Contract sales organizations marketplace pharmaceutical industry by Sutherland Global Services

Contract Sales Organizations Marketplace in Pharmaceutical Industry September 2013

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Contract sales outsourcing market is projected to grow, driven by the need for sales force efficiency and effectiveness Contract Sales Organizations – Market Outlook

Commercial Services – Market Share

•

Contract Sales Organizations (CSOs) are offering integrated personal and non-personal solutions that are both nimble and flexible – CSOs can leverage costs across multiple clients. They are able to cost-effectively build the necessary infrastructure to support their activities using varied, industry-wide experience to provide the most impactful solutions • According to industry estimates, the global market for pharmaceutical contract sales will be around USD 4 Bn in 2013 – The market is expected to increase with a CAGR of over 8% between 2011 and 2017 • Personal promotion will account for the largest proportion of CSO revenues throughout the 10year forecast period • Outsourcing of non-personal promotion will increase from 2012 to 2023, driven in the early years by the greater use of teledetailing • Innovation and improvements in the current technology will provide greater opportunities for virtual detailing – In 2023, outsourced edetailing will account for more than USD150 Mn in CSO revenues. This trend is reinforced by healthcare practitioner (HCP) communication preference survey results, which indicate that HCPs have moved from ‘one or two favorite ways of receiving communications to wanting as many as seven ways’ in the last three years Geographic Reach • US and Europe account for the largest share of the CSOs market, contributing three-fourths to the total market – However, Western firms’ increasing presence in emerging countries (Brazil, Russia, India, China) will boost contract sales in these regions • Drug developers are increasingly interested in entering emerging markets, looking to take advantage of expanding healthcare coverage, rising wealth, and large patient populations – Outsourcing will provide local expertise in market access and sales models. Fast growth is forecasted for all four BRIC nations, in terms of contract sales, from 2012 to 2023

Others 26%

Quintiles 29%

PDI, Inc. 4% Publicis Touchpoi nt 10%

United Drug 17%

inVentiv 14%

CSO Market Size (USD Mn) Addressable Market (USD Mn) CSO Penetration

3,000 40,000 8%

Source: Wells Fargo Securities, LLC estimates

In future, the role of CSOs is expected to change from service providers to partners, providing strategic sales solutions to improve the sales force efficiency and effectiveness of pharmaceutical companies Source: News articles, Sutherland Secondary Research

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Cost containment, new services, and presence in emerging markets are driving demand for global contract sales outsourcing Market Drivers – Contract Sales Organizations Improvement in Margins

• Increasing pressure on Life Sciences companies to improve their sales efficiency, coupled with CSOs increasing and improving their service offerings, will provide a significant boost to the growth of the global contract sales outsourcing industry

Evolving Services Within CSOs

•

Innovation and improvements in the current technology are providing greater opportunities for new services such as non-personal promotion ― The rise of virtual detailing outsourcing services is increasing dependence on the CSO services. Outsourcing of non-personal promotion will increase from 2012 to 2023, driven in the early years by the greater use of teledetailing

Growing Sales of Mature Products

• The trend of leveraging sales service teams for providing coverage to brands within the portfolio, which are still promotion-responsive but have been dropped by in-house coverage due to a shift in concentration to specialty brands, is gaining popularity ― These brands could even be older chemical entities that are being delivered in a new delivery system or with a new dosing schedule, and will benefit significantly by personal promotion

Entering Emerging Markets

• US and Europe account for the largest share of the CSOs market, contributing 75% to the total market ― However, Western firms’ increasing presence in emerging countries (Brazil, Russia, India, China) will boost contract sales in these regions • Drug developers are increasingly interested in entering emerging markets, looking to take advantage of expanding healthcare coverage, rising wealth, and large patient populations

― Outsourcing will provide local expertise in market access and sales models, and fast growth is forecasted for all four BRIC nations, in terms of contract sales Source: News articles, Sutherland Secondary Research

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CSOs offer a wide array of services built around the need for commercialization of life science products Sample Services Offered by CSOs Personal Promotion

Non-Personal Promotion Other Services

Standard Field Force Roles

Other

Contact Center

Online Services

Sales Deployment

HCP Educational Programs

Telesales / Teledetailing

Online Services

Field Management / Reporting

Vacancy Coverage

Key Account Management

TeleSampling

eSampling

Sales Training

Medical Call Centers

Recruiting

Evolving Contract Sales Organizations Sub-Specializing Products Targeting Different Stakeholders in Health Care Key Account Management Services Emerging Markets

