university of chicago graduate school of business bio-pharma alumni organization october 2006 a.t....

University of Chicago Graduate School of BusinessBio-Pharma Alumni Organization

October 2006

A.T. Kearney’s Pharmaceutical R&D Location Attractiveness Index

Pharma R&D Moves Offshore

2Clinical Trial Offshoring

A.T. Kearney’s Pharma R&D off-shoring research has generated extensive interest in the media

A Publication of the TIMES OF INDIA Group

Bio-Pharmaceutical R&D Statistical

Sourcebook 2006/2007


Although Pharmaceuticals is a global industry, clinical studies are largely conducted in the U.S. and Western Europe driven by relevant expertise and intellectual property protection considerations

In the last two years, companies have increasingly turned to offshore locations to supplement their primary clinical trials, with the goal of increasing speed to market and the benefit of lower costs

To provide a systematic framework for evaluating geographical options for offshoring clinical trials, A.T. Kearney developed a structured country attractiveness index

We evaluated15 representative countries – the outcome: China ranked the highest overall, followed by India and Russia

The fact-based approach to the index provides insight into the future direction of clinical trials and specifically the attractiveness of locations based on structured criteria

The index should be considered a tool to support decision making in offshoring decisions and is flexible to be customized based on corporate priorities

Country attractiveness doesn’t suggest a narrow focus, but rather should be leveraged as a basis for diversifying clinical trial activities

Risks clearly exist in any offshoring of clinical trials, requiring careful planning and management in trial design and execution

Executive Summary

4Clinical Trial OffshoringSource: A.T. Kearney analysis

The pharmaceutical industry has historically lagged other industries in off-shoring

Stage 1Capacity

Augmentation

Stage 2Proof of Concept

Stage 3Value

Realization

Stage 4Strategic Supplier

Management

Stage 5Global

Operating Model

Financial InstitutionsGE, Citi,

Amex, HSBC

AutomotiveFordConsumer

Products & Retail P&G, Nestlé

Offshore Industry Lifecycle Curve – Pharmaceutical vs. Other Industries

UtilitiesSouthern Company

AEP

Other

Pharmaceuticals

However, the pace of off-shoring within the pharmaceutical industry has intensified over the last 1 – 2 years


R&D, particularly clinical trials, is better suited to off-shoring when compared to other parts of the pharmaceutical value chain

Clinical trials for a drug can cost up to $1 Billion and can take as many as 14 years to complete

Early Exploratory

Late Exploratory

Discovery

Pre-Clinical Evaluation

New Compound Discovery

Clinical Trials and Lifecycle Management

FDA Approval

Post Approval Trials and Drug

Sales

Sta

ge

s o

f a

D

rug

’s L

ife

C

yc

le

• New molecules are discovered here

• Molecules are formulated as drugs tested on animals for efficacy and safety as part of pre-clinical development and evaluation

Testing an experimental drug or treatment in a small group of people (20-80) for the first time to evaluate its safety, determine a safe dosage range, and identify side effects

I

II

III

The experimental study drug or treatment is given to a larger group of people (100-300) to see if it is effective and to further evaluate its safety

The experimental study drug or treatment is given to large groups of people (1,000-3,000) to confirm its effectiveness, monitor side effects, compare it to commonly used treatments, and collect information that will allow the experimental drug or treatment to be used safely

Post marketing studies delineate additional information including the drug's risks, benefits, and optimal use

IV

Phase Comments Phase CommentsSub Activities Comments


Top pharmaceutical companies are increasingly conducting clinical studies outside the US and in offshore locations

Pharma company-ranked by total # of

studies

Total # of studies

Studies with

location in the US

Studies with location

outside the US

BMS 186 180 87

GSK 173 142 90

Roche 148 129 70

Pfizer 147 129 67

Novartis 139 119 37

Eli Lilly 131 105 72

Abbott 67 60 29

Astra Zeneca 56 49 19

Johnson & Johnson 48 41 24

Schering-Plough 44 40 27

Wyeth-Ayerst 35 29 13

Aventis 27 23 9

Total 1,201 1,046 544

Top 12 Pharma companies as a percentage of total industry studies

Notes: (1)The top 12 companies account for only 2% of all pharma companies. Posting on the site clinicaltrials.gov is voluntary but increasingly popular. The data represent a snapshot in time and covers almost 600 companies worldwide

Source: Clinicaltrials.gov (as of 08/26/05) and A.T. Kearney analysis; excludes studies where locations were not provided

