TENDER MANAGEMENT PRACTICES IN THE LIFE SCIENCES INDUSTRY SURVEY RESULTS, REPORT 1: THE TENDER ORGANIZATION BACKGROUND BENCHMARKING STUDY

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1 BENCHMARKING SURVEY RESULTS TENDER MANAGEMENT PRACTICES IN THE LIFE SCIENCES INDUSTRY SURVEY RESULTS, REPORT 1: THE TENDER ORGANIZATION AN ASSESSMENT OF HOW LIFE SCIENCES MANUFACTURERS ORGANIZE AND GOVERN THE TENDERING FUNCTION. BACKGROUND Historically limited to only a few sectors of the life sciences industry, tendering encompasses most segments now, including specialty and biosimilar drugs, along with medical devices. Currently, more than 25% of the global pharmaceutical market is procured through some form of tender. 1 In addition, many emerging markets have either explored, implemented, or are expanding tendering opportunities to achieve cost savings for their healthcare budgets. The tendering process is governed by specific laws. The process tends to be very formal and rigid with limited interactions with the tendering authority. Overall, the aim of the procurement authority is to increase the competitive environment, while achieving greater savings. Pricing generally accounts for 70% of the bid award criteria; however, pricing can diminish in weighting as the tender authority matures during the awarding process. In recent years, issuing bodies have been adding more qualitative criteria such as efficacy, safety and supply. A notable piece of differentiation for tenders in the life sciences industry is cyclicality. The ongoing or permanent need to procure a certain class of device or drug necessitates the re-publishing of many tenders after a specified duration of time. This increases the importance of planning, which can provide a potential competitive advantage if performed properly. 2 BENCHMARKING STUDY HighPoint Solutions conducted a benchmarking study in June 2016, which surveyed more than 30 life sciences companies, capturing a snapshot of the state of tendering in the industry. Study respondents represented all segments. Results will be shared in four separate reports: 01 The Tender Organization 02 Current Tender Environment and Awarding Criteria 03 Tender Management Solutions 04 Tender Management Challenges

2 Tender Management Survey Results, Report 1: The Tender Organization 2 THE TENDER ORGANIZATION Due to the inherently cross-functional nature of tender management, a key challenge is deciding how to organize and govern the tendering function within a company. HighPoint assessed survey participants along the following four common dimensions of a tender organization: 1. Resource: Whether a dedicated resource is assigned to oversee tender management 2. Department: What department is selected to oversee tendering activities 3. Governance: Whether governance is implemented and to what level(s) (local, regional, global) 4. Leadership: Whether governance is enforced by tender leadership, and to what level The existence of a dedicated resource overseeing tender management Resource Department The department overseeing tendering activities The existence and the level of a harmonized governance Governance Leadership The existence of tender leadership KEY SURVEY OBSERVATIONS AND INSIGHTS Resource: Companies need to have a dedicated resource overseeing tender management Setting aside a dedicated resource for tender management is an industry norm The functional role of the dedicated resource varies across companies Companies with a dedicated resource show a marked increase in tendering performance Governance: Any form of governance is better than none Continual guidance and strategizing required Depending on the company, a global governance may be preferred over a regional one Department: Size of the portfolio impacts the choice of department to oversee tenders Smaller companies should select market access to oversee tenders Larger companies have more flexibility to choose a department for oversight Decision should be linked to the overarching goal of the tendering organization Leadership: Leadership above the country level is a requirement for most companies Global and regional leadership will need to be operationalized at the country level