• Some CSOs are creating specific divisions that deeply specialize in therapeutic areas to develop sales forces that can engage with physicians who work in those areas, for example, in breast cancer • As the role of both non-physician providers and payers increases, CSOs will increasingly train their field forces to target a broader audience such as Nurse Practitioners/Physician Assistants, Key Opinion Leaders and Payers • Provider consolidation is moving decision making from physicians to administrative personnel who make the decision on how in-house physicians treat patients, for example, decisions on formulary position and pathways – CSOs are starting to provide Key Account Management services to address this trend • The growing focus of the industry on emerging markets will spur the growth of existing CSOs into those markets or see new emerging-market focused CSOs surface

Source: News articles, Sutherland Secondary Research

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In addition to pricing, criteria such as experience, services, resources and reputation are also becoming key factors to outsource to CSOs Top Reasons to Outsource to Contract Sales Organizations Maintaining Cost

• Large Life Sciences companies are focusing more on their core competencies and outsourcing functions that can often be handled at lower cost and with better results by third parties

― Such benefits can include flexibility in scaling up or down marketing efforts, cost savings and productivity gains Integrated Services Portfolios

• Companies are approaching CSOs that are able to provide a wide range of service capabilities (e.g. contract research and manufacturing) with excellent quality standards to maximize returns and effectiveness of the sales force ― In addition to pricing, criteria such as service portfolio, experience, agility, resources and reputation are forming the basis on which pharmaceutical companies select CSOs

Dedicated Sales Representatives

• Most companies prefer dedicated field teams along with non-personal support to cover launch, growth and mature brands, additionally differentiated by the fact that the CSO rep is the only field rep specified for that brand ― The types of focused teams being fielded now, and those being requested for future services, are markedly different from the expansive primary care dedicated team field models of the past

Focus on Specific Target Audience

• Life Sciences companies tend to target specific Healthcare Practioners (HCPs) such as Medical Science Liaisons (MSLs) and Key Opinion Leaders (KOLs) for launch and growing brands ― CSOs with a small team, who are handling high-prescribing HCPs in key markets with personal coverage, are preferred the most

Source: News articles, Sutherland Secondary Research

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In the CSO’s market, Quintiles is the industry leader by a substantial margin followed by United Drug and inVentiv Health Contract Sales Organizations – Competitive Landscape Top Companies Market Share

Entity Total Revenue (all business segments)

Total Employees Global Presence

Quintiles

United Drug, Plc

InVentiv Health

Publicis Touchpoint

PDI, Inc

29%

17%

14%

10%

Public

Private

Public

USD2,525 Mn (6 months ended 2013)

EUR1,830 Mn (FY 2012)

USD127 Mn (FY 2012)

27,000

4,612

12,000

1,194

100 countries

The US, the UK, Ireland, and Europe

40 countries

Majorly in the US

Contract Sales Organizations – Key Industry Observation • CSO industry is quite consolidated; the industry-leader Quintiles is facing competition primarily from United Drug (heavy in Europe), inVentiv, and Publicis Touchpoint • The market for sales representatives (internal or outsourced) has shrunk dramatically, with the number of sales reps in the United States declining by more than 30% from its peak in 2006. As of 3Q12, the US had 64,000 sales representative ― The decline in the number of sales representatives leaves little incentive for pharmaceutical companies to outsource since ample representatives are available in-house to meet their needs, and many companies would rather shift resources internally than conduct layoffs • The increase in availability of other sales channels has also reduced the value of sales representatives • New drug approvals in 2013 and 2014 could be a potential leading indicator for the business, although fewer products are now blockbusters than in the past. Thus, the sales force for any individual product is likely to be smaller Source: News articles, Sutherland Secondary Research

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Key issues to consider when outsourcing to a CSO Knowing the Outsourced Sales Vendor • Consider the CSO vendor’s core competencies and quality of services – Example: Is the vendor a niche outsourcing expert or a large integrated outsourcing provider with expertise across research, manufacturing, and sales? • Evaluate experience and specialization of the vendor’s sales executives and find out whether they have been successful in the targeted market

Considerations for Structuring a Sales Contract • Is the sales outsourcing contract scalable?

• Can the client exit an unhealthy relationship without financial or contractual ramifications? • Do the client’s and CSO’s sales force have mutual expectations that can be supported by metrics for the desired outcomes? • How is the cost/pricing structured? Does the client have a clear view of the underlying pricing structure?