Number of studies by top 12 Pharma companies1

Number of studies sponsored by

industry

Number of studies conducted by Top

12 Pharma

Percentage of studies conducted by Top 12 Pharma

2910 1201 41%

Number of studies sponsored by industry with

location outside the US

Number of studies with location

outside the US sponsored by Top

12 Pharma companies

Percentage of studies with location

outside the US by Top 12 Pharma

companies

1125 544 48%

48% of trials conducted by

Top 12 Pharma have locations outside the US


Most major pharma companies are pro-actively off-shoring clinical trials to attractive, low-cost destinations

Notes: (1) Posting on the site clinicaltrials.gov is voluntary but increasingly popular. The data represent a snapshot in time(2) Total number of studies is less than the sum over all countries due to the use of multiple locations for most trials

Source: Clinicaltrials.gov (as of March 2006, February 2007) and A.T. Kearney analysis; excludes studies where locations were not provided

Number of active clinical trial studies sponsored by Top 12 Pharma outside the US (March 2006, Feb. 2007) (2)

135

77

288

69

180 182

161

12 16

148

124

294

81

199

279

169

23 26

0

50

100

150

200

250

300

Eli Lilly Novartis GSK Merck BMS Sanofi Aventis Pfizer Biogen Amgen

Mar-06 Feb-07


Off-shore clinical trial activity has increased by ~20% in just the past year

Notes: (1) Posting on the site clinicaltrials.gov is voluntary but increasingly popular. The data represent a snapshot in time(2) Total number of studies is less than the sum over all countries due to the use of multiple locations for most trials

Source: Clinicaltrials.gov, A.T. Kearney analysis; excludes studies where locations were not provided

Number of active clinical trial studies sponsored by Top 12 Pharma outside the US

119

137

84

68 65

28

4954

63

52

2936

26

36

2629 27 28

1824

8

124

109

101

9388

8073

69

56 5451 49

41 39 37 35 34 32 29 2825 23

20 18121819

242528 23

0

50

100

150

Au

stra

lia

Mex

ico

Ru

ssia

Arg

enti

na

Bra

zil

So

uth

Ko

rea

So

uth

Afr

ica

Tai

wan

Isra

el

Jap

an

Ch

ile

Tu

rkey

Ch

ina

Ro

man

ia

Sin

gap

ore

Per

u

Ho

ng

Ko

ng

Th

aila

nd

Mal

aysi

a

New

Zea

lan

d

Bu

lgar

ia

Cro

atia

Ukr

ain

e

Co

lom

bia

Ph

ilip

pin

es

Co

sta

Ric

a

Mar-06 Feb-07

20% increase in off-shoring activity in ~ 1 year


• Phase 3 studies are more likely to have locations outside the US:

– Patient populations required are large

– Investigator grants and patient compensation is a large part of trial cost, making certain offshore locations attractive

• Phase 1 studies have comparatively fewer offshore locations:

– Ethical considerations as this phase determines safety of the trial drug

– Focus on healthy volunteers vs. specific patient profile

• Phase 4 studies are increasingly including locations/ data from patients in countries outside the US once the drug is on the market

75

407492

84

531

1142807

200

0%

20%

40%

60%

80%

100%

Phase 1 Phase 2 Phase 3 Phase 4

A higher percentage of Phase 3 clinical trials are conducted offshore relative to other phases

Source: Clinicaltrials.gov ( as of 8/10/05) and A.T. Kearney analysis

Observations

Percentage and Number of Studies in US and Offshore Locations – by Phase

Studies with location outside US

Studies with location in US only

12%

26%

38%

30%

12991549606 284


Speed to market and reduced costs have been cited as primary reasons for offshoring clinical trials

Selection of Offshoring Location

A structured and fact-based approach to identifying country attractive for clinical trials is an important component of any offshoring strategy

Long Term Offshoring Goals – Reduce Costs, Gain In-

Country Experience, Develop New Markets

Many low-cost countries are improving their regulatory conditions and level of clinical trials expertise

Pharma companies are positioning themselves to gain operating experience in these countries, where per patient costs can be as low as one third of the U.S. costs

Several low-cost countries, including India and China are attractive as potential new markets for innovative drugs

?

Source: Global clinical trial conference discussions and and A.T. Kearney analysis

Short Term Offshoring Goals – Supplement U.S. and Western

European Trials

Offshore trials can “rescue” a U.S. trial that is lagging due to slow patient recruitment

Companies have used offshore trials for parallel development tracks when FDA concerns caused delays in the U.S.

