1. Changing Paradigms in
Outsourcing
An Investor’s Perspective
Elizabeth Stoner, M.D.
MPM Capital, Managing Director
January, 2012

2. Outsourcing in Biotech
TRADITIONAL
• Command and control from Headquarters
– Strong oversight and project management
– Internal staff with redundant expertise to
manage CRO
– No leverage, due to small size of contract
– CRO choice based on limited data
(e.g. cost and experience)

3. New Paradigm for Outsourcing
• Capital efficiency is key
– Choose a CRO with expectation for volume-based
discounts and appropriate management focus
– Relegate functions to trust-worthy CRO
• CROs providing temporary experienced staff
– Minimize oversight from HQ:
• but must retain key decisions internally
– Explore potential to increase leverage
• ?consolidate with other portfolio companies

4. VC Investing Strategy
VCs seek VCs provide VCs expect
• Novelty (with IP • Funding for research • Return to investors
protection) and infrastructure to leverage history
• Potential to meet
medical needs • Experience in drug • Sharp focus with
• Rational health development clear goals
economics
• Risk sharing • Engine for biotech • Lean organization
innovation
Build companies to fill large-pharma pipelines

5. CRO Strategy in the Consolidated Market
CROs seek CROs provide CROs expect
• Clients committed to • Experience in drug • Repeat customers
outsourcing development
• Clients with pipeline • Client “partners” with
of quality products • Talented
active involvement in
scientists, technician
• Experienced, VC- R&D strategy
s, state-of-the-art
validated clients facilities
• Clients with sufficient • Capital efficient R&D • Clarity of needs of
cash flow to support clients
contracted work
VC partnership can help develop growing and
lasting customer base

6. New Paradigm- Off-Shore Solutions
• ? Which region of the world
• Cost vs. Quality, patient access considerations
• Ethnic diversity needed for ultimate regulatory
approvals
• Important to link to prevailing
epidemiologic/medical practice

7. Key Drivers for Investors to Minimize Risk
• Quality
Highly linked
• Cost
• Timelines
No tolerance for variability in quality of
deliverables

8. Models to Consider
• Outsourcing trial management & execution is
strategy of choice
• Design and decisions must reside with company
• Can pool of portfolio companies provide
leverage?
– Pre-clinical services amenable to single partner
– Experiment not very successful for clinical
• Therapeutic diversity is a challenge
• CEO endorsement
• CMO resistance
– Company must remain the client

9. Venture Capital
Institutional money invested with the sole focus of aiding the
growth and success of the company with an eye on an lucrative exit.
• Venture Capital players have become increasingly more
sophisticated
― Industry “mature” veterans are being recruited into smaller companies
― Willing to take on complicated development paths
― V C’s have evolved from investment to investment/operational management

10. The Virtual, Capital Efficient Company of Today
• Deep expertise in key functions
• Dependable outsourcing partners
• Internal personnel with broad experience
• Strong project management
• Support functions provided by fractional-time
experts (e.g. Finance, etc.)

11. New Paradigm for Outsourcing
Conclusion
• Companies need to stay lean to survive
• Relegate control
• Trust

12. New Paradigm for Outsourcing
Conclusion
• Companies need to stay lean to survive
• Relegate control
• Trust…VERIFY