Having a Prosperous New Year with a CRO: The Gift of A Great Contract

1. Having a Prosperous New Year with a CRO: The Gift of A Great Contract Paul G. Nardulli, Attorney At Law, Optima Law Group Claudia Shojai, Supply Chain Supervisor, INOVA Diagnostic Moderator: Tim Scott, President, Pharmatek

2. CRO Industry • CRO industry is booming, taking a larger piece of worldwide R&D expenditures -- $14 billion by CROs in 2012 • The industry is fragmented with over 1000 CROs, including: • A small group of large, full service multinational entities representing 50% of worldwide CRO revenue • The remaining CROs being small to mid-sized entities providing a more limited menu of services, including: • Niche CROs providing services in a limited geographic region or on a specific disease state or therapeutic model

3. Potential Advantages of CROs • Reduce: • Time needed to develop and commercialize a new drug • Sponsor’s fixed costs associated with personnel, equipment and facilities needed for its R&D function • Provide: • Ready access to needed expertise and/or technology • Greater access to potential investigators • Knowledge of regulatory climate in foreign markets

4. Potential Risks of Outsourcing to CROs • Risks generally associated with reduced control of the clinical trial process by the Sponsor • Risks include: • Delays in completion of studies • Lost or poor data • Regulatory infractions produce indirect consequences • FDA regulations/GCPs • HIPAA • Fraud and Abuse • Private litigation exposure

5. Factor Most Often Causing Study Delays United States

6. Whose and what expectations are being met with the contract? When gifts are expected and not delivered, there is little to celebrate Proactive approaches to contract management. • Contract management and oversight is one now integral part of a critical clinical strategy. • Are the Sponsor and CRO proactively managing the contract in order to tackle issues that arise? A contract is the key link between strategy and execution. • Total Contract Management strategy will prepare your organization to better manage expectations.

7. Contract Lifecycle Management

8. Whose and what expectations are being met with the contract? When gifts are expected and not delivered, there is little to celebrate Clinical Trials Success begins with the scope of work • Clinical Trials are often derailed by a fundamental lack of clarity in the scope of work between the sponsor and the CRO and other vendors. The devil is in the details. • A strong starting point is a detailed Task Order Agreement that clearly outlines the scope of work, the timelines, and responsible parties. Cost overruns, delays, and damaged sponsor/vendor relationships create havoc in clinical development programs, and create a tremendous fiscal and resource burden to the industry. • Effective vendor outsourcing depends on clearly defined goals, expectations, and responsibilities. Have in-depth discussions of the critical contract terms, which tend to be considered non-critical but may have a major impact. • Key factors to consider when determining budget terms. Are invoices aligned with contract deliverables?

9. Whose and what expectations are being met with the contract? When gifts are expected and not delivered, there is little to celebrate • The responsibility of proper diagnostic clinical trial execution is not allowed to be delegated to a CRO per FDA regulations. Therefore, adequate contract qualification and oversight of CROs executing clinical trials for sponsors is critical to a successful study and product approval. The need for defining parameters goes beyond contracts. • The understanding of the CRO and the sponsor is easily forsaken if the ends are understood before the means are clear. Often, both sides are talking to their understanding but not realizing they are speaking apples to oranges. This is the voodoo of the argument. Make both understand what you mean, so that with an audit by a sponsor there is not the amazing response of “I didn’t ask you to do that…” so to speak.

10. Whose and what expectations are being met with the contract? When gifts are expected and not delivered, there is little to celebrate • Use plain English as much as possible • Benefit if judge, arbitrator or mediator must review later • Use examples in the contract to illustrate intent/principle • Be liberal with use of exhibits drafted by the team members that will execute the plan (at least involve the relevant team members) • Be specific regarding what the milestones are and the timeline for each • Be clear as to payment schedule • Contract should include a custom scientific plan • Clearly define the relationship between the CRO and the Sponsor • Consider including as an addendum to be updated as needed, a list of all key operations, billing, and legal personnel • Changes to a product, service, or deliverables should only be allowed in writing and signed by both parties • Require periodic reports of progress/milestones in addition to required meetings at least quarterly of project managers/committees

