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Sourcing Strategies in Clinical Development Which model yields the most cost savings? Ken Dhimitri Vice President, Operations February 19, 2015 2015 Boston Biomedical Associates Rev A Page 1

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This presentation will answer four key questions 1.Why develop a sourcing strategy? 2.What are your sourcing options? 3.How do sourcing options compare? 4.What are the keys to sourcing success? Sourcing Strategies in Clinical Development Agenda 2015 Boston Biomedical Associates Rev A Page 2

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2014 Boston Biomedical Associates Rev A Page 3 Why develop a sourcing strategy?

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More than one in ten clinical trial sites fail to enroll a single patient and nearly 40% of investigative sites under- enroll. 1 Reaching enrollment goals typically means nearly doubling the original enrollment timelines. 1 Why develop a sourcing strategy? Trials subject to timeline slippage and cost overruns 1 Tufts CSDD, "Tufts CSDD Press Release PDF," 15 January 2013. [Online]. Available: http://csdd.tufts.edu/files/uploads/02_-_jan_15,_2013_-_recruitment-retention.pdf. [Accessed Sep 2014]. http://csdd.tufts.edu/files/uploads/02_-_jan_15,_2013_-_recruitment-retention.pdf 2015 Boston Biomedical Associates Rev A Page 4

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Why develop a sourcing strategy? Protocol Complexity Increasing 2 2015 Boston Biomedical Associates Rev A Page 5 2 Getz, Campo, Kaitin. Variability in Protocol Design Complexity by Phase and Therapeutic Area. DIJ 2011 45(4); 413-420. 00 0304-07 08-11 Percent Change 00-11 Unique procedures per protocol20.528.230.448% Total procedures per protocol105.9158.1166.657% Total investigative site work burden (median units) 28.944.647.564% Total eligibility criteria31495158% Median study duration in days14015417525% Median number of CRF pages per protocol55180176227%

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Serious Adverse Events (SAEs) reported to the FDA are increasing at a rate about twice as fast as the overall growth of the medical device market 3 The increasing likelihood of a quality event, the rising costs of such events, and the public nature of quality performance will force device companies to focus on quality 3 Why develop a sourcing strategy? Increasing regulatory burden and safety concerns 2015 Boston Biomedical Associates Rev A Page 6 3 McKinsey, "The Business Case for Medical Device Quality PDF" [Online] Available: http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/public%20sector/regulatory%20exce llence/the_business_case_for_medical_device_quality.ashx [Accessed Sep 2014 http://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/public%20sector/regulatory%20exce llence/the_business_case_for_medical_device_quality.ashx

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Medical devices developers are facing the greatest pressure to date from increased efforts by buyers to cut reimbursement and the price paid for devices. 5 Revenue growth rates declined significantly from 2005-2011. -At a rate of approximately 12% per year. 5 Why develop a sourcing strategy? Revenue growth rates declining 2015 Boston Biomedical Associates Rev A Page 7 5 PwC, "Operating Performance in the Medtech Industry PDF" [Online] Available http://download.pwc.com/ie/pubs/2012_operating_performance_in_the_medtech_industry.pdf [Accessed Sep 2014] http://download.pwc.com/ie/pubs/2012_operating_performance_in_the_medtech_industry.pdf

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Experiment with novel models of driving innovation, such as in-licensing, partnerships, and strategic investment and divestitures. 6 Deploy more cash into external development by viewing new programs as a collective effort. 6 Consider changing compensation practices to reflect spending efficiency and project hit rate. 6 Why develop a sourcing strategy? Declining R&D efficiency warrants novel solutions 2015 Boston Biomedical Associates Rev A Page 8 6 Morgan Stanley, The US Healthcare Formula Cost Control and True Innovation [Online]. Available: http://www.morganstanley.com/views/perspectives/US_Healthcare.pdf [Accessed Sep 2014]. http://www.morganstanley.com/views/perspectives/US_Healthcare.pdf

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Payor pressure Utilization is being pressured by limited coverage on certain procedures that do not have the appropriate supporting clinical data. 6 Device makers increasingly are turning to clinical trials to differentiate their products from competitors and improve their odds of adoption in the marketplace. 7 Why develop a sourcing strategy? A changing device development landscape 2015 Boston Biomedical Associates Rev A Page 9 7 Jim Pomager, Med Device Online, 5 Tips For Successfully Outsourcing A Medical Device Clinical Trial [Online]. Available: http://www.meddeviceonline.com/doc/five-tips-for-successfully-outsourcing-a-medical- device-clinical-trial-0001 [Accessed Sep 2014].http://www.meddeviceonline.com/doc/five-tips-for-successfully-outsourcing-a-medical- device-clinical-trial-0001 8 FDA, Device Approvals, Denials and Clearances [Online]. Available: http://www.fda.gov/MedicalDevices/ProductsandMedicalProcedures/DeviceAppr ovalsandClearances/default.htm [Accessed Sep 2014] http://www.fda.gov/MedicalDevices/ProductsandMedicalProcedures/DeviceAppr ovalsandClearances/default.htm

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2014 Boston Biomedical Associates Rev A Page 10 What are your strategic sourcing options?

