Global Strategic Sourcing Selection of CRO Service Providers

1. Global Strategic SourcingSelection of CRO Service Providers Mary Kachinsky Associate Director, Procurement Pfizer, Inc September 20, 2004

2. Today’s Objectives • Provide a CRO Market Profile: Trends in the Industry • Introduce a Strategic Global Sourcing Methodology

3. Agenda • CRO Market Profile/Outsourcing Trends • Seven Step Global Strategic Sourcing Process • Service Provider Performance Management

4. Agenda CRO Market Profile - Outsourcing Trends The Strategic Global Sourcing Process Service Provider Performance Management

5. Key Growth Drivers Worldwide CRO Revenue (2000–2007) • Need for cost containment and speed to market • Increased globalization of Pharma/Biotech companies • Increased technological demands • Use of suppliers for additional pieces of R&D supply chain (e.g., labs, preclinical) Key Growth Constraints • More stringent regulatory standards • Project cancellations/delays • CRO size/service tradeoff and expansion potential R&D Outsourcing Trends Support CRO Market Growth:Worldwide CRO Revenue to Grow to $14B+ by 2007 CAGR 13.1% Sources: Frost & Sullivan, 2003; Reuters; Data Monitor.

6. Cost Pressures for Pharma/Biotech CROs Can Deliver Quicker and More Efficient Trials • Patent expirations/generic competition impacting more of large pharma company portfolios • Increase prescription competition • Price regulation in Europe & Asia, with threats of reimportation in US • Increased regulatory pressure leads to increasing R&D costs • Clinical testing expenses rising by 11% annually • Need for longer/more comprehensive testing (e.g. chronic/complicated conditions) • Request for more detailed safety/efficacy data for specific population groups (e.g. children, seniors) • Lower R&D productivity (spend per compound increasing; sales increasing at slower rates) • Specialized in clinical research and can generate economies of scale • Utilize latest data management tools & technologies as well as other technologies (e.g., patient recruitment) • Can conduct trials in lower cost regions • Reduce time to complete trials* • CROs complete trials 30% faster than pharma companies* • CROs complete trials in less time across phases * Benchmarking study by KMR Consulting of 2,800 Phase III trials in 2000. Sources: Frost & Sullivan, 2003; Reuters; Data Monitor. Key Driver: Pharma/Biotech Need for Cost Containment and Increased Speed to Market Will Drive Growth Number of Weeks

7. CRO Market Growth Driver: Global Pharma R&D Outsourcing Expected to Almost Double by 2010 • Global Pharmaceutical R&D Outsourcing Market • (2001–2010) Source: Reuters Business Insight.

8. Growth Projections: U.S. Will Make Up An Increasingly Large Share of CRO Revenue U.S. CRO Share Growing • World CRO Revenues by Region • (2000–2007) • U.S. will continue to comprise largest percentage of market with U.S. share growing from 51% in 2000 to nearly 60% in 2007 • Europe and Asia shares both fall between 2000 and 2007Reasons include: • R&D spend remains largest in US given largest pharmaceutical market • R&D spend in Europe/Asia more limited given • Price Controls And Other Regulatory Factors • Lower Rates Of Outsourcing (Especially In Asia) • Still Emerging Asia Market • Activity will increase in Europe/Asia but revenues will not grow proportionally given lower pricing Source: Frost & Sullivan, 2003.

9. Biotech Firms Rapidly Growing in Importance in the CRO Market Space • CRO R&D Expenditure Forecast • (2000–2007) % of Expenditure Source: Frost & Sullivan, 2003.

10. CRO Revenues by Clinical Phase • Pharmaceutical Companies(2000–2007) % of Revenue Shift in Phases Mostly Due to Pharmaceuticals Pursuing New Applications of Already Developed Drugs CRO Revenues Expected to Trend Lower in Phase III as Phase IV Revenues To Continue Higher Source: Frost & Sullivan, 2003.

11. Western Europe Eastern Europe • Critical markets for new drugs • Experience/credibility for development work • Cultural similarities with U.S. allow cross-regional trials • Much lower cost; particularly patient and physician compensation levels • Charges are typically for only costs incurred over and above standard operating expenses • Reputation for quick and effective recruitment • Fewer patients on medications which could disqualify them from trials Strengths Clinical Activity Weaknesses • Research costs approaching U.S. levels (patent and physician compensation increasing) • Charges are for all expenses incurred • Untested • Cultural dissimilarities with West and among Eastern European nations (i.e., Language, Demographics, etc.) • Lower costs as well as availability of services and patients is driving clinical activity into Eastern Europe • Top players such as Covance, Quintiles, PPDI, and Ingenix have locations in Eastern Europe; others have begun to follow suit Lower Cost Is Driving European Clinical Work From Western to Eastern Europe Source: Frost & Sullivan, 2003.