• Full disclosure with the offshore country’s regulatory authorities is needed to avert ethical concerns

Introduction of vaccines in developing countries prior to introduction in U.S. has been shown to be successful


A.T. Kearney developed an index to assess the attractiveness of countries for conducting clinical trials

Patient Pool (30%)

Size and availability of suitable patient pool

Cost Efficiency (20%)

Cost efficiency of labor Cost efficiency of facilities and

travel

Regulatory Conditions (20%)

Food and Drug Administration visibility

Country’s regulatory laws Strength of intellectual

protection

Relevant Expertise (15%)

Number of clinical research organizations

Number of clinical trials Size and availability of labor force

with relevant skills

Infrastructure and Environment (15%)

Protection of intellectual property Health-care infrastructure Country infrastructure Country risk factors

Country Attractiveness Index Criteria and Weighting


Our research indicates that China and India are the most attractive offshore locations to perform clinical trials outside the US

6.88

3.86

4.27

4.28

4.46

4.56

4.69

4.81

4.84

4.90

5.00

5.00

5.26

5.55

5.58

6.10

USA

Ireland

Singapore

Israel

Taiwan

South Africa

Germany

Hungary

Poland

Argentina

UK

Czech Republic

Brazil

Russia

India

China

Patient Pool Cost Efficiency Regulatory Conditions Relevant Expertise Infrastructure/Environment Total Score

Overall Country Attractiveness Index1

Note: (1) Higher scores indicate higher level of attractiveness(2) The set of 15 countries analyzed has been selected based on size, diversity, and geographical distribution, and is not meant to be comprehensive across all potential locations for offshoring


South Africa

Argentina

Brazil

China

India

Singapore

Taiwan

Hungary (hidden)

Russia

Poland

Ireland

United KingdomIsrael Germany

Czech RepublicUSA

HighLow Relevant Expertise

Small

Large

Pat

ien

t P

oo

l

Large patient pools, availability of relevant expertise, and lower costs make China and India attractive

Sources: World Bank 2003, World Development Indicators database 2003 and A.T. Kearney analysis

Relative Cost Efficiency1

Increasing bubble size indicates greater cost efficiencies

Country Attractiveness Components – Patient Pool, Relative Expertise and Cost Efficiency


Improvements in regulatory conditions and the infrastructure of emerging markets will drive the pace of change of offshoring

Argentina

Brazil

China

India

Singapore

Taiwan Hungary

Russia

Poland

Ireland

UK

USA

South Africa

Israel

Germany

Czech Republic

FavorableUnfavorable Infrastructure and environment

Unfavorable

Favorable

Reg

ula

tory

Co

nd

itio

ns

Source: A.T. Kearney analysis

Available patient pool – size of bubble is proportional to the size of the available patient pool

Country Attractiveness Components – Regulatory Conditions, Infrastructure/Environment and Patient Pool


Patient Pool: The large populations of China and India provide the greatest potential for patient recruitment

Overall Patient Pool Score3Urban Population1 (millions)

Treatment Naïve Population Score2

Notes: (1) Urban population is capped at 350 million due to limited benefit from extremely large populations (2) Higher scores indicate more treatment naïve populations (3) Higher scores denote large available patient pools; urban population weighted 55%, professional deliveries weighted 20%, treatment naïve populations weighted 25%

Source: World Bank 2003; UNICEF WDI Database; A.T. Kearney analysis

9.94

8.04

6.56

6.13

4.38

4.24

3.98

3.97

3.96

3.34

3.33

3.14

2.81

2.69

2.66

5.64

China

India

Brazil

Russia

Argentina

Poland

Hungary

Czech Republic

Taiwan

South Africa

Israel

Germany

UK

Singapore

Ireland

USA

Urban Population ScoreProfessional Delivery ScoreTreatment Naïve Population Score

350298

147105

735348

332624

87642

233

ChinaIndiaBrazil

RussiaGermany

UKTaiwan

ArgentinaSouth Africa

PolandCzech Republic

HungaryIsrael

SingaporeIreland

USA

5555

4444

333

22

11

1

RussiaIndia

ChinaBrazil

PolandHungary

ArgentinaCzech Republic

TaiwanSouth Africa

IsraelIreland

SingaporeUK

Germany

USA


Cost: Russia has the lowest overall cost structure followed by Argentina, China and India

Overall Indexed Costs3

Notes: (1) Clinical professional average includes physicians weighted 47%, nurses weighted 29%, and statistical mathematician weighted 24% (2) Facilities rental and CRO cost perspective are indexed to US = 1.0(3) Higher scores denote higher cost; labor index weighted 80%, facilities and travel index weighted 10%, CRO cost perspective weighted 10%. This metric is converted to a cost efficiency metric when incorporating into the overall country attractiveness index

Source: SalaryExpert.com; WDI Database; Economist Intelligence Unit; CBRE Global Markets Rent 2005; A.T. Kearney analysis

Cost of Labor1 (Indexed to US=1)