11. Who’s actually doing the work? This may not be as obvious as it seems and an audit is not the time to find out that elves were involved • Personnel: Who is doing the work for each function, each phase? How long have they been with the company? References that you trust, or at least believe. Facilities that you can visit (where appropriate). Testing labs and their qualifications (facility personnel). Audits of facilities including Quality audits, EHS audit and QP audit. • Look for client-centric organizations: do their systems revolve around them or you? Communications: how often, what is the format (report, discussion, attendees)? Be specific. Match skills with your own: make sure the vendor provides skills that are complementary to your company’s skill set. What other vendors need to be brought to the table to make this project successful? Know this prior to starting the project. • Be specific with name and titles. Consider the organization structure of the CRO. Training and experience of staff with clinical research. Experience and infrastructure of high-level managers. Are quality systems applied? Basic training programs. • If services should be taken from outside, assessment process should be available. CRO training programs should be created for service taken from People/organizations from outside. If there is transfer of task, it must be well documented. Routine quality controls of the system and personnel must be created. • CRO by third parties (e.g. specialist Biostatistics, medical monitors, etc.) should have regulated data management system to make active data transfer/review easier. Thorough review of staffing levels, job descriptions, training specific to their task or job responsibilities, and observations of personnel performing work.

12. Who’s actually doing the work? This may not be as obvious as it seems and an audit is not the time to find out that elves were involved • Project manager’s site visits are important here – consider in contract • Contract should provide each party may not use subcontractors without written permission and approval • Whoever is doing the work should be bound by the agreement, especially relating to ownership and confidentiality • Define what level of personnel is required for certain tasks so appropriate authority and skill level execute each task • Deal appropriately with the clinical site • Identify and monitor the Principal Investigator • Reporting adverse events and other FDA requirements (more later) • Have all agreements been finalized, approved and do they conform to Sponsor and CRO requirements? • Sponsor and CRO should use agreed upon templates for various agreements (confidentiality, consulting, subcontracting, clinical) • Plus, perhaps any changes beyond simple tweaks are to be approved by Sponsor and CRO before finalized

13. Who owns which part of the development process? Outlining responsibilities and not just competencies can be a danger zone if not done well • Various models for agreements based on the stage of program, risk involved, and key requirements and functions needed are a few things that can affect the structure of a contract.  In some cases, the CRO can share some of the risk to assist the progress of the program in return for a portion of the returns. • Taking a Project from Initial Design through Final Production Bringing a new clinical trial study design to market encompasses many more steps than might seem necessary in the early stages of the project. Insufficient attention to detail at any point during the process can require a return to earlier stages.

14. Who owns which part of the development process? Outlining responsibilities and not just competencies can be a danger zone if not done well “Devoting Sufficient Attention to Pre-Clinical Phases Yields Benefits” • By involving knowledgeable researchers and manufacturing partners earlier in the product development process, it is possible to anticipate and circumvent potential delays. To provide the greatest potential for a successful product launch, the development process must be viewed as a single entity that has many component functions within it, rather than a piecemeal assortment of several unrelated suppliers who perform those functions in comparative isolation. Critical Factors to Consider in Building Your Supply Chain • Examine all aspects of the following questions carefully when planning your product development efforts.Failing to address these issues in the beginning can create expensive delays in putting your product into the marketplace. Historically, avoiding those delays can make the difference between a winning product that sells millions of units and one that dies in clinical trials. • Can your design and clinical trial partner give you a genuinely “seamless” product development experience? In the best-case scenario, try to find a single CRO that can give you whatever you need during the process. The logistical problems that occur when working with multiple suppliers can potentially complicate the product development process immeasurably. Here again, working with a supplier that you feel comfortable treating as a partner in the process will produce the best results. • Does your partner demonstrate a true commitment to understanding not only your needs, but also the needs of the patient or end user? • Is your partner committed to improving the patient’s quality-of-life? • Can your partner provide a full range of Phase III and Phase IV product development capabilities, including design verification and clinical builds? • Can your partner support your product’s transfer to commercialization? • Does your partner have a full range of drug development capabilities?

15. Who owns which part of the development process? Outlining responsibilities and not just competencies can be a danger zone if not done well • Do the partner’s operate under strict regulatory standards ISO 13485, GMP, CLIA, etc? • Does your partner have space available to support on-site collaboration? Is the space scalable according to your needs? • Does your partner have a long track record of product development, including a full understanding of drug product liabilities, as well as the fine points of controlled substance regulations and requirements for product labeling? • Does your partner have a high level of commitment to confidentiality and protecting your intellectual property? The Vital Importance of Program Management The right partner for your drug product development efforts will have—in addition to the other necessary capabilities— comprehensive experience in program management. Aiming your project in the right direction and keeping it on track is an indispensable ingredient in successful, profitable product development. Given that the goal is to get your new product on the market as quickly, efficiently, and profitably as possible; strong program management skills will help to ensure you get the desired results. Conclusion The key to bringing a successful and profitable new drug product into the market is to keep the development process as seamless as possible, from concept through commercialization. That target is best met by working with a single supplier that can offer a full range of clinical trial services, and that can demonstrate complete knowledge of the complexities of drug product development. By applying adequate due diligence in choosing a product development partner, you can improve the odds of launching a successful new medical product into the marketplace—on time, and on budget.

