The document discusses the complex relationship between Contract Research Organizations (CROs) and pharmaceutical sponsors, highlighting their differing business models yet common goals. It outlines key issues in CRO selection, outsourcing management, and perceptions of profitability and effectiveness, underscoring the importance of collaboration and communication. Additionally, it addresses the implications of standard-of-care considerations in clinical trial funding, showing that many companies are concerned about fair market value and effective grant management.

1. January 11, 2011, Philadelphia, PA Two Worlds On The Same Planet Laurence G. Poli, Ph.D. TTC, LLC

2. The complex relationship of Sponsor & CRO Colliding worlds Clinical development CRO Two World on the Same Planet

3. Overview CROs and Sponsor Companies have different business models, but common objectives. CRO Selection and Outsourcing Management are Key Issues for Sponsors. Implementation detail is vital in convincing a sponsor company to select a specific CRO. CROs Under Pressure to Control Cost Apply Standard of Care

4. Agenda CRO Usage Different Perceptions Selecting a Particular CRO Managing the Relationship Site Preferences Costs & Standard of Care

5. Many are uncomfortable with the profit motive in healthcare Conflict regulation rather than resolution is critical Overview

6. Senior executives see a potentially large shift in the basic business model of pharmaceuticals The demand for pharmaceuticals will increase The pressure of profitability will increase as well A Changing Business…

7. In a modified Delphi Study we identified six major pressure points Society’s Perception of Pharma Patient Safety New Drugs: Discovery, Development & Adoption Regulatory Environment Politics & Legislation Global Financial Results A Changing Business…

8. Specific items, where over half of the participants thought very important, included such issues as: A Changing Business… Most Important Items % Pharmaceutical Industry’s Image 64 Drug Safety 59 Cost of New Drug Development 57 Potential Regulation of US Drug Prices 55

9. We received 419 responses from 116 companies, from an initial email of 2,502. Survey Responses Survey Sample

10. CRO Usage

11. CRO Usage As with other studies done to examine the use of outsourcing, the industry expects CRO usage will increase.

12. CRO Usage Pharma companies and CROs have comparable outlooks on the outsourcing landscape. * Significant at .05 level ** Significant at .01 level Expected Outsourcing in Five Years Type of Organization Preferred Provider** Functional Provider Single Area Outsourcing In- Sourcing* Full Service Provider Pharma 50 30 25 28* 38 CRO 41 29 25 22 40

13. Data for this analysis from Centre for Medicines Research 16,000 clinical studies 52,000 country records 190,000 site records Collected from companies representing 80% of annual global R&D expenditures Years 2004 -2008 2355 phase 2 & 3121 phase 3 studies CRO Usage

14. Background 20 of largest companies conduct 50% of all phase 2 & 3 studies Encompass 67% of all active sites, globally CRO Usage

15. Many companies already make extensive use of outsourcing, with smaller companies even more likely. Percent of All Post Phase 1 Involving a CRO For One or More Parts of the Study Largest 20 pharmaceutical companies 52% Smaller pharmaceutical companies 88% Total 66% CRO Usage

16. Studies with at least one outsourced component 66% Studies with all components conducted in-house solely by sponsor company 34% CRO Usage

17. Based on current CMR data percentage of outsourcing by major activity: Patient enrollment 32% Site monitoring 34% Data management 38% Biometrics 23% Report Writing 21% CRO Usage

18. Larger Companies conduct a large percentage of clinical development work in-house This analysis shows CRO usage distinctly less than what some opinion surveys report We conclude there is considerable growth for CROs CRO Usage

19. II. Different Perceptions

20. Sponsor companies have a mistaken understanding of CRO profitability Most think CROs have profits comparable to sponsor companies. 64% of pharmaceutical company respondents believe good CROs have profits similar or even better than pharmaceutical companies Perceptions: CRO Profitability

21. CRO profits are substantially less than sponsor company profits by any measure, although the market gives a more favorable P/E to CROs at the moment. Perceptions: CRO Profitability Pharma (15 Largest) CRO (8 Publicly Traded) Operating Margin Avg. 23 7.6 Return on Investment 17.2 8 Return on Equity 25 9.4 P/E Ratio 24 35

22. However… Profit levels of CROs are substantially less then established sponsor companies; prospects for growth in CRO profitability appear more attractive to industry analysts Perceptions: CRO Profitability

23. R&D Perceptions An interesting partnership! Pharmaceutical Company Respondents Percent Agreeing with Statement % A solid partnership between a CRO and sponsor company will do much to improve the success of a project. 97 It pays to monitor even the best CRO as closely as possible. 84