0 0.5 1 1.5 2

RussiaArgentina

ChinaIndia

BrazilCzech Republic

HungaryPoland

Taiw anIsrael

UKSouth Africa

IrelandSingaporeGermany

USA

Overall Country Average

Clinical Professional Average

Facilities Rental and CRO Cost Perspective2

0 0.5 1 1.5 2 2.5

South AfricaArgentina

PolandCzech Republic

BrazilChina

HungaryIsrael

SingaporeIndia

Taiw anRussia

GermanyIreland

UK

USA

Facilities Rental

CRO Cost Perspective

0.40

0.48

0.52

0.56

0.61

0.61

0.68

0.77

0.86

0.90

0.99

1.09

1.19

1.25

1.58

1.00

Russia

Argentina

China

India

Brazil

Czech Republic

Hungary

Poland

Israel

Taiwan

South Africa

UK

Singapore

Ireland

Germany

USA

Labor Cost Facilities and Travel Cost CRO Cost Perspective


Regulatory Conditions: Central/ Eastern European countries are attractive for regulatory conditions, while India and China are lagging

Overall Regulatory Conditions Score1,3

Notes: (1) Higher scores indicate higher attractiveness(2) Country specific laws include ease of shipping lab samples and regulatory approval times (3) FDA visibility is weighted 40%, country specific laws are weighted 40%, and General IP protection is weighted 20%

Source: FDA CDER; WEF Global Competitiveness Report; A.T. Kearney analysis

6.26

6.23

5.51

5.28

4.77

4.58

4.52

4.44

4.36

4.31

4.20

3.90

3.74

2.93

1.48

8.23

Germany

UK

South Africa

Poland

Russia

Singapore

Czech Republic

Israel

Ireland

Argentina

Hungary

Taiwan

Brazil

India

China

USA

FDA visibility Country Specific Laws General IP Protection

FDA Visibility1

Country Specific Laws1,2 and General IP Protection1

4.624.044.034.03

3.723.61

2.151.151.15

0.400.400.400.400.400.40

8.67

UKGermany

South AfricaRussia

ArgentinaPolandBrazil

Czech RepublicHungary

IsraelChinaIndia

SingaporeTaiw anIreland

USA

Voluntary Action ScoreNo. of Inspections Score

7.737.377.30

7.137.00

6.776.50

6.406.236.23

5.274.80

4.704.62

2.20

7.93

GermanySingapore

UKIsrael

IrelandCzech Republic

South AfricaPolandTaiwan

HungaryRussia

BrazilArgentina

IndiaChina

USA

Country Specific LawsIPR Protection


Relevant Expertise: China and Russia scored highest on relevant skilled labor

8.47

1.49

2.64

2.76

2.90

3.02

3.12

3.18

3.19

3.45

4.09

4.22

4.35

4.93

5.32

5.68

USA

Ireland

Singapore

Taiwan

Israel

Brazil

Czech Republic

Hungary

Argentina

South Africa

India

Russia

Poland

UK

China

Germany

Organization Expertise/Experience Relevant Skilled Labor Pool

Overall Relevant Expertise Score2

Notes: (1) Based on the market presence of the 12 largest clinical research organizations (weighted 50%) and amount of clinical trials conducted (weighted 50%)(2) Higher scores denote greater availability of relevant expertise; organizational expertise and experience weighted 60%, relevant skilled labor pool weighted 40%

Source: clinicaltrials.gov; Physician Index Annual; WHO/EIP/HRH; NSF; A.T. Kearney analysis

Organizational Expertise and Experience1

7.376.94

6.345.20

4.834.614.604.53

4.244.074.05

3.863.783.71

1.90

9.81

GermanyUK

PolandSouth Africa

ArgentinaIndia

HungaryCzech Republic

IsraelTaiwanRussia

SingaporeChinaBrazil

Ireland

USA

CRO presenceVolume of clinical trials

Relevant Skilled Labor Pool

0 500 1000 1500 2000 2500 3000 3500

USA

ArgentinaTaiwan

SingaporeSouth Africa

IrelandIsrael

Czech RepublicHungary

PolandUK

BrazilGermany

IndiaRussia

China

No. of doctorsNo. of nursesNo. of scientific degrees


10.010.010.010.010.0

6.76.76.7

3.33.33.3

0.00.00.00.0

10.0

GermanySouth Africa

SingaporeIreland

UKCzech Republic

TaiwanHungary

IsraelArgentina

BrazilChinaIndia

RussiaPoland

USA

Overall Infrastructure / Environmental Score2

Notes: (1) Healthcare criteria includes number of beds per 1000 people. Country infrastructure includes transportation, use of English and “personal contact” rank(2) Higher scores denote increased attractiveness; IP weighted 30%, Country Infrastructure weighted 25% , country risk weighted 25%, healthcare infrastructure weighted 20%

Sources: World Bank; PhRMA and Office of US Trade Representative Special 301 Report; Economist Intelligence Unit; CIA World Factbook; TOEFL; A.T. Kearney analysis