3 Tender Management Survey Results, Report 1: The Tender Organization 3 THE RESULTS Resource: Is there a dedicated resource assigned to oversee tender management? 60% of respondents stated their company has a resource overseeing tender management. However, this does not necessarily infer that the resource has global responsibility or functions. A company may merely support a dedicated tender management function. Overall, about one-third of the companies reported not having a dedicated resource, even though products within those companies are tendered. In the generics segment, half of the companies reported having a dedicated tender management resource. This is lower than expected given that tendering is mostly aligned within generics. Tendering has been a common procurement methodology for this segment for many years. A much higher percentage of medical device companies organize themselves with a dedicated resource. Companies offering both medical devices and generics have the greatest percentage of dedicated resources. Companies with multiple segments often have a resource dedicated to tender management to ensure that governance and/or strategy is properly executed within each segment. It s striking to see how self-reported levels of tendering success increase in tandem with the presence of a dedicated resource for tender management. No companies with a dedicated tender management resource reported having critical issues. In companies wishing to setup a tender organization, a best practice is therefore to have a dedicated resource overseeing tender management. It may not solve all the issues, but can help in avoiding critical ones.

4 Tender Management Survey Results, Report 1: The Tender Organization 4 Department: What department is selected to oversee tenders? While tendering is a highly cross-functional process, once a company has a dedicated resource to oversee tender management, this resource is typically assigned to a specific department. This assignment can influence outcomes. For example, the supply chain department may focus on volume and predictability of tenders, whereas sales may focus on revenue-generating opportunities depending on incentive schemes. Department Selected to Oversee Tenders By far, market access was reported as the most commonly chosen department to oversee the tendering process. 55% of companies surveyed reported allocating their dedicated resource to this department. This is a prudent decision, considering there are countries where tenders provide access to the national market. In the U.K. and Canada, winning national tenders is more or less the only path to public patients. Only a few tenders will have a huge impact; for this reason, partnering with authorities and executing tender shaping activities are key and naturally performed by the market access department. Sales and marketing also have tender functioning responsibilities. These departments spur demand, and depending on the country, winning a tender is an essential part of creating demand or closing sales. Department Selection by Segment Companies with specialty drugs in their portfolio have a greater percentage of resources allocated to the market access department. Tendering is an aspect of market access for branded products in crowded therapeutic areas. Potential substitution between brands leads to choosing framework agreements as an avenue of access to the market. Companies with generics in their portfolio are split between marketing and market access usually with an equal number of resources allocated to those departments. At the inception of the lifecycle, market access will have better knowledge of the environment, whereas once the generic commoditizes, sales may be in the best position to oversee the tendering process. In the case of medical devices, resources are spread across various departments, showing no notable trend. From a portfolio-size perspective, 100% of small companies (25 products/brands or less) reported using the market access department to oversee tenders. This aligns with an industry-wide strategic focus on market access.

5 Tender Management Survey Results, Report 1: The Tender Organization 5 Governance: Is governance implemented, and to what level(s)? The next step is to implement a governance structure to ensure an efficient and functional process. Because the tendering process requires constant guidance and strategizing, any form of governance is better than none. The Existence and Level of Harmonized Governance 25% of companies surveyed said they had at least regional-level governance. 22% reported global governance. Nearly 50% of the companies that were part of this study reported having greater than country-level tender governance. In the medical devices segment, which manages significantly more hospital-targeted tenders, it is prudent for companies to develop and support a regional-level governance. Given the geographical challenges of the healthcare system, the Medical Device segment may benefit from clustering countries where the healthcare systems are similar. From there, they can implement a regional tender management in which regional governance would be ideal. Ultimately, our data revealed that all levels of governance must have a dedicated resource to oversee it. Unequivocally, this is a best practice. Companies should have both a dedicated resource and harmonized governance, working in tandem to ensure successful outcomes. We also recommend an overarching global strategy to provide flexibility on regional adoption and in-country execution. Ideally, every organization should have a global-to-local approach.