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Insourcing Outsourcing Transactional Functional Service Provider (FSP) Preferred Provider Strategic Partnership What are your strategic sourcing options? 2015 Boston Biomedical Associates Rev A Page 11

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Utilization of an organization's own personnel and resources to accomplish a project and/or task. Projects and/or tasks are assigned to persons or departments within the company instead of contracting an outside party to do the work. What are your strategic sourcing options? Insourcing 2015 Boston Biomedical Associates Rev A Page 12 Control over personnel, processes, technology Perceived quality improvement High costs Less favorable cycle time and overall timeline performance as compared to strategic outsourced models

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What are your strategic sourcing options? Insourcing 2015 Boston Biomedical Associates Rev A Page 13 When to Use Who is most apt to use? Why Use In the context of a pre-existing volume of in-house personnel that have the capability, experience and infrastructure to manage Clinical Development independently, absent the support of a Contract Research Organization and/or other major third party vendors. Mid-sized and large device companies who have over time acquired meaningful personnel, process and technology assets. Preference for control over cost-savings. Need for control is strong enough to justify trade-offs against efficient task performance and value creation.

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Practice of contracting an outside party to perform a task, project or business process. Transactional outsourced models in Clinical Development are often comprised of multiple vendors, RFIs/RFPs and proposal processes, competitive bids/awards and ongoing vendor management. What are your strategic sourcing options? Outsourcing (Transactional) 2015 Boston Biomedical Associates Rev A Page 14 Modest cost savings Able to initiate projects and scale resources quickly Less favorable cycle times and overall timeline performance Some quality concerns

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What are your strategic sourcing options? Outsourcing (Transactional) 2015 Boston Biomedical Associates Rev A Page 15 When to Use Who is most apt to use? Why Use Single or stand-alone trial (non-program level outsourcing) Small and mid-sized device companies who lack personnel, process and technology assets. Companies subject to M&A. Need for FTE support. Modest to moderate cost pressures. Competitive pressures to initiate human trials (investors/shareholders, competitive landscape).

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Utilization of a highly specialized single vendor service in a specific functional area, geography, or field of subject matter expertise. For example: Clinical Monitoring in Asia-Pacific or provision of Statistical services across multiple clinical trials. What are your strategic sourcing options? Functional Service Provider 2015 Boston Biomedical Associates Rev A Page 16 Good timeline and quality performance Geographic FSPs yield broad global reach for Sponsors that have limited global footprint Unfavorable cost profile High oversight requirements for Sponsor

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What are your strategic sourcing options? Functional Service Provider 2015 Boston Biomedical Associates Rev A Page 17 When to Use Who is most apt to use? Why Use When planning trials in emerging regions. When internal vendor management capabilities are high. Mid-sized and large device companies who have core personnel, process and technology assets, but are weak in a specific functional area or geography critical to their development objectives. Limited global reach (especially in emerging regions). Limited in-house capabilities/expertise in a specific functional area.

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Utilization of a preferred vendor who as a result of either pre- qualification or prior work history provides services known to meet a predetermined set of specifications; often defined in a Service Level Agreement (SLA) or Quality Contract. What are your strategic sourcing options? Preferred Provider 2015 Boston Biomedical Associates Rev A Page 18 Good timeline and quality performance Moderate to significant cost savings Modest Sponsor oversight FTE requirements Modest to moderate upfront labor and infrastructure development time requirements

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What are your strategic sourcing options? Preferred Provider 2015 Boston Biomedical Associates Rev A Page 19 When to Use Who is most apt to use? Why Use When looking for a comprehensive outsourcing solution, but dont have the time and/or resources to develop a full strategic partnership. Mid-sized and large device companies who have core personnel but are looking to control costs through some shared processes, efficiencies and integrated technology assets. Cost savings. Reduced Sponsor FTE requirements (no shadow resources / mirror teams).

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A formal alliance between Sponsor and CRO that is characterized by a shared vision, early engagement, alignment of incentives, process & technology innovation, joint governance, and robust metrics. What are your strategic sourcing options? Strategic Partnership 2015 Boston Biomedical Associates Rev A Page 20 Substantial cost savings Very low Sponsor oversight FTE requirements Broader relationship that generates innovative processes, efficiencies Good timeline and quality performance 6-9 month build time 15-18 months to realize gains

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What are your strategic sourcing options? Preferred Provider 2015 Boston Biomedical Associates Rev A Page 21 When to Use Who is most apt to use? Why Use When vested in developing a comprehensive, long-term sourcing solution. Small device companies with a vision that includes a long-term, ongoing clinical development strategy. Mid-sized and large device companies looking for substantial cost control through the alignment and innovation born out of strategic partnership. Most substantial cost savings. Most substantial reduction in Sponsor FTE requirements. Long-term sourcing strategy.