8.93

8.48

8.16

8.10

6.95

6.50

6.50

6.17

5.50

4.81

4.65

4.20

3.63

3.53

3.49

8.48

Singapore

UK

Germany

Ireland

Czech Republic

Taiwan

Hungary

South Africa

Israel

Argentina

Brazil

Poland

China

India

Russia

USA

Pharma IP Protection and Market AccessHealthcare InfrastructureCountry InfrastructureCountry Risk

Infrastructure Index (Healthcare and Country)1

Infrastructure / Environment: Ireland, UK, Germany and Singapore provide the most attractive environment driven by strong IP protectionPharma IP Protection and Market Access

7.877.52

7.347.07

6.896.52

6.235.785.73

4.984.974.97

3.863.83

7.71

SingaporeUK

GermanyIreland

IsraelCzech Republic

TaiwanHungary

PolandArgentina

BrazilRussia

ChinaIndia

South Africa

USA

Healthcare Score

Country Score


Current Situation

Key Findings

Overview of Top-Ranking Locations

Offshoring Considerations

Appendix

Agenda


9.94

7.38

1.48

5.31

3.63

6.10

3.98

5.91

4.48

3.32

6.34

4.87

0

2

4

6

8

10

Patient Pool Cost Efficiency RegulatoryConditions

RelevantExpertise

Infrastructure /Environment

Total Score

China

Median Score (Error Barsindicate Min/Max Score)

China offers large patient pools, low costs and sufficient qualified investigators, but a challenging regulatory environment

Current Situation

Trials / Regulatory 24 trials conducted in China by Top 12 pharma in 2005; 31 in 2006 1 FDA inspection 2000 – 2005

Patient Pool With the largest urban population in the world, China provides a

large pool of treatment compliant patients from multiethnic and multiracial backgrounds

Wide spectrum of disease types is represented

Environmental Factors China’s attractiveness is challenged by:

High country risk Lack of national infrastructure Limited enforcement of IP protection Bureaucracy and government regulations requiring trials to be

approved by the SDA, drug import license required for every shipment

Country Attractiveness Scores – China vs. Median

Sources: ClinicalTrials.gov (August 2005, March 2006); CenterWatch July 2002, FDA

Key Takeaways

While patient pool and cost factors are attractive, cultural, regulatory, and infrastructure concerns must be adequately addressed for trials to be conducted successfully in China

High enrollment rates can balance against the lengthy 9-12 month domestic trial approval process

Language can be a hurdle – data is often recorded in Chinese and must be translated before it can be used

China’s attractiveness as growing drug market is also a consideration in conducting clinical trials in China

Expected Future Trends

Government initiatives have helped to improve GCP in China with the establishment of GCP centers to provide training to investigators and staff


China: Attractiveness for Clinical Trials - Summary

Strengths

• Large Patient Pools and Relatively Easy Access

– Patient treatment of major diseases centralized to major hospitals making patient access easier

– Large patient populations

• Availability of Relevant Expertise

– Availability of co-operative doctor networks throughout the country

– Chinese CRAs are physicians from the institutions with clinical trial experience and have attended some international clinical trial training

– Real understanding of the science tends to result in fewer queries per trial

– Most major pharmacos have already set up captive R&D centers in China

• Expected to be 4th largest commercial market globally in the next 5 years

Areas for development

• Regulatory environment

– Study startup tends to take 6-9 months, making early phase trials less attractive

– SDA committed to making regulatory changes

• Lack of national infrastructure

• Limited enforcement of IP protection

• Bureaucracy and government regulations requiring trials to be approved by the SDA, drug import license required for every shipment


8.04

7.18

2.93

4.093.53

5.58

3.98

5.91

4.48

3.32

6.34

4.87

0

2

4

6

8

10


RelevantExpertise


Total Score

India


With large patient pools and a low cost structure, India’s attractiveness is likely to increase with expected regulatory improvements

Current Situation

26 trials conducted by Top 12 pharma in 2005; 40 in 2006 No FDA inspections 2000 – 2005 Clinical research is considered high quality – trial data has been

accepted at major conferences and journals India has already been established as a popular manufacturing

destination – pharma executives are familiar with the business environment

Key Takeaways

While patient pool and cost factors are attractive, regulatory, IP, and infrastructure concerns must be adequately addressed

IP protection of trial data is a concern that should be monitored for compliance with new laws

Mandatory toxicology tests after Phase 2 completion requires 6 month delay before start of Phase 3

Coordination with local physicians and hospitals is mandatory The practical approach in India is to target large cities and conduct

clinical trials in large hospitals India’s attractiveness as growing drug market with expanding

private health insurance is also a consideration in conducting clinical trials in India


Recently adopted laws will increase IP protection Legislative changes in Q1 2005 now allow India to participate in

simultaneous international Phase 2 and 3 trials. It is also probable that the government will allow Phase I tests in the near future (for drugs that did not originate in India)