6 Tender Management Survey Results, Report 1: The Tender Organization 6 Leadership: Is governance enforced by a tender leadership, and to what level? Finally, to be effective, any governance needs to be enforced by a tender leadership. Tender leadership at the country level is typically the initial strategy. Best practices suggest that regional and even global-complemented leadership are ideal, however leadership still needs to be operationalized at the country level to ensure local market knowledge and competitive intelligence. The Existence and Level of Tender Leadership The norm for most companies is creating a position to lead the tendering function; however, whether the lead is at a global, regional, or in-country level is inconsistent. 40% of the companies surveyed reported having at least country-level leadership to support their tendering activities. The same percentage of companies reported having either regional or global leadership; however, 25% reported having no recognized tender lead. This is surprising, but may suggest the lack of maturity of the tendering organization in some segments of the industry. To have a regional governance, tender leads are required. But this is not the case for global governance. This might be due to a disconnect between the headquarter and its tender activities meaning that, in fact, there is a global governance but nobody to enforce it. If there is a lead, a global governance should be enforced either by regional or global leadership.

7 Tender Management Survey Results, Report 1: The Tender Organization 7 An additional insight from the data may be that global governance is not enough. The number of in-country leads indicate that there is a need to tailor and oversee the process at the local level. Two patterns emerge from the data: either a company has global governance with in-country leads enforcing it while localizing the governance, or a company has regional governance with a regional lead enforcing while localizing the governance. In the case of medical device companies, it emerges that for this specific segment the preferred implementation is a regional governance. While this is typically headed by a regional lead, even a global lead may oversee this regional governance. One caveat linked to this regional aspect is that, with the U.S. not being subject to tenders, a governance will never be strictly global; therefore, there is a greater spectrum of global levels from governance with oversight of all countries except the U.S., to a governance only overseeing countries in the Middle East. CONCLUSION Two important indicators for a best-in-class tender organization are: a dedicated resource for tender management and regional or global governance with in-country operationalization; Most life sciences companies participating in the survey reported having a dedicated resource for tender management, with this resource residing in the market access department or another well-suited department, depending on the company s portfolio size and overarching goals; Most of the surveyed companies had some form of governance at the global, regional or local level and some level of leadership to enforce that governance. Setting up a proper organization is only the beginning of the journey to tendering excellence. Part 2 of our report will address how the tendering environment creates challenges for companies and how that environment is likely to evolve.

8 Tender Management Survey Results, Report 1: The Tender Organization 8 GET ON THE PATH TO TENDERING EXCELLENCE WITH HIGHPOINT SOLUTIONS To successfully compete in the tender and contracting market, life science companies need a strong and robust tender organization with a global-to-local tender strategy, supported by clear processes and organizational structures. HighPoint can help you optimize your tender organization by developing the following key dimensions: A dedicated global tender resource with in-country execution A global tender network A company-wide tender management governance A global tender management solution (both in-country and enterprise-wide) HighPointTHOR TENDER HISTORY AND OPPORTUNITY REPOSITORY Proper planning of tenders is one of the key challenges for companies. We recommend proactive market screening for upcoming tender opportunities and ensuring all opportunities are captured in a database. HighPointTHOR can provide this screening and alert notification, as well as all historical opportunities back to The licensed service offers: Upcoming tender screenings, on a daily frequency all issued tenders by a Public Authority in Europe, through TED (Tenders Electronic Daily), will be entered into HighPointTHOR. Alert notifications can be sent to a specific distribution list or user group. Historical tender data includes all historical tenders issued by a Public Authority in Europe according to the EU PPD (since 2011 and published through TED). 3 ANY QUESTIONS? LET S START THE CONVERSATION. Since 2000, HighPoint s team of consultants has provided clients in the highly regulated life sciences and healthcare industries with business consulting and technology solutions that continue to deliver business value and competitive advantage to more than 280 clients worldwide. For additional information on any of the material you ve read here, please feel free to reach out to either Kelly O Connor or Ruven Remo Eul. TALK TO KELLY O CONNOR. Sr. Account Executive, Life Sciences Kelly.O Connor@highpointsolutions.com TALK TO RUVEN REMO EUL. Director, Life Sciences Europe RuvenRemo.Eul@highpointsolutions.com HighPoint Solutions, an IQVIA Company