12. Supplier Segmentation: CRO Competition Split Into Three Tiers Focused on the Same Three Key End-user Groups Tiers of Competition Key End-User Groups TIER 3 Pharmaceutical Companies Small & Niche CROs <$50 MM TIER 2 Biotechnology Companies Medium-Sized CROs Some Global Capacity $50–$150 MM TIER 1 Government Institutions Large Global CROs >$150 MM Source: Frost & Sullivan, 2003.

13. Notable Acquisitions and Mergers by Region Source: Frost & Sullivan, 2003.

14. Strategic Responses to Key Market Challenges Market Challenges Potential Outcomes Strategic Responses Sources: Frost & Sullivan, 2003.

15. Agenda CRO Market Profile – Industry Trends The Strategic Global Sourcing Process Service Provider Performance Management

16. Strategic Global Sourcing – 7 Step Process Project Initiation Stage 2.Define Project and Form Cross-Functional Team 1.Identify Need and Pre-ProjectPlanning 7. Measure,Monitor and Report Performance 3.CollectInternal &ExternalData 6.PerformSupplier Selection 4.Perform Strategic Analysis & Identify Opportunities 5.FormulateStrategies & DevelopImplementation Plans ImplementationandManagement Stage StrategyStage

17. Data Collection Benchmarking Negotiation Competitive Intelligence Knowledge Sharing Project Management Change Management Data Analysis Industry Best Practices Global Resources Market Intelligence Process & Technology Process Facilitation Supplier Sourcing Includes Far More than Cost Reduction • Types of Procurement Activities Toolkit

18. CR01 CR01 CR04 CR01 Pfizer Current State: • Wide variety of CROs being used by Sponsor company • Lack of standardized approach across sites • Multiple independent relationships between some CROs and different parts of Sponsor company • Lack of leverage of Sponsor’s scale in negotiations with top CROs Pfizer CR06 Pfizer CRO5 Pfizer CR04 CR06

19. Pfizer Future State… • Build strategic relationships with core providers • Create seamless boundaries with providers through standardized processes, systems and tools • Improve performance management and oversight of providers making providers an extension of the rest of our business • Expand use of cost effective alternate resources CR0-3 CR0-X Pfizer CR0-2 CR0-1

20. Strategic Relationships Offer Mutual Benefits Sponsor Benefits Service Provider Benefits • Increased productivity • Increased speed of engagement • Standardized outsourcing processes across divisions, sites and regions • Better visibility/reporting into performance of outsourced activities • More stability in outsourced workforce • Increased productivity • Better visibility into customer’s outsourcing needs • More efficient use of resources • Reduced oversight from Pfizer • Reduced rework

21. Strategic Global Sourcing – 7 Step Process Project Initiation Stage 2.Define Project and Form Cross-Functional Team 1.Identify Need and Pre-ProjectPlanning 7. Measure,Monitor and Report Performance 3.CollectInternal &ExternalData 6.PerformSupplier Selection 4.Perform Strategic Analysis & Identify Opportunities 5.FormulateStrategies & DevelopImplementation Plans ImplementationandManagement Stage StrategyStage

22. 1. Identify Need Definition Identify required needs of initiative, and obtain sponsor and key stakeholder support Key Considerations Do’s and Don’ts • Protocol – Key parameters • Understand skill, timeline, training, and IT requirements • Definition of deliverable • Budget approval • Understand context of initiative and relationship to other outsourcing activity • Understand risk/issues and urgency/visibility of initiative • Do understand client’s needs • Do determine costs of the function being outsourced • Do align customer expectations with sourcing strategy • Do engage sponsors and stakeholders early in the process

23. 2. Form Cross-Functional Team Definition Determine initiative scope, timeline, key milestones, team members, and roles and responsibilities Key Considerations Do’s and Don’ts • Does team have access to key decision-makers? • Is collaboration of people from several parts of the organization required? • Does the initiative demand the assignment of critical internal resources (eg subject matter experts?) • Is team aligned on expected deliverables, and with customer expectations? • Is initiative scoped properly and have appropriate timelines? • How will team measure and report progress? • Do form a cross-functional team • Team members should represent the product/service being outsourced and/or those affected by the product/service being outsourced • Do develop a workplan • Do determine communication plan