Strong overall economic growth will lead to improvements in general and healthcare infrastructure

The CRO supply base is likely to increase as pharmas continue to increase manufacturing and testing in India

Source: PharmaHandbook 2005

Country Attractiveness Scores – India vs. Median


6.13

8.02

4.774.22

3.49

5.55

3.98

5.91

4.48

3.32

6.34

4.87

0

2

4

6

8

10


RelevantExpertise


Total Score

Russia


Russia achieved strong scores on multiple criteria with the exception of environment

Current Situation

Trials / Regulatory 5 trials conducted by Top 12 pharma in 2005; 80 in 2006 12 FDA inspections 2000 – 2005

Patient Pool Medical care is centralized – patients with similar symptoms are

treated in the same ward, allowing for ease of patient recruitment (i.e., 2,400 patients recruited in 2 weeks for phase 3 trial of hypertension drug)

Russia has a large population that are treatment naïve and whose diseases are at advanced stages

Lack of quality medical care has led to eagerness among patients to sign up for clinical trials and to comply with trial protocols

Environment Russia imposes a clinical trials tax IP concerns have placed Russia on the US’s priority ‘watch list’

Key Takeaways

Russia is attractive for trials where recruitment of a large patient pool is required in a short time frame

Ethics of recruitment requires careful attention; physicians can make up to 10 times their salary through clinical trials potentially creating an incentive to neglect to inform patients of risk factors

Clear procedures for and close monitoring of patient recruitment is necessary to ensure compliance with international ethical standards

Sources: clinicaltrials.gov; Fortune, July 26, 2005, Special 301 Report of the Office of the US Trade Representative


Drug companies are well established in Poland and the Czech Republic – Russia and other eastern European countries are increasingly attractive due to patient pool, lower costs, relevant skill labor pool

Country Attractiveness Scores – Russia vs. Median


6.566.97

3.74

3.02

4.655.26

3.98

5.91

4.48

3.32

6.34

4.87

0

2

4

6

8

10


RelevantExpertise


Total Score

Brazil


Brazil has a large patient pool and significant cost efficiencies, but lags in the areas of regulatory and environment

Current Situation

94 trials conducted by Top 12 pharma in 2005, 73 in 2006 5 FDA inspections 2000 – 2005 Brazil is primarily attractive because of its large patient pool and

low costs ICH GCP has been implemented A substantial portion of Brazil’s population is ethnically close to US

and European population Clinical trial costs are about 70% of US costs Brazil is attractive for trials of drugs for the Japan market

Japan is the second largest pharmaceutical market Brazil has the largest (1.1 million) ethnic Japanese population

outside of Japan Foreign trial results on ethnic Japanese are now accepted by

Japan authorities

Key Takeaways

Brazil has had a long track record for clinical trials and remains attractive based on the scoring across the criteria

Clinical trials approval is traditionally slow

There are strong IP protection laws; however, enforcement is generally weak


Stem cell research has been legalized

Country Attractiveness Scores – Brazil vs. Median

Source: clinicaltrials.gov


3.97

6.96

4.52

3.12

6.95

5.00

3.98

5.91

4.48

3.32

6.34

4.87

0

2

4

6

8

10


RelevantExpertise


Total Score

Czech Republic


The Czech Republic’s attractiveness is based on its low cost structure and favorable regulatory environment

Source: clinicaltrials.gov, Pharma Handbook 2005, PhRMA Special 301 Report

Country Attractiveness Scores – Czech Republic vs. Median

Current Situation

44 trials conducted by Top 12 pharma in 2005, 85 in 2006 2 FDA inspections 2000 – 2005 Pharmas are already well established in the Czech Republic for

conducting clinical trials The Czech healthcare system operates at low cost

Average Czech physicians’ monthly salary is $550 Investigator fees and CRO/monitoring fees are approximately 50-

70% of U.S. amounts

Key Takeaways

Although the available patient pool is not particularly high, the Czech Republic has strong IP protection, low operating costs, and a strong healthcare infrastructure

The Czech Republic is ideal for companies beginning to offshore clinical trials based on proximity to western Europe, relative absence of cultural, regulatory, and environment barriers, and tested/ track record in clinical trials


The Czech Republic’s accession to EU membership will likely lead to a narrowing of its cost advantage over time


Current Situation

Key Findings



Appendix

Agenda


Key Considerations

• The Food and Drug Administration (FDA) has guidelines for clinical trials and relies on pharmaceutical companies to adhere to Good Clinical Practice (GCP)

• Keep a pulse on regulatory environment changes in attractive off-shoring locations

• Most developing countries have Intellectual Property infringement issues, although the landscape is improving (e.g. India)

