. one-by-one decision? • Full service vs. functional service? • Full delegation of responsibility vs. tight control • Which capabilities are strategically important and hence critical to keep in-house? • Is the sponsor prepared to accept full strategic partnership with CROs?

13. There are Different Ways of Outsourcing Tactical Strategic Depending on strategic impact, e.g. only non-core activities or partnership with CRO, e.g. risk/ profit sharing By Function or by Study irrespective of strategic impact, e.g. Functions 1,2 … or Studies A,B,…

14. Drug Development Process

15. Functional Clinical Capabilities Concept studies Bio-availability studies Target product profile Clinical dvpt strategy Trial design Trial strategy & design: Program mgmt Study mgmt Site mgmt Trial monitoring Projectmanagement: Investigator/site selection Patient recruitment Patientenrollment: Data mgmt: Data entry Data mgmt:Data review Statisticalanalysis Datamanagement: Lab services ECG IVRS Imaging Biomarker studies Drug supply Supportingactivities: Safety reporting & communic’n Clinical study report writing Regulatory filings Reporting & regulatory:

16. Model preferred by most biotech companies Model preferred by most fully integrated pharma companies Tactical Outsourcing: Function or Study Functional Outsourcing Study-driven Outsourcing . . . . . . C C B B Y Y Study A Study A Activity 1 Activity 1 . . . . . . 2 2 CRO . . . . . . 3 3 CRO . . . . . . ... ... ... ... ... ... ... ... ... ... X X CRO . . . . . . CRO CRO CRO

17. Four Basic Models How to Structure Sponsor-CRO Relationships Emerging Strategic Vendor Strategic Alliance Today Preferred Vendor Traditional • 3-10 strategic providers • Performance- based contracts • Tight process integration • Direct team communication • ~5 exclusive providers • Risk sharing • Very tight process integration • Joint teams • Potentially ownership links One-off Deals • 2-10 preferred providers • Master services agreement and standard SOPs • Arm’s-length relationships • 100+ providers • Sponsor SOPs • Ad-hoc contracts Characteristics • Historically the dominant model • Still frequently used by smaller pharma/ biotech • Used by most big/mid-size pharma/biotech today • A few big pharma in process of implementing this model • A few mid-size pharma (eg, Sankyo, Solvay) • Some big pharma (eg, Wyeth in data mgmt, GSK in lab svcs) Adoption

18. There Is No “One Model Fits All” Fully Integrated “Big Cap” Company Mid Size Company Virtual “Small Cap” Company Tactical outsourcing only < 50 % of development budget Tactical and strategic outsourcing of defined tasks 50 - 80% of development budget Complete outsourcing of all non-strategic tasks > 80% of development budget

19. CRO Capabilities *CRL includes Inveresk. Note: Quintiles split based on 70% late stage, 30% early stage. PRA split based on focus on Phase I and Phase IV. Source: F&S, 2003; Parexel R&D Statistical Sourcebook, 2004/2005; CenterWatch, 2001; analyst reports; Bain analysis

20. Critical Success Factors in Strategic Outsourcing Standardization of CRO management including communication tools Establish novel strategy and operating model in line with strategic outsourcing Selection of few preferred CRO providers to purchasing power and at the same time to reduce internal management efforts Minimize no. of interfaces with external third parties

21. CRO Surveillance Working Practice • Roles & Responsibilities • (Sponsor roles and responsibilities, CRO roles and responsibilities) • Surveillance Process • Planning phase • (Outsourcing, Resource and Budget Planning, Expectation Planning, Communication and Training Planning, Surveillance and Quality Planning, Document Planning, Other activities) • Conduct phase • (CRO Performance Management, CRO Surveillance, Management of internal interfaces) • Evaluation Phase • Reporting Phase • Briefing Documents • (Performance Metrics, Content of status report, Communication Plan, Site Monitoring Surveillance visit report, Examples of relevant findings, Explanation of Local Site Manager tasks)

22. Feedback loop 1 Continuous evaluation of outsourced projects 2 3 Select preferred partners Outsourcing plan on study level • Responsibility:Outsourcing Management • Input: Project team • Deliverables: • CRO performance metrics • Audits • Continuous project review by Sponsor and CRO • Review of CRO selection Responsibility: Clinical Project Leader (+team) Deliverable: Plan for all services based on work breakdown and critical path analysis required Responsibility: Outsourcing Management + Internal customers (as applicable) Deliverable: List of preferred partners Internal Process Required to Ensure Efficient Outsourcing

23. Decision Tree Based on Core and Non-Core Tasks Preferred Solution • Strategy Development • Planning • Steering & Management • Expert knowledge & expertise • In- and external interactions & co-operations • Business Development In-house Core competence Complete task list for each development function • Operational tasks • Routine quality control checks and conduct of routine audits • Document/Information compilation, translation and formatting Non-core competence Outsource

