ACCENTURE ACQUIRES OCTAGON RESEARCH SOLUTIONS AS COMPETITION HEATS UP IN PHARMA

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1 ACCENTURE ACQUIRES OCTAGON RESEARCH SOLUTIONS AS COMPETITION HEATS UP IN PHARMA Author Cindy Carpenter, HfS Research Executive Summary Accenture's recently announced acquisition of Octagon Research Solutions lies at the juncture of two broad trends: the pharmaceutical industry's increased interest in outsourcing solutions, and the IT and business process outsourcing industry's focus on growing industry-specific capabilities. In the midst of a period of wrenching industry change, pharma companies of all sizes are looking for ways to accelerate their results, while at the same time reduce their costs throughout their operations. In spite of the complexity and risks of the drug approval submission process continuing to increase, pharma companies are seeking to submit filings to global authorities in rapid fire, to bring more drugs to markets more quickly. Octagon's software and services in clinical data management and regulatory submission processes help biotech and pharma companies reduce their costs and increase the quality and efficiency of drug approval submissions. Accenture will add client relationships and business process outsourcing management acumen, global delivery capabilities, and deep pockets for product development and expansion. For Accenture, Octagon's regulatory and clinical information technology solutions, services, and expertise augments its broad pharma industry capabilities. HfS believes this acquisition gives Accenture an edge in an increasingly competitive market which is doubling-down on specialized domain capabilities and integrated business platforms. Moreover, Accenture is adding significant new business service offerings that will enable it to expand and deepen its relationships with pharma industry clients. Accenture and Octagon have partnered on client engagements in the past five years, which should ease the implementation of the acquisition and increase the likelihood of a successful integration. Key to Accenture's future success with these services will be retaining Octagon's 380 employees, many of whom have years of experience in regulatory compliance at top pharma companies. 2012, HfS Research, Ltd 1

2 Table of Contents (this will automatically populate) Executive Summary 1 State of the Pharmaceutical Industry 3 Impact of the Octagon Research Solutions Merger 3 The Need: Robust Clinical Data Management and Regulatory Submissions Solutions 3 Building Out Industry-Specific Solutions Across the Pharmaceutical Industry Value Chain 4 Expanding Customer Segments 4 Acquisition Success Factors 4 Snapshot of the Marketplace for Clinical and Regulatory Data Management Solutions Providers 5 Recommendations 5 HfS Recommendations for Pharmaceutical and Biotech Companies 5 HfS Recommendations for Service Providers 6 About the Author , HfS Research, Ltd 2

3 State of the Pharmaceutical Industry The pharmaceutical industry is experiencing a period of dramatic industry change. Blockbuster drugs that provided comfortable and consistent revenue streams are coming off patent. R&D pipelines are weak and pharmacogenetics is changing the very nature of drug discovery, but with relatively little success to date. At the same time, the approval process for new drugs is more rigorous - and the outcomes more uncertain - than ever before. Once approved, pharmaceutical companies face increasing challenges in getting new drugs into formularies, as healthcare providers and insurance companies focus on driving down overall costs and improving efficiencies. The Affordable Care Act is mostly good news for pharmaceutical companies, but nonetheless requires careful navigation through changing insurance and compliance processes. Marketing is becoming increasingly complex, with more and more physicians limiting access for pharmaceutical sales reps, and both physicians and patients getting more medical information through social media channels - an arena laced with regulatory uncertainty and reporting risks for pharmaceutical companies. Additionally, India and China not only offer new markets and opportunities to lower costs in R&D, clinical trials and manufacturing, but they are also an incubator for new, nimble competitors in both the emerging and developed markets. All of these changes are reflected in a growing urgency among pharma and biotech companies to reduce costs and boost results in all aspects of their operations, from basic research through to consumer marketing. These characteristics perfectly frame an opportunity for business services providers who can build industry-specific solutions that leverage knowledge and technology platforms across multiple clients and tap lower cost talent in emerging economies. Impact of the Octagon Research Solutions Merger The Need: Robust Clinical Data Management and Regulatory Submissions Solutions The complexity, costs and risks of the drug approval process are continually growing. Technical requirements and process controls in the regulatory submission process are both stringent and constantly changing, making it almost impossible for pharmaceutical companies to stay up-to-date in meeting them. Delays to market can cost as much as a million dollars per day, and for first-to-market orphan drugs, may cause the loss of market exclusivity. In the past, American drug companies expected to file first for approval with the FDA, then seek approval in Europe, then consider approvals in other smaller country markets, over the course of several years. Now, the expectation is that companies will quickly submit filings across many global markets with diverse regulatory requirements, stretching the capacity and capabilities of their regulatory support function to the breaking point. Octagon has impressive experience in this critical process. The company is the fifth largest user of the FDA's electronic submission gateway and is the FDA's provider for clinical data standards (CDISC) data conversion and training standards. Octagon has completed 400 original applications on behalf of 300+ clients, and has developed global submission document authoring solutions. In addition to its software and process solutions, Octagon staff bring specific technical regulatory affairs expertise that is in high demand in the pharma industry. Although Octagon is a small company, its 380 professionals represent a critical mass of pharmaceutical industry knowledge and technology platforms for highly specialized processes that are difficult to build on a cost-effective basis for a single company. When integrated with Accenture's existing life sciences practice, delivered from both onsite and offshore, Accenture will be able to support regulatory submissions to global authorities that are both streamlined and cost-effective. In addition, by combining Octagon's solutions with Accenture's BPO delivery capabilities, Accenture plans to offer comprehensive, ongoing regulatory services with a global footprint, improving access to clients and regulatory agencies throughout the world. Octagon has a small presence in India today, which should support the integration of its solutions with Accenture's large India-based workforce, improving the scale, speed and cost-effectiveness of these services. Accenture also the deep pockets needed to support continued product development, testing and support for Octagon's software solutions. 2012, HfS Research, Ltd 3