• Maintain a strong emphasis on due diligence and tight contracts

• Consider the organizational, language-related and supply chain implications of off-shoring trials

• Develop relationships with 3rd parties with local experience (e.g. multinational/ local CROs)

• Develop detailed/ practical contingency plans

• Ethnicity may affect trial results due to metabolic and genetic variations

• Reduce overall risk by diversifying trial locations over multiple countries

Pharma companies must consider a variety of factors in developing their clinical trial offshoring strategy

Development of Off-Shoring

Criteria

Protect Intellectual

Property

Understand Culture and

Ethnic Differences

Assess Operational Implications

Know the Local

Regulatory Environment


Concerns often surface about offshoring clinical trials

Pharma Concerns

Intellectual Property Protection• Data exclusivity may not be protected

– Advance knowledge of a trial’s progress will give competitors unfair market advantage

Regulatory Requirements• Regulatory differences across countries may impact timing and cost of clinical trials

– E.g., drug import licenses required for each shipment, mandatory toxicology tests, language requirements for documents

FDA Acceptability• FDA statements on clinical trials offshoring are considered guidelines; pharmas companies are cautious about

entering new countries

Cultural Differences• Differences in the practice of medicine may impact trial results or affect trial execution

– Concurrent use of herbal medicines may potentially be unreported– Use of physicians (but not nurses) in taking blood samples

• In countries where doctors are culturally authoritative, investigators avoid using consent forms, as patients misunderstand the reason for them

Ethnicity• Ethnicity may impact trial results due to different metabolic rates and other genetic effects• FDA guidelines limit the percentage of a drug’s trials conducted in developing countries

Ethics• Wide disparity between investigator fees and standard salaries could lead to unethical patient recruiting

– E.g., misleading patients about risk factors, enrolling patients that do not fit the trial parameters• Investigators may under-report adverse reactions, believing they are doing sponsors a favor


Many risk factors can be mitigated with careful planning and execution

Selected Risk Mitigation Strategies

Knowledge/ Information• Monitor IP legislation and enforcement – do not rely on unsubstantiated information • Leverage CROs to understand a target country’s customs, regulations, and medical practices before establishing

trials

Operational – Structure to Manage Risk • Start initially with a smaller trial(s) in entering a new country• Work with multinational and/ or established local CROs with hands-on in-country experience• Develop partnerships, while maintaining healthy competition among vendors• Develop detailed/ practical contingency plans

Ensure Adherence to Standards of Conduct and Trial Protocols – ‘Build Quality In’ • Conduct rigorous training and monitoring of new investigators, to ensure compliance with ethical standards and to

ensure quality of clinical trial• Conduct audits to ensure compliance with standards (quality, ethical, etc.) • Ensure incentive structure does not cause unanticipated behavior• If using CROs, work with those that have strong IP policies and operating practices with investigators and patients• Hold partners accountable for meeting appropriate FDA standards

Diversify• Diversify portfolio of clinical trail geographies to balance patient pool opportunities, cost efficiencies, expertise,

and regulatory risk• Design clinical trials to recognize ethnic diversity

• Ensure sufficient percentage of trials is conducted in other countries• Set up trial parameters to include range of ethnicities consistent with FDA guidelines

• Ethnic diversity may be an asset if future plans involve sale within clinical trial country


Current Situation

Key Findings



Appendix

Agenda


Weighting of criteria reflects the relative importance in assessing location attractiveness

Area of Evaluation/ Criteria Weighting

Patient Base 30%

Cost Efficiency 20%

Regulatory Conditions 20%

Relevant Expertise 15%

Environment 15%

Weights can be tailored to specific offshoring needs

Weights Assigned to Areas of Evaluation


Available patient base is evaluated by the size of the urban population and the propensity to seek medical attention

Area of Evaluation

Sub-Category Measurement Relevance

Patient Base

Size of Available Patient Pool

Urban Population Size Clinical trials conducted in urban areas to facilitate patient recruitment

Percent of Urban Childbirths Delivered by Physicians

Proxy for propensity of urban population to seek medical attention

Treatment Naïve Population Many clinical trials require that patients have not had prior treatments

Note: Measurements are converted into a score (range 0-10), and their weighted average is used to arrive at the composite score for the evaluation area

Sources: 2003 World Bank Data; 2003 WDI Database


Cost structure is assessed based on relevant labor and infrastructure costs and investigator grants

Area of Evaluation


Cost Efficiency

Cost of Labor Average Physician Salary Investigator fees/grants represent a significant portion of the total costs of the trial

Average Nurse Salary (proxy for clinical research assistant)

Clinical research assistants (CRAs) monitor trial patients, collect data, etc and represent a significant cost of conducting clinical trials

Average Statistical Mathematician Salary (proxy for data management personnel)

Statisticians responsible for data management, data analysis, maintaining database, etc.