16. Who owns which part of the development process? Outlining responsibilities and not just competencies can be a danger zone if not done well • Critical to Sponsor success that they own anything related specifically to the drug, device, program • Alternatively, CRO will may want to maintain rights to general developments not specific to drug or device • Ownership related to drug or device may be modified (deal) • Neither party will want to be blocked from using general processes and know how not specific to drug or device • Even after relationship has ended • Who may file a patent on anything developed during the process? Must the patent filing party provide a license to the other party? • Heavily negotiated and corollary to ownership above – depends on the relationship • Sponsor may want contract to state CRO can own and file patent, subject to a royalty free, non-exclusive, non-cancellable license back to the Sponsor to use in their programs

17. What’s confidentiality got to do with it? IP is everything to a life sciences company and how to deal this part of the agreement must always be a tantamount importance • Confidentiality: either in the agreement or referenced as a separate agreement; IP is everything to a life science company and this part of the agreement must always be a tantamount importance. • Security: The confidentiality of the research performed by a CRO is critical. In addition to validated procedures for the security of electronic data and correspondence, and inspection of facility security, intrusion deterrence systems, and process for screening of employees should be examined. Why is important to secure intellectual property rights (IPRs)? Offensive Purposes Gaining and preserving market shares by enforcing the exclusive rights to use, import, etc, which are granted through IPRs Defensive Measures Maintaining control over the quality of your products, the information related to their proper use and their advertisement Fighting piracy and counterfeiting as well as defending from third parties IP-threats Business Development IPRs facilitates the allocation of intangible assets among partners as well as raising capital from investors

18. What’s confidentiality got to do with it? IP is everything to a life sciences company and how to deal this part of the agreement must always be a tantamount importance • Contract should detail what is to be kept confidential, what may be disclosed, and to whom. • May want to have a separate NDA to really flesh this issue out • Govern where disclosures may need to occur • Such as the with the FDA (adverse events) • Sponsor and CRO should be involved (maybe clinical site too) • Disclosure should be limited only to what is necessary • Should always be discussion and agreement before disclosure • Critical to both Sponsor and CRO that there is no IP contamination between the two when one is working for competitor • Really need to make sure this is walled off in the contract and requires tight controls • Don’t want adverse third parties (competitors) receiving the Sponsor’s or CRO’s proprietary and confidential info and the Sponsor or CRO does not want adverse third parties’ info • Reasons to keep info out of competitors hands is obvious • Getting competitors info can be just as troublesome

19. What will happen to the data that is generated? Getting good data is just part of the job Be specific, this is not IP, but rather the actual data and notebook pages. Who owns them? How long will they be maintained? At whose expense? Data management and handling Another key factor in CRO selection is how data accuracy, confidentiality, and security will be addressed.  Clear communication of the data management system that will be used is essential.  Precedent of how data has been processed and stored should be available and include control data sets and possibly FDA audit records.  Clear communication of data oversight with regularly scheduled reviews should be incorporated into the data management plan. Data protection rules It is here that the proactive planning and solid execution of the previous phases pays off as the trial glides smoothly towards database lock and analysis. To ensure a successful database lock, the entire team – pulling from data management, biostatistics, medical writing, and clinical operations as needed – dedicates time to collaborate on project deliverables and review and discuss project specifics.

20. What will happen to the data that is generated? Getting good data is just part of the job Review the quality and status of data. Are the raw data from current or finished products complete and of the appropriate quality? In addition, do they comply with applicable regulatory requirements, and accurately reflect information compared to previous reports and correspondence? • Data has fair and lawful processing • Data is obtained only for specified and lawful purposes and is not processed in any incompatible manner • Data use is adequate and relevant but not excessive • Data is kept current (where necessary) and accurate • Data is not kept longer than necessary • Data processing is in accordance with the rights of data subjects • Data is protected by appropriate security measures • Data is not transferred to third parties unless adequate level of data protection exists

21. What will happen to the data that is generated? Getting good data is just part of the job • Analogous to discussion of ownership earlier – if specific to drug or device, sponsor will want ownership and access/control of data base, notebooks, other documentation • Data will be specific to the drug • Contract should set forth the scope of maintenance of data • Contract should require data protection and access • Maintenance should be for many years – potentially decades • Negotiate who is to pay for maintenance • Will it be turned over after completion? • Should be and both parties should have a copy • Who has publication rights for the results of the clinical work and research? • Typically, all parties (Sponsor, CRO, clinical site) have some rights • But non-publishing party has the opportunity to review what is to be published and make comments and alterations prior to publication • Sponsor and CRO should have right to reasonably delay publication until patent filings are completed • What about publication of adverse data – must be discussed and agreed upon by all parties