4 Building Out Industry-Specific Solutions Across the Pharmaceutical Industry Value Chain The acquisition of Octagon Research Solutions gives Accenture very deep capabilities in a new area of the pharmaceutical and biotech industry value chain. Accenture will now offer solutions in almost every aspect of pharma industry processes other than clinical trial management - and David Boath, the North America vertical leader, hinted that they are beginning to eye solutions in that area, too. Clinical data management and regulatory submission are core processes for drug companies, and by providing solutions in these areas, Accenture will be able to both grow and deepen its relationships with biopharmaceutical industry clients. For outsourcing providers, client intimacy is the key to long-term revenue stability and growth. Building strong industryspecific capabilities is part of Accenture's overall BPO growth strategy and will shift the competitive basis for its outsourcing solutions from cost reduction to business value. Expanding Customer Segments Octagon's main customer segment has been among the smaller and mid-sized biotech and emerging pharma companies, and for good reason. Building a regulatory function from the ground up is very challenging: finding staff with the specialized expertise can be a many months recruiting effort, which is only the beginning point for implementing the processes and IT systems to support the function. For smaller biopharma firms, outsourcing this to a firm with Octagon's depth of capabilities and experience can significantly speed up the drug approval submission and reduce the chances of costly rework. Accenture believes that Octagon's solutions will be more attractive to its larger pharma clients, now that they come with the backing of Accenture. Large pharma clients may feel more comfortable working with a large global services provider, but Accenture will have to work hard to demonstrate that there is a compelling reason for outsourcing drug submission processes in place of big pharma companies' own well-established regulatory functions. At a time of increasing pressures to reduce costs, regulatory personnel may see Octagon's solutions as helping them to manage global submissions on a cost-effective basis, or they may see outsourcing as a risk to their job security. Key to Accenture's success in growing its business in this area with its big pharma clients will be its ability to offer portions of the Octagon solution - the technology suite and related consulting - that either increase the speed of the drug approval process or reduce costs for the large companies. Octagon's suite of technology applications that streamline the regulatory data conversion and work with the FDA's electronic submission gateway are likely to be the most attractive points for this customer segment. Acquisition Success Factors Like any acquisition, the key to success is reflected not in how the strategy looks on paper, but how it's implemented in reality. While Octagon brings software and services, it is the highly specific technical regulatory expertise that will bring the most value to Accenture s clients. Retaining and integrating Octagon's 380 employees into Accenture's 8,000 person pharma practice will be critical to the success of these offerings going forward. Several factors point to a successful implementation of this deal:» Accenture and Octagon have partnered on several client engagements in the past five years, suggesting that each party already has some understanding of the other's strengths and weaknesses, and working cultures;» Octagon's president, Kirk Gallion, began his consulting career at Accenture and intimately knows the culture and organization Octagon will be joining;» Accenture's North American Life Science practice leader, David Boath, is located near Octagon's headquarters in Wayne, PA, facilitating the development of relationships among executives and the formation of new blended Accenture-Octagon teams;» Octagon had already begun the process of international expansion with new facilities in the U.K. and India, providing multiple touchpoints between the smaller organization and Accenture. Accenture s global footprints 2012, HfS Research, Ltd 4

