Contents:

EXECUTIVE SUMMARY Driving forces Outsourcing R&D The future of pharmaceutical outsourcing CHAPTER 1: DRIVING FORCES Introduction - Increased focus on shareholder value - The productivity crisis in sales and marketing - The productivity crisis in R&D - Merger & Acquisition - the key to improving R&D productivity? - Measuring scale and R&D productivity CHAPTER 2: OUTSOURCING R&D Introduction - What is outsourcing? - CROs - Sizing the pharmaceutical R&D outsourcing market The drivers and resistors for outsourcing R&D - Drivers of outsourcing - Rapid access to additional R&D capacity - Access to therapeutic expertise - Access to novel enabling technology - Case study: Roche gains access to genomics research through agreement with deCode - Case study: Other examples of genomics agreements - Tighter focus on core competencies - Speed of development - Rapid access to patient populations for trial recruitment - Risk management - Is outsourcing cheaper? - The resistors of outsourcing R&D - Loss of in-house expertise - Lack of contact with investigators and opinion leaders - Loss of intellectual property/concerns over confidentiality - Loss of project control - Stability of CROs The structure of the supplier base for outsourced R&D - Do pharmaceutical sponsors value one-stop-shopping? - Large versus small outsourcing vendors - Case study: Ilex Oncology completes transformation from specialist CRO to pharmaceutical company Outsourcing agreements - Fee-for-service - Risk sharing agreements - Risk sharing agreement case studies - Case study: PharmaBio Development invests in - Nitromed/Novia/Innapharma - Case study: PPD Discovery and Agouron enter risk-sharing agreement - Facility-for-service/risk taking - Facility-for-service case studies - Conclusion Defining optimum outsourcing strategies - Tactical versus strategic outsourcing - Defining a strategic outsourcing framework Case studies of strategic outsourcing - Case study: Biogen outsources development and commercialization of Angiomax - Case study: Aventis shifts capital off the balance sheet - Forming best practice relationships with CROs Case studies of strategic outsourcing - Distant relationships can be beneficial if managed effectively - Preferred supplier networks & strategic partnerships - Case study: Inceutica marketplace seeks CRO selection efficiencies - Case study: Kendle and Pharmacia - Improving outsourcing relationships The role of eTechnology in outsourcing - Case study: Covance's StudyTracker - Clinical trial patient recruitment on the Internet - Outsourcing online clinical trial recruitment - Case study: Acurian provides novel outsourced recruitment business model - eDC - Outsourcing eDC - Case study: Eli Lilly invests in online trial venture with 1747 Inc. - In silico research - Outsourcing in silico research - Case study: Pharsight and Millenium CHAPTER 3: THE FUTURE OF PHARMACEUTICAL OUTSOURCING Introduction The outsourcing market to 2010 Forecast supplier base structure Alternative long-term scenario The virtual pharmaceutical model The business model Potential benefits of the virtual pharmaceutical model Case study: Fulcrum (Protodigm) Is the virtual business model realistic? Virtual development providers - a new type of future outsourcing? Conclusion List of Figures Figure 1.1: The pharmaceutical industry outlook – investor concerns 16 Figure 1.2: Pharmaceutical R&D expenditure by US based companies, 1985–2001 20 Figure 1.3: Lengthening drug development timelines, 1960s–1990s 23 Figure 1.4: The commercial value of late stage R&D pipelines is directly proportional to R&D expenditure 27 Figure 1.5: Opportunities to externalize activities throughout the pharmaceutical value chain 30 Figure 1.6: Global outsourcing expenditures, 1997–2000 32 Figure 2.7: The global pharmaceutical R&D outsourcing market, 1997–2001 39 Figure 2.8: Global pharmaceutical R&D outsourcing by stage, 2001 41 Figure 2.9: Drivers and resistors for outsourcing R&D 42 Figure 2.10: Ranking of drivers for outsourcing R&D 43 Figure 2.11: Outsourcing can add-value when resource needs fluctuate 44 Figure 2.12: Speed of development – in-house versus outsourced 50 Figure 2.13: Delays in clinical trial programs due to recruitment lags 51 Figure 2.14: Ranking of resistors to outsourcing R&D 55 Figure 2.15: Market share of the top 10 CROs, 2001 61 Figure 2.16: Indexed share performance of the top 5 CROs, January 1997–July 2002 65 Figure 2.17: The leading CROs’ service portfolios 68 Figure 2.18: The outsourcing R&D reality gap 71 Figure 2.19: The pros and cons of using large and small outsourcing vendors 73 Figure 2.20: Selecting the optimum agreement with CROs 77 Figure 2.21: Tactical versus strategic outsourcing 87 Figure 2.22: Building an effective strategic framework for outsourcing 91 Figure 2.23: Establishing best practice relationships with outsourcing providers 100 Figure 2.24: Multi-level relationship management with outsourcing providers 102 Figure 2.25: Drivers and resistors of outsourcing eClinical trial recruitment 109 Figure 2.26: The advantages of using eDC in clinical trials 112 Figure 3.27: The global pharmaceutical R&D outsourcing market, 2001–2010 124 Figure 3.28: The virtual pharmaceutical company transformation 128 Figure 3.29: Cost savings through adopting a virtual development approach 131 List of Tables Table 1.1: The declining productivity of R&D 21 Table 1.2: Pipeline productivity versus R&D spend 26 Table 2.3: The global pharmaceutical R&D outsourcing market, 1997– 2001 38 Table 2.4: Financial performance of the leading CROs, 2000–2001 62 Table 3.5: The global pharmaceutical R&D outsourcing market, 2001–2010 123 Table 4.6: Criteria and points used in generating pipeline productivity index 139

Sample

The Outsourcing Market to 2010 The most important factor influencing the outsourcing sector over the next ten years will obviously be the evolution of the pharmaceutical industry as a whole. As discussed in Chapter 1, industry-wide factors such as the declining productivity of R&D, increasing importance of generic competition, regulatory constraints, proliferation of R&D enabling technologies and continued consolidation will all play a major part in determining the outsourcing sector's future. Table 3.27 (provided in full report) shows the forecast pharmaceutical R&D outsourcing market to 2010. The market is predicted to grow from $9.3bn in 2001 to $36.0bn by 2010, representing an average annual growth rate of 16.3% (compared an average growth in global R&D expenditure of 9.6% during the same period). In many respects, this forecast growth in the pharmaceutical R&D outsourcing market relates to a gradual evolution of the current environment e.g. 'business as usual', rather than a fundamental shift in industry dynamics. CHAPTER 4: THE FUTURE OF PHARMACEUTICAL OUTSOURCING Whilst pharmaceutical companies will outsource a greater proportion of R&D during the next decade, the cultural shift regarding industry sponsor's attitudes towards vendors such as CROs will be gradual. Sponsors will become more experienced and sophisticated at managing a portfolio of outsourcing contracts, ranging from one-off agreements with R&D enabling technology providers through to global strategic partnerships with CROs. The ongoing roll-out of Internet based technologies will also assist companies in improving the relationships and effectiveness associated with outsourcing R&D. Companies will begin to outsource more strategically, rather than in the 'ad hoc' unplanned fashion that has shaped industry's use of outsourcing to-date. The greatest exponents of seeking outsourcing opportunities during the next five years will be the smaller pharmaceutical and biotechnology companies. Niche companies will identify therapy areas in which they will focus their development and sales and marketing capabilities. Their portfolios will be built from in-licensing agreements with a wide network of 'feeder' organizations that specialize in research but do not have the resources to conduct clinical trials or take their products to market.