24. 3. Collect Internal and External Data Definition Collect internal and external data to determine business requirements, best practices, and supplier capabilities Key Considerations Do’s and Don’ts • Supplier and industry overview • Industry cost structure • Ex. PICAS • Current spend analysis and rate structure • Supplier overview (RFI may be needed to collect this information) • Financials • Compliance • Capacity • Capability • Do collect as much data as possible • Do understand drivers of service provided • Experience • Quality • Geographic Reach

25. Internal Quality Check List • Internal Quality Check List Includes: • Financial Health Check • D&B • Quality Audit Performed

26. 6. Select Supplier • Supplier selection has 6 major workstreams: • Issue a Confidentiality Agreement (CDA) • Establish Master Service Agreement • Create statement of Work • Issue RFI/RFP • Evaluate responses • Negotiate • Final Selection of Supplier

27. Evaluation Criteria

28. 6. Select Supplier – MSA Definition Ensure single Master Service Agreement (MSA) is in place to simplify and expedite agreement process Key Considerations Do’s and Don’ts • Does an MSA already exist? • Can it be amended to fit specific needs? • Consistent terms and conditions, and position on material issues • Legal support model • Pre-established work order templates and attachments • Accommodates flexible pricing models • Address systems and equipment issues • Do check if an MSA already exists • Do have an MSA in place • Do use single global MSA where possible • Requires cooperation with internal customer groups (monitoring/investigator issues) • Ex. Investigator site selection, co-monitoring

29. 6. Select Supplier – Statement of Work/Work Order Definition Expresses desired output in legally enforceable terms. Describes what is wanted, when, where, how and at what quality or performance level. Poorly Written SOW Risks Well Written SOW Benefits • Delivery of poor quality product or services • Wasted time and money • Unfavorable pricing • Contractual disputes and lawsuits • Uninvited scrutiny by protesters, attorneys, and/or government officials • Solicits high quality, competitive, and consistent proposals from each supplier • Effective internal planning and communication among work groups involved in particular sourcing effort • Adequately defines the relationship • Clearly describes roles and responsibilities • Clearly indicates metrics to determine whether client requirements are met • Links to protocol parameters • Ensures customer’s buy-in

30. 6. Select Supplier – Issue RFI/RFP and Evaluate Definition Issue a Request for Information/Proposal (RFI/RFP) to determine supplier background, capabilities, and pricing Key Considerations Do’s and Don’ts • Ensure competitive bidding environment • Standardized data collection from all suppliers • Adhere to ethical standards • Adhere to sourcing strategy • Consider alternative pricing mechanisms • Hourly rates and hours • Unit based pricing • Do prepare Request for Information/Proposal • Do confirm budget availability • Do ensure signed confidentiality agreement • Do compare RFI/RFP responses • Do clarify details (as required) • Do ensure completeness and consistency across bids

31. 6. Select Supplier – Negotiate Terms and Conditions Definition Negotiate terms and conditions of contract consistent with Pfizer standards Key Considerations Do’s and Don’ts • Templates either already exist or are in progress for range of CRO services • MSA • Clinical Standards • Work Order • Change Order • Equipment Schedule • Type of Relationship • Full Service (ex. Many services) • Functional Service Provider (ex. Biometrics) • Staff Augmentation (contractors to fill internal resource gap) • Do link to MSA and Milestones • Do leverage existing templates/materials • Do understand type of relationship • Do contact appropriate Vendor Relationship Lead to determine whether an agreement is already in place

32. 6. Select Supplier – Negotiate Pricing Definition Negotiate pricing which generates mutual value for Pfizer and the service provider Key Considerations Do’s and Don’ts • The more information you have the more prepared you are for negotiation • Understand vendor cost structure • Understand key study cost drivers • Investigate alternative work structures and pricing models • Productivity improvements vs. escalators • Trade items of unequal value • Do leverage existing data and tools • Do exercise caution around providing information which reduces competitive advantage/leveragability • Do consider various pricing variables • Site • Therapeutic area • Phase • Study location • Unit of Measure • Units • Resources • Timeline • cost