5 and deep resources will accelerate this international expansion with the addition of personnel and other support needed to globalize the offerings effectively. Accenture has not disclosed its purchase price or terms of the acquisition. Snapshot of the Marketplace for Clinical and Regulatory Data Management Solutions Providers What was once an entirely in-house function with paper records or home-grown IT solutions and processes, is now supported by a number of commercial IT applications and outsourcing providers. Accenture's acquisition of Octagon follows a similar path to Oracle's acquisition of Phase Forward and CSC's acquisition of Software Solutions Group Strategy and Image Solutions, Inc. Large India-based providers such as Infosys, Cognizant and TCS are also growing their capabilities in clinical data management and submission, however lack an integrated technology solution such as Octagon. Independent technology and consulting companies focused specifically on the pharmaceutical industry offer varying capabilities in clinical data management and regulatory submissions. Liquent, Theorem Clinical, and BioClinica are about the same size as Octagon, but with slightly different solutions footprints. Companies such as Parexel and PPD have over 10,000 employees and offer a wide range of services from drug development to commercialization. Recommendations HfS Recommendations for Pharmaceutical and Biotech Companies For small and mid-market firms seeking approval for a new drug, or additional market approvals for an existing drug, the combined Accenture/Octagon Research Solutions offerings should be seriously evaluated. Leveraging the technical solutions and regulatory expertise can significantly speed up the regulatory submission process and reduce the chances of costly rework. At the same time, outsourcing this critical process by partnering with a service provider such as Accenture - one on which an entire company's success or failure may hinge - is obviously high-risk. The questions buyers should carefully consider, when evaluating outsourcing these processes to a service provider are: Is there a business advantage to managing regulatory submissions entirely in-house? Do we have specific expertise that will enable us to complete the regulatory submission better or faster than an external provider? Will externalizing the regulatory submissions impede our ability to have flexibility in the future, i.e. if we want to file in additional markets, divest or license a product, get involved in M&A, etc.? Can we acquire personnel to conduct these processes in-house, and what is the cost trade-off with partnering with a third party service provider? Can the service provider demonstrate the right process acumen, skilled personnel and technology capability to be a successful partner of ours? How proven is the service provider in this field and to what degree of risk am I exposing my organization? How many referenceable clients can we speak to directly about their experiences? What is the ROI beyond cost and effectiveness, i.e. can the service provider speed up the regulatory process for us? Are there other indirect benefits the service provider can bring, such as analytics and best practices gleaned from working with other clients? For big pharma companies with well-established clinical data and regulatory management capabilities, ongoing outsourced solutions may not be the right fit, if these skills already give you a competitive advantage in the market. Moreover, the disruption to your business to transition these processes to a third party may simply not be worth the risk and effort. Look instead to incorporating specific software or services to supplement your capabilities, or add capacity on 2012, HfS Research, Ltd 5

6 a short-term basis. If you have an existing relationship with Accenture, weigh the benefits of working with one provider versus managing multiple niche providers often found in pharmaceutical companies. HfS Recommendations for Service Providers Large, global providers of IT and business process services are already following similar strategies of growing industryspecific solutions and capabilities, underpinned by technology platforms. The key questions are which specific capabilities to invest in growing, whether to focus on growing existing or new client segments, to grow revenue incrementally or in breakthrough areas, and whether to grow organically or through acquisitions. For smaller providers offering niche solutions to the pharmaceutical and biotech industries, now is the time to carefully consider whether your current business model will continue to be viable. Pharma companies have traditionally worked with many small specialized providers, but as the large global providers build industry-specific capabilities with greater scale and lower cost structures, it will be harder for small agencies to keep their niche relationships. Small companies will need highly specialized capabilities and service differentiators - or should consider a strategy towards joining a larger provider. 2012, HfS Research, Ltd 6