Average Wages Average wages account for overhead labor costs and services, such as administrative

Infrastructure Costs Average Rental For Office Space (proxy for lab space or office space)

Cost of space for labs, office space, etc.

Round Trip Airfare from London and JFK to Largest City in Country (weighted average)

Management of the trial will likely involve some travel to/ from country

CRO Cost Perspective

Relative Grant Levels Compared to the US

Estimate of country variation in total grant costs

Note: Measurements converted to a score (0-10), weighted average applied to determine composite score for the evaluation areaSources: Salaryexpert.com; WDI Database; Economist Intelligence Unit; CBRE Global Markets Rent; Expedia.com


Regulatory conditions considers FDA visibility, in-country regulatory conditions and level of IP protection

Area of Evaluation


Regulatory Conditions

FDA Acceptability and Visibility

Number of Trials On the CDER Clinical Investigator Inspection List

Number of inspections reflects the FDA view of a country’s importance in clinical trials

Percent of Trials Where Inspection Resulted in Voluntary Action Indicated (VAI)

Countries with higher success rates with FDA inspections are more attractive

Country Specific Regulatory Conditions

Ease of Approval for Shipping Laboratory Samples (Rating)

Restrictions on biological shipments may extend lead time and delay initiation of trial

Clinical Trials Regulatory Approval Time (Estimated)

Regulatory approval time varies significantly across countries and is a potential bottleneck

Intellectual Property Protection

EIU IPR Protection Index Pharmas are concerned about potential reverse engineering of trial drugs

Note: Measurements converted to a score (0-10), weighted average applied to determine composite score for the evaluation area Sources: US FDA CDER Clinical Investigator Inspection List (1999-2004); US National Institutes of Health; Economist Intelligence Unit WEF Global Competition

Report; A.T. Kearney Research


Relevant expertise is driven by CRO presence, the country’s clinical trial experience and availability of the relevant skilled professionals

Area of Evaluation


Relevant Expertise

CRO Presence and Clinical Trial Experience

Percent of Top 12 CROs Present in Country

Presence of top CROs indicates the availability of the local supply market

Number of Clinical Trials Voluntarily Listed in ClinicalTrials.gov

Number of clinical trials is an indicator for the level of experience

Availability of Relevant Skilled Professionals

Number of Physicians Used as proxy for the availability of suitable physicians for clinical trials

Number of CRAs/Nurses Used as proxy for the availability of clinical research associates

Number of First Degrees in Math / Computer Science / Engineering

Used as proxy for the availability of statisticians

Availability of Talent Pool Overall assessment of availability of talent needed for conducting clinical trials

Note: Measurements converted to a score (0-10), weighted average applied to determine composite score for the evaluation area Sources: ClinicalTrials.gov; Annual Physician Index; 2004 WHO / EIP / HRH; NSF


Area of Evaluation


Environment

Pharma Intellectual Property Protection and Market Access

Designation by USTR on Countries’ Adequacy and Effectiveness of IP Rights Protection

Countries that have good IP protection are less likely to have theft or misuse of clinical trial data and materials

Healthcare Infrastructure

Under 5 mortality rate and adult (15-60) mortality rate

Mortality rate is proxy for the level of healthcare infrastructure

Country Infra-structure

Overall Overall Infrastructure Quality Measures ease of conducting clinical trialsTransportatio

nQuality and Density of Road and Rail System

Language TOEFL Score AverageCulture Adaptability

"Personal Contact" Rank

Country Risk

Business Environment

Overall Business Environment Rating

General risk and costs of conducting business in the country regardless of industry; import duty metric is specific to pharmaceutical industry

FDI Confidence Index Rankings

Political Environment

Political Stability Rating

Financial Environment

Currency Fluctuations Relative to the US Dollar

Tax Costs Percent Duty on Drug Importation

Government Support

Extent of Bureaucratic Red Tape

Environment is evaluated based on IP protection, healthcare and country infrastructure, and country risk

Note: Measurements converted to a score (0-10), weighted average applied to determine composite score for the evaluation area Sources: PhRMA (http://www.phrma.org/international/) Special 301 Report; Office of the US Trade Representative Special 301 Annual Review (2005); World

Bank; World Development Indicators (2004); Global Competitiveness Report (2004-2005); CIA World Factbook (2004); Economist Intelligence Unit (2004), Dorlong Kindersley Atlas; Educational Testing Service TOEFL Scores (2001-2002); A.T. Kearney Globalization Index (2005), USDA Trade Information Center (1-800-USA-TRADE)

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Documents

offshoring of clinical

clinical trial offshoring

primary clinical trials

clinical studies

preclinical development

pharmaceutical industry

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