22. Should you worry about business continuity? Does planning for winter blizzards have a place in your CRO contract? Building Quality at Key Points in The Clinical Trial Process: • An Exercise in Developing Key Risk indicators and Critical to Quality Metrics. • Key to the success of QRM (quality resource management) is the capacity of leverage existing information in such a way that stakeholders can easily access whether the processes that they are responsible for yield (or will yield) the intended results and quality. This approach helps organizations to proactively identify, manage, and mitigate risks before they manifest into real problems. • A risk-based approach requires not only a strategy but also tools to define leading and lagging indicators to measure specific risks. • Key Risk Indicators (KRI’s) should focus on “what really matters” with an emphasis on patient safety and data integrity, and be tied to particular processes within the clinical drug development spectrum.

23. Should you worry about business continuity? Does planning for winter blizzards have a place in your CRO contract? Financial risk to completion of activities • Description of and delineation between reoccurring and non-reoccurring costs. • Any discount/ discount structure • Annual cost adjustments • All other key criteria that may affect pricing • Detail pricing by year up to (number) years. Indicate whether pricing would stand if the final agreement (1,2,3, or more) years. Company is interested in demonstrating continual performance improvement over the term of the agreement. This should be reflected in the proposed pricing with an explanation of the expected source(s) of any “savings”.

24. Should you worry about business continuity? Does planning for winter blizzards have a place in your CRO contract? CONCLUSION • The right CRO will be able to guide you through the process, help steer the project around potential obstacles, and provide valuable consultative input from its extensive experience and proven track record in developing similar clinical trial studies. More important, their overall approach will be to serve as your partner in the process, as opposed to viewing each aspect of clinical trial development as a separate entity. The sensitive nature of bringing new clinical products to profitable fruition demands that you work only with knowledgeable experts. A successful clinical trial will take you through product development, past clinical evaluations, to market launch, and into high-volume production with as few complications as possible.

25. Should you worry about business continuity? Does planning for winter blizzards have a place in your CRO contract? • What happens if either party is sold to another company? • Contract should have clauses addressing assignment and successors • Both parties will want to assign the contract to the new company – parties will want approval over transfer • What happens if one party cannot meet its obligations due to bankruptcy? • Non bankrupt party should be able to move to different party – contract should allow for nimble and efficient transfer • Important that the contract require that all parties to get plenty of notice in all these scenarios • What if either party cannot perform the services they promised as a result of an act of God (Force Majeure) or orders or regulations of any government or department or agency thereof acting in either its sovereign or contractual capacity? • Probably want to agree in the contract that this will excuse the party and you’ll then have to agree where to go from there

26. Shouldn’t we just argue through our lawyers? Providing for escalation pathways and dispute resolution could be more than a stocking stuffer One of the key elements of a quality management system is the monitoring of clinical trial sites either on-site or remotely via a centralized monitoring approach. When compliance and quality issues are detected through monitoring, there needs to be a process by which issues can be escalated to the appropriate level of management. • Develop a process to escalate site compliance issues • Establishing a system to identify systematic trends • Integrating a site issue escalation into a robust CAPA process • Driving change within the organization through process improvement activities • Addressing the challenges: Culture, Systems, and Workload & Resources • Demonstrating value to the trial teams and management

27. Shouldn’t we just argue through our lawyers? Providing for escalation pathways and dispute resolution could be more than a stocking stuffer Sponsor questions • Under what circumstances would an escalation be initiated and what is the mechanism for customers to lodge complaints? • How would you communicate the escalation to your internal customers and to your client? • What are the steps for escalating an issue? • What can I expect from an escalated status including emergency situations? • What is your approach to complain resolution? Proactively Avoiding Disputes • Obviously write a clear contract • Payment Terms • The CRO must remain cash neutral: not a bank • Clearly define “delivery” and “completion” • Sponsors should negotiate payment for performance, including milestones and deliverables

28. Shouldn’t we just argue through our lawyers? Providing for escalation pathways and dispute resolution could be more than a stocking stuffer • Get the parties involved • Set forth in the contract a system whereby the parties agree to resolve any dispute out of court, and perhaps even out of arbitration or mediation • A solid escalation process could save tremendous amount of time and money • Sample Escalation Process: • 1) required meeting over a set time (E.g. 7-10 days) of the operational team; 2) next escalation is to management with a deadline to resolve (E.g. 30 days); 3) mediator,; then 4) arbitrator or court • Distinguish dispute between one where the parties can continue to work together versus one that blows up the whole deal • Indemnification clause and limitation of liabilities. What threshold of intentional or negligent acts will one party be indemnified for? The more these items are fleshed out, the clearer resolution can be. • Contract should also have a process for obtaining indemnification. Notice containing facts, timeline, etc… • What is the governing law? If it reaches mediation, arbitration, or court, where will this be? Agree in advance