33. 6. Select Supplier – Negotiate Other Key Elements Definition Negotiate other key elements (Task Ownership, Deliverables, IT Requirements, Etc.) required Key Considerations Do’s and Don’ts • Timeline requirements • Payment implications • Definition of deliverable achievement • Service level around deliverables • Ex. All CRFs will be entered (first and second pass) within x business days of allocation by Pfizer • Clearly defined IT requirements (incl. asset allocation and disposal) • Communication requirements • Meeting frequency and participants • Standards, SOPs, and training requirements • Do develop Task Ownership Matrix • Do agree upon deliverables and requirements • Do develop IT connectivity plan and application access plan • Do finalize metrics collection and calculation • Do finalize key study data capture process

34. Sample Tools Task Ownership Matrix Example Illustrative

35. 6. Final Selection Definition Select supplier(s) to move forward and begin implementation planning Key Considerations Do’s and Don’ts • Strategic/preferred suppliers • Pricing • Capabilities • Documentation/justification of decision made • Do obtain stakeholder buy-in • Do communicate decision • Do finalize contract(s) • Do determine implementation timeline

36. 7. Measure, Monitor, and Report Performance Definition Measure, monitor, and report supplier performance Key Considerations Do’s and Don’ts • Agree to metrics plan • Link business requirements to supplier performance targets • Manage and monitor supplier performance: • Process • Quality • Cost • Speed • Compliance • Etc. • Perform savings validation and reporting • Perform periodic reviews • Do establish service provider program • Do measure performance • Do manage supplier an ongoing basis • Do determine savings • Do communicate supplier review output

37. Agenda • CRO Market Profile/Outsourcing Trends • The Strategic Global Sourcing Process • Service Provider Performance Management

38. Key Steps to Service Provider Performance Management • The Service Provider Performance Management process using the following key steps Step 1 Define CRO Supplier and Services for Performance Evaluation Step 2 Develop Goals, Review Frequency and Scorecard Step 3 Gain Commitment From Suppliers Step 4 Perform Supplier Evaluation Step 8 Post Evaluation Results in the Internal Database Step 7 Develop Continuous Improvement Plan Step 6 Meet With Suppliers for Periodic Performance Review (PPR) Step 5 Communicate Evaluation Results to Internal Stakeholders and Suppliers

39. Key messages – Metrics • Develop appropriate metrics to support your organization • Example: Cost, Quality and Speed metrics for tracking CRO performance • 2. Metrics can be leveraged for specific outsourcing situations • Recruiting and Monitoring • Data Management • Biostats and Reporting • Full Service Outsourcing

40. 1. Lead time between receipt of the complete protocol pack at the country and the date of full external approval * • 2. Recruitment Reliability (subject recruitment progress compared with agreed target patient numbers and timelines) * • 3. Recruitment Rate (number of subjects randomized per month at each study center)* • 5. Average time from CRF page received to entry complete • 6. Time between last CRF in house and database lock • 7. Time between DB lock to top-line report • 8. Time between top-line report to final monitoring study report • 9. Time between Protocol approval to FSFV • 10. Time between Protocol approval to 50% of sites have a FSFV • 11. Time between FSFV to LSFV • 12. Time between LSLV to Database lock SSP Metrics – Speed (sample) • Applicable metrics • CRO • Recruiting and monitoring • Data Management • Biostats and reporting • Full-service outsourcing • Metrics • 4. Lead-time between a patient visit and the arrival of the data in-house*

41. 1. Number of protocol violations/waivers • 2. Screening failure rate • 3. Patient retention rate • 4. Number of Data Clarification Forms issued per 100 Data Capture Modules* • 5. Number of times database is unlocked/unfrozen due to database errors • 6. Number of iterations between locked database to final tables • 7. CQA audit rating** • 8. CRO project management quality (from DOTL/CSM survey) SSP Metrics – Quality (sample) • Applicable metrics • CRO • Recruiting and monitoring • DM • B&R • Full-service • Metrics

42. 1. Monitoring cost per patient • 2. Data management cost per page and/or per data collection module (DCM) • 3. B&R cost per table/listing/figure • 4. Overall cost per patient • 5. Project mgmt cost as a percent of total study cost • 6. Budgeted cost vs. actual cost SSP Metrics – Cost (sample) • Applicable metrics • CRO • Recruiting and monitoring • Full-service • DM • B&R • Metrics

43. Performance Metrics Usage Guideline • Purpose of CRO Performance Metrics • Establish a performance management tool to measure and improve vendor performance • Facilitate future decision making around outsourced work and strategic vendors • Reporting Frequency: quarterly • Format: metrics reported at appropriate level (e.g., vendor, study, country) • Reporting responsibility • Short-term: pilot with a few CROs (perhaps manual effort) • Long-term: establish system based reporting enabling internal automatic metrics reports through CROs feeds