24. Key Components of a Strategic Partnership Model Between Sponsors and CROs Mutual economic incentives • Win-win to both sponsor and vendor • Betteruse of resources Operational alignment • Operational alignment between sponsor and vendor • Openness to change traditional processes Common long-term objectives • Early involvementof CRO • Establish long-term relationship

25. Three Steps to Establish a Novel Outsourcing Strategy Diagnosis Redesign Implementation • Review of current capabilities and performance • KPIs • External benchmarks • Gap analysis based upon • Diagnostic findings • Expected future needs • Define capability sourcing strategy • Establish project groups for • Process redesign • Organizational redesign • Identification of non-core tasks to be outsourced • Decide on time frame • Get buy-in from key stakeholders • Create pilot • Appoint project leaders • Define new roles and responsibilities • Refine incentives • Revise resource and budget plans • Establish dedicated outsourcing infra-structure • Provide specific training to accommodate new skill set

26. The Project-based Organization and the CRO Beyond Matrix beyond Decentralization The Company CRO Bus Dev Ops Sales MIS PM PM Project Project B A Projects

27. While No “One Model Fits All” Fully Integrated “Big Cap” Company Mid Size Company Virtual “Small Cap” Company Tactical outsourcing only Tactical and strategic outsourcing of defined tasks Complete outsourcing of all non-strategic tasks The System must be “In Control”

28. Putting a CRO System “In Control” Measure Evaluate Control is a Process Correct People don’t fail - Systems Fail

29. CRO CRO CRO CRO The Role of the CRO Changes During the Project’s Life

30. 20:1 C haracteristics of the Best Pr oject Systems 5:1 * Cross functional teams develop projects * Active project knowledgeable leaders are at front-end * Engineering & Project functions report to businesses not to plant management * Continuous improvement systems exist * Systematicperformance measurementexists * In-house resources used to developand shape projects. The Business Roundtable, The business stake in effective pr oject systems, 1997 How does planning effect a CRO’s performance? The Amount of the CRO’s Planning Dictates your ROI

31. Project Execution Plan “5” Tools of Management Planning Behaviors Project Objectives 1 Work Breakdown WBS 2 Project Organization 3 Recycle Project Schedule 4 Project Baseline (Budget) 5 Risk Key is Simplicity &What is Project Planning Client Requirements Agreement Control Accountability Communications Control

32. Risk Legend Probable (1/12) Unacceptable Infrequent (1/120) Acceptable Likelihood Controlled Remote (1/1200) Improbable (1/12,000) Marginal Critical Catastrophic Severity And What are the Top Five Risks?

33. Cross-functional CRO Work Functionally Described CRO Work The Tactic of Outsourcing Determines the CRO Role Study-driven Outsourcing Functional Outsourcing . . . . . . C C B B Y Y Study A Study A Function 1 Function 1 . . . . . . 2 2 CRO . . . . . . 3 3 CRO . . . . . . ... ... ... ... ... ... ... ... ... ... X X CRO . . . . . . CRO CRO CRO

34. The WBS Style May Change During the Project’s Life Multiple Phases A Study Clinical Trial

35. CRO CRO CRO CRO Maturity of the “In Control” CRO Relationships Emerging Strategic Vendor Strategic Alliance Today Preferred Vendor Traditional • 3-10 strategic providers • Performance- based contracts • Tight process integration • Direct team communication • ~5 exclusive providers • Risk sharing • Very tight process integration • Joint teams • Potentially ownership links One-off Deals • 2-10 preferred providers • Master services agreement and standard SOPs • Arm’s-length relationships • 100+ providers • Sponsor SOPs • Ad-hoc contracts Characteristics or

36. Increasing Role of the PMO with Increasing Maturity Of the CRO Relationship

37. Typical Roles of Project Management Offices PMO A.The Weather Station Traces and reports events without effecting them Progress against schedule milestones and deliverables, Budget performance, Quality performance against requirements, Risk. B.The Control Tower Nurtures project management as a business process within the company Establishes, enforces, improves and maintains and consults on management standards, e.g. life cycle management, planning and control, risk management, portfolio management support. C.The Resource Pool Provides a pool of skilled, supervised project managers to be assigned to projects Develops, coaches, supervises and maintains a pool of project managers; assigns project managers to projects; accepts overall quality, schedule and budget performance responsibility for projects

38. The Company CRO Bus Dev Ops Sales MIS PM PM Project Project B A Projects The Project-based Organization with CROs Beyond Matrix beyond Decentralization

39. Thank you Questions?