29. What do you mean you hired my clinical director? Was soliciting one another’s employees spelled out? • What is a covenant not to compete? • A covenant not to compete is a promise by an employee not to compete with his or her employer for a specified time, in a particular place or in a particular way. A covenant not to compete, which is also known as a non-competition agreement, may be a clause in an employment agreement or a separate contract standing by itself. • Are they enforceable? • Generally speaking, yes. Courts once did not enforce non-competition agreements, viewing them as unlawful restraints on trade.  Today, however, courts will enforce non-competition agreements if: - The employer proves that it has a legitimate business interest to protect by restricting its employees' right to compete against it; - The restriction on the employee's right to compete is no greater than that necessary to protect the employer's business interest; and - The covenant not to compete is supported by consideration, meaning that the employee received something in exchange for it.

30. What do you mean you hired my clinical director? Was soliciting one another’s employees spelled out? Every case turns on its own facts. Judges who enforce a non-competition agreement must balance the protection of the employer's business interest against the employee's right to earn a living, as well as other factors, such as whether the restrictions will harm the public. • What if I cannot work anywhere else? - If the employer's restriction against competition prevents you from working anywhere for anyone, it is probably too broad.  Few employers will be able to convince a court that their business interest is important enough to prevent an employee from working for anyone else.

31. What do you mean you hired my clinical director? Was soliciting one another’s employees spelled out? • Applies to all employees – not just clinical directors • Sponsors and CROs both work with a lot of companies, partners, and contractors • The agreement should contain non-solicitation and non-compete clauses to protect either party • The newly hired party could be working for a competitor – also would not want them leading a key employee to a competitor • All employees involved should know of restrictions in the contract relevant to them • Otherwise, would not do much good • Non-compete clauses and non-solicitation clauses – CA vs. non CA • May want to consider law of another state if possible • Worst case scenario and they do hire your clinical director, you want notice • Immediately send letter to hiring party laying out position/concerns • Instruct him or her to be silent! • Also send letter to the employee

32. So that process we invented together gives us evenly split revenue in the future, right? IP and inventions mean real money in these types of relationships. • May want to specifically mention in the contract a specific piece of IP that shall absolutely remain separate and acknowledged by the parties as being owned by one party prior to the contract • In everyone’s best interest to state in the Contract who owns IP as between the CRO and Sponsor and potentially clinical site • Disclosure required as soon as something is developed or changed • Bigger issue can be with regard to the clinical sites • More challenging for Sponsor and CRO to maintain ownership here • If need be, try to keep ownership jointly between all parties • Map out minimum set terms for license in advance between parties so no party is held at gun point • If things are successful the price could get very high so don’t wait – get it while it’s cheap! • As sponsor, you always want to provide in the agreement for the first right to license or get ownership of the invention if specific to drug or device • Issues arise here more often than people want to admit – don’t underestimate risk • Doctors will tweak what you have, try it on other types of patients, tweak the dose, tweak the delivery – even if the agreement says no • At least if it is in the agreement, you have a leg to stand on if you find out

33. Naughty or nice? We thought this was going to be good but now we want out of this contract. Now what? • Contract should include reasonable termination provisions so each party can plan and survive, should they need to terminate the agreement or the other party does so • Sponsor’s ability to terminate the contract should probably have a different threshold than the CRO to reflect the difference in responsibilities in the development process, risk and potential damage to be suffered by the parties through the life of the contract (which may be different) • CRO may have already signed agreements with vendors/contractors. Sponsor should cover costs if they terminate and also if they are transitioning to a different CRO • What notice is required of each party? • Sponsor probably wants longer termination notice - 120-180 days (ideally) to find another CRO and not disrupt trial • Termination should not extinguish any existing obligation existing at that time • For Sponsors it is very important the contract provide the quick return of all data, documents, work so it can move to another partner if necessary upon termination • Don’t want to be held up and under time pressure so put defined timelines in the contract • The more that is laid out in advance the better • Critical for CROs to end relationship with no residual liability and get paid

34. The Gift of A Great Contract Thank you for your time! Any…… Paul G. Nardulli, paul@optimalawgroup.com Claudia Shojai, crshojai@gmail.com