24. R&D Perceptions Pharmaceutical Company Respondents Percent Agreeing with Statement (Cont’d) % Because of the way CROs change, it is often in the CRO’s interest to expend more rather than less labor to do the same task. 72 A well run CRO makes as much as an established pharmaceutical company. 63

25. R&D Perceptions Pharmaceutical Company Respondents Percent Agreeing with Statement (Cont’d) % It costs more to do a study with a CRO than to do it internally – (hidden costs) 58 CROs are too often more concerned about getting to the next project rather than doing the current one well. 53

26. US based respondents are somewhat harsher in their evaluations. Sponsor company who have worked for CROs are less severe. People with more experience are also less harsh. Perceptions Summary

27. III. Why A Particular CRO

28. Why Use A CRO? Why Use A CRO? Various Models Single service and multiple bidders… … To multiple services and single provider Sites are indifferent

29. Why Use A Particular CRO Why Use A Particular CRO? Selection criteria The importance of the implementation plan

30. CRO Selection Criteria Team chemistry is important to sponsor companies and CROs. Percent Indicating A Criterion is Very Important in the Decision to Select a CRO % Your team’s general sense that you can work with the CRO 63 The project management team to be devoted to the study 62

31. CRO Selection Criteria Percent Indicating A Criterion is Very Important in the Decision to Select a CRO % The project execution plan presented by the CRO in the bidding process, including such items as resources, country, and site selection. 48(***) Price (Two Different Worlds)

32. Only a few companies think they are better at CRO selection. These tend to be people from smaller companies and often European based. CRO Selection Outsourcing Management

33. CRO Selection Percent Indicating A Criterion is Very Important in the Decision to Select a CRO A CRO’s overall experience in the study’s therapeutic area 57 The backgrounds of the project team members 51(*) The project execution plan presented by the CRO in the bidding process, including such items as resources, country and site selection 48(***)

34. CRO Selection Criteria Factor Analysis identifies five key dimensions: Issue Resolution Execution Specifics Team Chemistry CRO Capabilities CRO Size and Research

35. IV. Managing the Relationship

36. Capability Resources Cost Management Why Use A CRO?

37. Outsourcing Management Few sponsor companies think they are better at budgeting outsourced projects.

38. Many companies have expended significant amounts of effort to construct useable bid grids. Outsourcing Management Bid Grid Use Perception % No common bid grid across all projects. 32 Bid grid poorer than other sponsor companies. 3 A bid grid no better or worse than other sponsor companies. 51 A better bid grid than other sponsor companies. 14

39. CRO Management The “better” companies tend to be smaller and located in Europe, but do not spend more on project oversight.

40. V. Site Preferences

41. US Site Preferences A survey of 750 US sites found that only a third of the sites preferred a sponsor to run the study. The rest did not care or preferred CROs. Research oriented sites were more likely to prefer a sponsor company to run the study. This is consistent with ex-US findings for 3,000 sites. Most sites are relatively indifferent to whether a CRO or sponsor company runs the study.

42. US Site Preferences What type of organization do you prefer to run your trials? Total Office Based Academic Medical Center Hospital Pharmaceutical Company 34% 32% 39% 36% No Preference 43% 44% 40% 39% CRO 23% 23% 21% 25%

43. VI. Costs & Standard of Care in the U.S.

44. In Recent News… Global clinical grant spending totaled $11.5 billion in 2008, with the US representing 52% of the total.

45. SOC Usage We recently surveyed 50 companies; asking them to rate the importance of Standard of Care. The Importance of Standard of Care Considerations in Your Company’s Approach to Developing Clinical Grants Very Important 73% Somewhat Important 23% Not Very Important 3% Not At All Important 1% Total 100%

46. SOC Usage Companies are concerned about fair market value and more effective clinical grant management. Reasons for Using SOC to Incorporate SOC Considerations Percent Avoid paying for procedures covered by third parties 85% Insure paying fair market value by avoiding possible double payment 83% Assist in protocol design 81%

47. Outside of oncology few companies attempt to achieve the cost savings possible through the incorporation of Standard of Care. Nearly two thirds of respondents feel the process is too time-consuming. Most express the need for more data. Most companies rely upon laborious processes and sources, e.g., sites and internal experts, for information. SOC Usage

48. SOC Usage There is confusion about Standard of Care from a scientific perspective and from a clinical grant management point of view. An analysis of industry protocols demonstrated that over 20% of grant payments can still be covered by Standard of Care.

49. Conclusion CROs and Sponsor Companies have different business models, but common interests. Implementation detail is vital in convincing a sponsor company to select a specific CRO. Standard of Care costing is a way some CROs are helping to distinguish themselves.