• Identify the vendor sales staff’s technical proficiency and training needs • Assess the ability of the vendor to execute the client’s short-term and long-term sales plans

• Understand scalability of the vendor to meet the client’s objectives and focus 100% on achieving them • Assess the ability to coordinate responsibility and accountability for the rapidly-growing client’s sales, reporting results on a regular basis and meeting deadlines

Source: News articles, Sutherland Secondary Research

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Quintiles Transnational Holdings, Inc. Overview • Quintiles Transnational Holdings, Inc. is a provider of biopharmaceutical development services and commercial outsourcing services ― The company was incorporated in 1982 and is based in Durham, North Carolina • The company operates in two segments: Product Development and Integrated Healthcare Services ― Product Development, which primarily serves biopharmaceutical customers engaged in research and development, provides clinical research and clinical trial services ― Integrated Healthcare Services (IHS) provides commercialization services to biopharmaceutical customers and research, analytics, outcomes research consulting, and other services to both biopharmaceutical customers and the broader healthcare market • The company has a network of more than 27,000 employees conducting business in approximately 100 countries • In May 2013, the company raised more than USD947 Mn in its Initial Public Offering Operations Overview – Integrated Healthcare Services • The segment’s service revenues were USD441.2 Mn in the first six months of 2013, decreased by 8.9% over the same period in 2012 • According to industry estimates, Quintiles has a roughly 30% share of the current IHS market and about 6% share of the addressable market • Quintiles has a significant presence in both the United Kingdom (though the acquisition of Innovex) and Japan

Services Overview The company’s commercialization services are designed to accelerate the commercial of biopharmaceutical and other health-related products, and include: • Pharmaceutical Brand Management • Brand Communications • Market Access Implementation • Pharma Contract Sales • Medical Communications • Patient-Centric Solutions • Syndicated Sales • Multi-Country Solutions • Vacancy Management • Remote E-detailing

Revenue, 2012-13 (USD Mn) Total = USD Mn

2,387.3

2,524.6

20.3%

17.5%

23.2%

25.9%

56.5%

56.7%

6 month ended 2012

6 month ended 2013

Product Develoment Integrated Health Services

Reimbursed expenses

Source: Company website, Company filings

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United Drug Plc Overview

Services Overview

• United Drug provides outsourced commercial services to pharmaceutical, biotechnology and healthcare companies in the US ― The company was founded in 1948 and is based in Dublin, Ireland • The company has three reporting segments: Healthcare Supply Chain; Packaging & Specialty; and Sales, Marketing & Medical

The company’s Sales, Marketing and Medical division provides the following commercialization services: • Contract Sales Outsourcing: Apart from contract sales outsourcing, it also provides sales and marketing services to pharmaceutical manufacturers in the Republic of Ireland, the UK and the US. It also provides sales force effectiveness and training services to the pharmaceutical sector • Medical Affairs: It provides sales and marketing services, including medical affairs information, patient compliance support and clinical trials recruitment to pharmaceutical manufacturers in the UK and the US • Events Management: It provides bespoke event management and logistical services to the pharmaceutical sector • Healthcare Communications and Consultancy: It provides healthcare communications and consultancy services to a range of global pharmaceutical and biotechnology companies

― Healthcare Supply Chain provides all of the Group’s healthcare logistics-based businesses ― Packaging & Specialty provides outsourced packaging solutions for pharmaceutical manufacturers ― Sales, Marketing & Medical provides contract sales outsourcing and related marketing and regulatory services to healthcare manufacturers • As of September 30, 2012, the company had approximately 4,612 employees, generating a total revenue of EUR1,830.2 Mn ― Approximately 73% of employees are engaged in marketing, distribution, and selling Operations Overview – Sales, Marketing & Medical (SMM) • In 2012, revenue of SMM increased by 7% to EUR214 Mn and operating profits increased by 2% to EUR21 Mn as compared to 2011 • In September 2012, the company acquired Pharmexx, a contract sales organization with operations across Europe, Canada and Latin America

• The company also entered into a commercial arrangement with a major Japanese CSO to provide contract sales services in Japan

Revenue, 2010-12 (EUR Mn) Total = EUR Mn

1,726.1

1,746.5

1,830.2

9.7% 7.0%

11.4% 7.9%

11.7% 8.8%

83.3%

80.7%

79.5%

2010 2011 2012 Healthcare Supply Chain Packaging & Specialty Sales, Marketing & Medical