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2014 Boston Biomedical Associates Rev A Page 22 How do strategic sourcing options compare?

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Insourcing and FSP models fail to yield cost savings due to high resource requirements and inefficient integration of cross-functional processes Strategic Partnership yields the most substantial savings due to lean FTE ratios, process efficiency and reduced overall timelines How do sourcing options compare? Cost Savings by Sourcing Model 2015 Boston Biomedical Associates Rev A Page 23

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How do sourcing options compare? Reduced CRO/Sponsor Headcount Ratio 2015 Boston Biomedical Associates Rev A Page 24 Early engagement Defined oversight model Structured governance Formal communication planning Informative metrics Dedicated staff more efficient Fewer hand-offs due to deep back- up language and templates Technology integration & automation (e.g., eTMF and metrics reporting) # of CRO Staff (FTEs) per Sponsor Staff Assigned to Project 3-1 FTE ratio reduced to 15-1Drivers of reduced FTE ratio

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How do sourcing options compare? Outsourced Models Transactional OutsourcingPreferred ProviderStrategic Partner Initial Time Investment NoneModestSubstantial Award Process Competitive (many providers with bid defenses, RFIs, RFPs, and contract negotiation) Competitive (2-4 providers) Often non-competitive between one or two partners Award Strategy Focused on a projectFocused on projects or a program Focused on Therapeutic Area & Portfolio awards Opportunity for Cycle Time Reduction None Some (particularly in contracting) Substantial (contracting, start-up, enrollment, database lock, hand- offs between phases) Shared Processes or Technologies NoneLimited/none Substantial (focus on automation, integration and real time visibility to data) Pipeline Visibility NoneLimitedSubstantial 6+ mos lead time Explicit Incentive Alignment None Study level with some service-level agreements Relationship-level service agreements Relationship Owner/Driver Outsourcing Outsourcing (with support from senior management) Senior management (with support from outsourcing) Risk Assumption Sponsor Sponsor. Transactional risk assignment to CRO Robust Sponsor/CRO Risk Sharing Overall cost savings rises with depth and breadth of outsourcing model 2015 Boston Biomedical Associates Rev A Page 25

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53% of Medical Device companies surveyed indicated reliance on Transactional Outsourcing models 35% of total clinical research spend was insourced 68% of respondents anticipate an increase in their clinical outsourcing over the next three years How do sourcing options compare? Current trends in Medical Device Clinical Outsourcing 2015 Boston Biomedical Associates Rev A Page 26 9 Avoca Group, Trends in Medical Device Clinical Outsourcing [Online]. Available: http://www.slideshare.net/AvocaGroup/avoca-presentation-to-medical-devices- conferences?ref=http://www.meddeviceonline.com/doc/five-tips-for-successfully-outsourcing-a-medical- device-clinical-trial-0001 [Accessed Sep 2014]. http://www.slideshare.net/AvocaGroup/avoca-presentation-to-medical-devices- conferences?ref=http://www.meddeviceonline.com/doc/five-tips-for-successfully-outsourcing-a-medical- device-clinical-trial-0001

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What are the keys to successful sourcing?

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Shared Vision Robust Governance Defined Oversight Model Defined Acceptance Criteria Informative Metrics Early Engagement & Joint Operational Planning Structured Financial Model What are the keys to successful sourcing? Lessons Learned from Strategic Partnerships 2015 Boston Biomedical Associates Rev A Page 28

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Create a Shared Vision 1.What does each partner hope to gain from the relationship? 2.What contributions will each partner make to the success of the relationship? 3.To what extent does the Sponsor or CRO need to exercise control? Is the need for control strong enough to justify trade-offs against efficient task performance and value creation? In what areas? 4.What underlying assumptions need to hold true for the partners to remain strategically committed to the relationship and its success? 5.Are there risks that individuals will lose from the alliance? Is the partnership seen as a personal threat (e.g., to anyones job). If so, how will these risks be mitigated? What are the keys to successful sourcing? Shared Vision 2015 Boston Biomedical Associates Rev A Page 29

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Management by Exception Focuses on identifying and handling issues and events that deviate from defined processes and requirements Trust, but Verify Assumes quality and performance are compliant with defined processes and requirements but adds additional quality checks to verify that outputs conform What are the keys to successful sourcing? Defined Oversight Model 2015 Boston Biomedical Associates Rev A Page 30 At what altitude will you fly?