7 About the Author Cindy Carpenter Cindy Carpenter brings to HfS deep knowledge and innovative thinking to address industry challenges in the evolving global business and IT services marketplace. She has more than a decade of hands-on experience in the sales, marketing and delivery of global business and IT services, including both "big four" management consulting and offshore delivery firms. Cindy is also one of the few Americans who has lived the global outsourcing industry as a year-long resident of Pune, India. Cindy's research areas includes sales and marketing strategies for global business services providers, workforce location and responsible outsourcing strategies for buyers and providers of global business and outsourcing services. She also oversees HfS' research agenda for the biopharmaceutical industry and contributes to HfS' coverage of the financial services industry. Cindy has developed go-to-market strategies for emerging global services providers and helped established providers enter new industry segments, improve sales effectiveness, increase forecast accuracy and adapt CRM functionality to support the global services delivery model. Cindy has also developed a new, comprehensive framework for responsible outsourcing, and, with Matt Sullivan, developed an approach to workforce location strategy that aligns location selection with key business strategies and effectively distributes work among both global and U.S. locations. Prior to HfS, Cindy led Red Bridge Strategy, a boutique strategy firm that helped companies develop corporate globalization and outsourcing strategies. Before Red Bridge, Cindy worked for Capgemini and Braun Consulting; she began her professional services career in the IT strategy practice at Arthur Andersen Business Consulting. She has analysis and implementation experience with enterprise and web applications, and has advised leading companies in the biopharmaceutical and financial services industries. In addition to her experience living and working in India, Cindy has lived in Israel and Japan. She has a BA from Hampshire College, and an MBA from Northeastern University. Cindy is the proud parent of three young adults, and enjoys pursuing new interests from native plants gardening and playing the trumpet to masters swimming. She rides in the Pan-Massachusetts Challenge, an annual bike-a-thon that raises over $35 million for cancer research and care. Cindy can be reached at cindy.carpenter@hfsresearch.com 2012, HfS Research, Ltd 7

8 About HfS Research HfS Research is the leading analyst authority and knowledge community for the global services industry. In addition to researching business services and technology services strategies, HfS educates and facilitates discussion among the world s largest knowledge community of services professionals, currently comprising 120,000 subscribers. HfS provides a collaborative platform for the largest, highest impact, and most frequently visited professional community in the global services industry, offering rapid and insightful commentary on, analysis of, and debate about enterprise shared services, outsourcing, and global operations dynamics. In 2011, HfS was awarded Outsourcing, BPO and Services Analyst Firm of the Year by the International Institute of Analyst Relations (IIAR), the premier body of analyst-facing professionals, and runner-up for overall Analyst Firm of the Year. Led by recognized industry expert Phil Fersht, HfS Research differentiates itself with its global team of expert services analysts with real industry experience, provocative and opinionated research, unrivalled market analytics, and a view of technology as an enabler for business process improvement. Its on-demand expertise relationship model helps clients leverage HfS knowledge and strategic insight in a rapid, responsive and engaging manner. HfS Research also manages the HfS 50 Sourcing Executive Council, the premier peer discussion group for enterprise outsourcing and business services executives. This by-invitation-only program fosters networking, debate and bestpractices sharing among the most senior sourcing executives of large global enterprises. This powerful forum is shaping the strategic direction of the sourcing industry, influencing other buyers, service providers and intermediaries across BPO, ITO and shared services domains. HfS hosts and facilitates regular meetings, webinars, introductions and peer networking opportunities for HfS 50 members, and its analysts contribute to these interactions with candid, unbiased opinions based on current, relevant research, benchmarking data and deep sourcing governance expertise. Now in its sixth year of publication, HfS Research's acclaimed blog Horses for Sources is widely recognized as the leading destination for collective insight, research and open debate of sourcing industry issues and developments. The thriving HfS LinkedIn community includes over 18,000 industry professionals who share views and information daily. More information about HfS Research can be accessed at The company can be followed on Twitter at and LinkedIn by joining The BPO and Offshoring Best Practices forum. To learn more about HfS Research, please research@hfsresearch.com. 2012, HfS Research, Ltd 8