Source: Company website, Company filings

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InVentiv Health Overview • InVentiv Health, a privately-held company, provides clinical and sales & marketing outsourcing and consulting services to life sciences companies ― The company is based in Burlington, Massachusetts • The company has a strength of approximately 12,000 employees and conducts business in 40 countries • InVentiv Health boasts a client portfolio of 550 pharmaceutical, biotech, and life sciences companies • The company provides services through three business segments: ― Clinical: Includes a full suite of services that support Phase I (first-in-human) through Phase IV (post-launch) clinical trials ― Commercial: Includes outsourcing capabilities related to sales, marketing, communications, and patient outcome services ― Consulting: Includes management consulting solutions such as market research, brand management, commercial effectiveness and strategy, and pricing and market access

Product Marketing & Sales Capabilities The company’s Commercial services are designed to support all phases of the product development life cycle with the following: Communications • Advertising & branding • Medical & patient education • Public relations and public policy Selling Solutions • Clinical educators • Medical liaisons • Sales support & staffing • Sales team and recruiting • Sales training & e-learning

Patient Outcomes • Medical cost containment • Patient adherence • Patient access • Reimbursement strategy Selling Accelerators • Non-personal virtual promotion • Sales force optimization • Sample management

Revenue (2012-13) Revenue figures not available as the company is privately held.

Commercial Business Segment • InVentiv provides sales and marketing outsourcing services through its Commercial business segment •

The company claims to have a sales recruiting team with more than 500,000 qualified candidates and outsourced clinical nurse educators and medical liaisons

• InVentiv provides contract sales outsourcing globally. The company is the second largest contract sales organization (CSO) in Japan

Source: Company website, Company filings

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Publicis Touchpoint Overview • Publicis Touchpoint, a privately-held company, is a niche contract sales organization offering sales support and clinical education services ― The company is based in Yardley, Pennsylvania • Publicis Touchpoint provides the following CSO services: ― Field Teams: Includes outsourced face-to-face selling ― Inside Teams: Includes contact center that offers touchpoints through voice, video, chat, and eMail ― Clinical Education: Provides licensed clinical health educators and medical science liaisons ― Support Solutions: Includes sales recruitment and training, performance management, and operational services

Product Marketing & Sales Capabilities The company’s CSO services are designed to support all aspects of sales and support function: Field Teams • Primary care • Specialty • Hospital • Managed markets Inside Teams • Live video detailing • Tele sampling • Remote territory management • Event recruiting • Inside credentialed sales specialists

Clinical Education • Clinical health educators • Medical science liaisons Support Solutions • Recruiting & training • Performance management • Operations & compliance

Revenue (2012-13) Revenue figures not available as the company is privately held.

Source: Company website, Company filings

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PDI, Inc. Overview • PDI, Inc. provides outsourced commercial services to pharmaceutical, biotechnology and healthcare companies in the US ― The company was founded in 1988 and is based in Parsippany, New Jersey • The company has three reporting segments: Sales Services, Marketing Services, and Product Commercialization Services (PC Services) ― Sales Services focuses primarily on product detailing, which includes outsourced sales teams and EngageCE business unit ― Marketing Services includes two business units: Group DCA and PDI Voice (Voice) ― PC Services provides pharmaceutical, biotechnology, medical device and diagnostics clients with full-service product commercialization solutions • As of February 28, 2013, the company had approximately 1,194 employees, including approximately 882 full-time employees ― Approximately 92% of employees are field sales representatives and sales managers

Services Overview • Sales Services comprises the following business units: ― Dedicated Sales Teams work exclusively on behalf of one customer ― Established Relationship Teams business model centers on an existing PDI-managed team where multiple non-competing brands are promoted for different pharmaceutical companies ― EngageCE offers expert clinical educators to work with health care providers in the management of chronic diseases • Marketing Services comprises the following business units: ― Group DCA includes edetailing programs ― Voice is focused on the creation of teledetailing programs that are executed via tele-representatives • PC Services comprises the following business units: ― Interpace BioPharma provides product detailing, full supply chain management, operations, sales, marketing, compliance, and regulatory/medical management

Revenue, 2010-12 (USD Mn) Total = USD Mn

134.6

157.3

126.9

1.0%

5.8% 7.8%

13.8% 8.0%

86.4%

78.2%

Operations Overview • In the Sales Service segment, the company signed more than USD250 Mn of multi-year new contract wins and extensions, of which only approximately USD40 Mn was recognized in 2012

99.0%

• Revenue in the Marketing Services segment decreased, mainly due to a decline in revenue at Group DCA business unit as a result of fewer contract signings • PDI’s four large customers accounted for approximately 27.1%, 15.3%, 13.9%, and 11.9%, respectively, of its revenue in 2012

2010 Sales Services

2011 Marketing Services

2012 PC Services

Source: Company website, Company filings

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