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A Tale of Two Trials Comparative spend through Last Patient In 2015 Boston Biomedical Associates Rev A Page 31 Sponsor ASponsor B Sites2530 Subjects185220 Enrollment Duration24 mos. Sourcing Strategy Transactional Outsourcing, Partially Insourced Preferred Provider Oversight Model Shadow Resources, "Check with me" Trust & Verify, Pre-defined Acceptance Criteria Governing ProcessesSponsor/CRO Hybrid100% CRO Communication Plan65 explicit requirements 3 standard definitions and a single escalation pathway Sponsor/CRO FTE Ratio1:21:12 CRO Service Fees$6.25M$5.32M Sponsor Labor + Overhead (Est.)$1.82M$0.46M Total Spend through LPI$8.07M$5.78M

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Acceptance Criteria: What does good look like? Predefined requirements, specifications and thresholds that detail the acceptability of planned deliverables. Metrics Informative Metrics: How do we measure success? Operational Metrics Timelines, Productivity, Quality Relationship Metrics Innovation Metrics Process Improvements; Application of new technologies; Integration of key systems between CRO and Sponsor Knowledge of Performance or Knowledge of Results? What are the keys to successful sourcing? Acceptance Criteria and Informative Metrics 2015 Boston Biomedical Associates Rev A Page 32

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Build infrastructure to facilitate development of a mutually agreed, data driven, operational plan including appropriate scope, timelines, buffers and contingency plans prior to the commencement of work. Protocol Design Considerations: (eligibility criteria, schedule of events). Regulatory: (pre/post market, use of control, pt. risk, protected pop.). Investigator Survey Data. KOL Panel/Focus Group Data. ICD-9, CPT code and EMR Data. Competitive Trial Landscape. Commercial Product Landscape. Country level SoC & Healthcare Delivery System Constraints. Patient Outreach and Recruitment Considerations. Reimbursement Issues (cost of comparator or adjunctive therapy). Country Allocation & Site Activation Forecast. Consent, Screen Failure, Enrollment and Withdrawal rate Projections. What are the keys to successful sourcing? Early Engagement & Joint Operational Planning 2015 Boston Biomedical Associates Rev A Page 33

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Rate Card establishing fixed rates per country (or country bands) across all CRO services with inflation rate adjustors for out years Volume discount (provided at point of sale) based on YTD awarded business applied to new business going forward Tiered based on increasing bands of awarded business Bundling discount for multi-protocol awards within the same product and applied to all additional budgets Service Level Agreements (SLA) for some services Selective Risk/Reward for some studies Link to key milestones, e.g., LPI, DBL +/- x weeks Reward should be greater than the risk What are the keys to successful sourcing? Financial Model 2015 Boston Biomedical Associates Rev A Page 34

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Acknowledge the pressures on the Medical Device industry Recognize strategic sourcing as a viable and important mechanism of cost control in Clinical Development. Understand your strategic sourcing options Consider timeline, quality and cost implications of insourced vs. outsourced models. Develop a sourcing strategy Choose a model that matches your organizations short term needs and long term objectives. Define your oversight model Regardless of sourcing strategy, collaborate with your CRO vendor to define an efficient Sponsor oversight model that ensures quality while maintaining cost controls. Summary 2015 Boston Biomedical Associates Rev A Page 35

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2014 Boston Biomedical Associates Rev A Page 36 THANK YOU Visit BBA at www.boston-biomedical.com or contact Ken at kdhimitri@boston-biomedical.comwww.boston-biomedical.comkdhimitri@boston-biomedical.com

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Boston Biomedical Associates (BBA) www.boston-biomedical.com is a full service product development consultancy and contract research organization (CRO) serving the medical device and biopharmaceutical industries.www.boston-biomedical.com BBA was founded in 2000 by Lauren Baker, PhD, PE. Our team is comprised of more than 60 experts with global product development, regulatory and clinical trial experience. BBA is an ISO 13485:2003 certified organization. BBA offers broad-ranging capabilities in product development from initial design and first in human, through large pivotal trials and post-market studies. About Boston Biomedical Associates 2015 Boston Biomedical Associates Rev A Page 37

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BBAs Service Lines 2015 Boston Biomedical Associates Rev A Page 38 Product Development Regulatory Strategy & Submissions Regulatory Authority Liaison Pre & Non-clinical Clinical Study Design Statistical Consulting Quality System Assessment and Development Strategic Consulting Product Development Expertise Protocol Design KOL/PI management Site Selection & Management Clinical Operations Monitoring Medical Affairs Data Management & Statistics Safety, DMC & CEC Medical Writing Trial Management Operational Expertise Clindex EDC & CTMS Imaging Core Lab Services (ICLS) Integrated Project Metrics Dashboard (iPMD) eClinical Platform Technology Expertise Functional Service Provider (FSP) Contract Staffing for clients not ready to outsource full service projects Staffing Solutions Personnel Expertise