# Presentation: 658818

## Rockville, MD
Tuesday, November 15, 2005

**Tuesday, November 15, 2005**

**CRIX ***FACE-to-FACE MEETING*

## AGENDA 

**Welcome**
- Update from Sue Dubman/IBM Janus Presentation
- Workstream Briefings
- CRIX Operating Strategies Workshop
- Firebird Pricing Model Workshop
- Summary and Next Steps** **

## Meeting Participants

## AGENDA 

**Welcome**
- Update from Sue Dubman/IBM Janus Presentation
- Workstream Briefings
- CRIX Operating Strategies Workshop
- Firebird Pricing Model Workshop
- Summary and Next Steps** **

## Janus Demonstration

- CRIX Steering Committee
- November 15, 2005

## AGENDA 

**Welcome**
- Update from Sue Dubman/IBM Janus Presentation
- Workstream Briefings
- CRIX Operating Strategies Workshop
- Firebird Pricing Model Workshop
- Summary and Next Steps** **

## CRIX Workstream Briefing

- CRIX Steering Committee
- November 15, 2005

## Agenda/Objectives

- Governance Workstream Status Update
- Governance Overview
- Next Steps

## Initial Plan/Schedule and Current Status to Develop CRIX & Firebird Plans

*Governance Workstream Status Update*

*Week of:*

**Status**

**3-Oct**

**10-Oct**

**17-Oct**

**24-Oct**

**31-Oct**

**7-Nov**

**15-Nov**

**CRIX Overall Business Plan**

- 1

- Background

- 2

- What is CRIX? Service Descriptions

- 3

- Firebird Service Model Overview

- 4

- CRIX Overall Operating Strategy

- 5

- CRIX Enterprise Model & Structure

- 6

- CRIX Overall Management & Staffing

- 7

- CRIX Financial Summary

**Initial **

**Full **

**SC**

**Firebird Business Case**

**Review**

- 1

- Background

- 2

- Service Descriptions

- 3

- Operating Requirements

- 4

- Firebird Operating/Deployment Strategy

- 5

- Pricing

- 6

- Firebird Return on Investment

- 

- 

- 

- 

- 

- 

- 7

- Firebird Financial Summary

**Working Group Meetings**

***XX***

***XX***

***XX***

**Steering Group Meetings**

***SC Face***

***to Face***

**Section**

- 

## Entity Form

- Proposed CRIX Governance Structure
- Non-Stock Non-Profit Company
- Membership based Structure
- Key Governance Bodies:
- Board of Directors – oversight of the company and decisions
- Advisory Board (s) – provide input and guidance to Mgmt & Board
*Follows the existing model for similar companies – e.g., PhRMA, ICH, VISA, SAFE, etc.*

*Governance Overview*

## Governance Overview

**Governance Structure Responsible For:**
- Overall vision, alignment, and priority setting
- Technical Development (incubation, production, commercialization, and compliance or services/products)
- Determination of approach for development & deployment of technology/services
- Baseline standards to ensure interoperability among modules
- Ensure compliance with Standards and best practices
- Certification of compliance with CRIX Standards
- Marketing strategy & portfolio management of CRIX
- Company business activities

*Governance Overview*

## Proposed CRIX Governance Structure

**Operational Board of Directors**
- Operational Structure & Decisions
- Responsible for Day-to-Day Operations
- Approves Advisory Board Charter
- Acts on Advisory Board Recommendations as appropriate
- Populated by Stakeholder Participants
**Advisory Board**
- Supplies Input & Influence
- Populated by Stakeholder Participants

*Illustrative*

***CRIX***
***Board of Directors***

***Governance***
_***Participation***_
*All CRIX users*
*Regulators*
*CRIX Management*

*CRIX Users*
*(Sponsors, Academic *
*Research Center, CROs, *
*Regulators, *
*Investigators, etc)*

*CRIX*
*(Management & *
*Operational Delivery)*

*CRIX*
*Advisory Board*

*Governance Overview*

## Governance Participation

**Board of Directors**
- Biopharma sponsors
- Non-Regulatory Gov Agencies (national and state) (CMS, NCI, VA, etc.)
- Academic & other Research institutions
- Potentially Patients / Patient Advocates
- Gov Regulators (OHRP, etc.) (if possible)
**Potential Advisory Board participants**
- Regulators:  FDA, EMEA, etc.
- Clinical Investigators/Research scientists/Research nurses
- Study Coordinators
- CROs
- IRBs
- National COOP Groups
- Disease Registries
- Standards Bodies (HL7, CDISC, ICH, BRIDG, etc.)
- Payors
- Providers/Physicians
- Medical societies/associations
- Medical Credentialing Bodies
- International Concerns (EU, NCRI, etc.)

*Governance Overview*

## CRIX Board of Directors

*Governance Overview*

## CRIX Board of Directors

- Targeted Board Structure
- 9 Seats allocated for stakeholder group representation
- 1 Pharma Stakeholder
- 1 BioTech Stakeholder
- 1 Academic Research Stakeholder
- 1 Non-Academic Research Stakeholder
- 1 Government / Regulatory Sponsor
- 1 Patient Advocate Sponsor
- 2 AT-LARGE Seats
- 1 Ex-Officio Seat (CRIX CEO)
- Filled by Nominating Committee
- Members Nominate Candidates
- Nominating Committee Submits Candidates for a Membership Vote
- Term and Limits
- Term:  3 year terms
- Limits:  No more than 2 consecutive 3 year terms

*Governance Overview*

## CRIX Advisory Board

*Governance Overview*

## CRIX Advisory Board

- Board and Sub-Committee Structure
- Number of Members
- 17 Advisory Board Seats
- Representation Across the Member Classes
- Representation Should Reflect Geographic Considerations
- Appointments are made by Advisory Board Chair
- Classes of Members
- Stakeholders
- Prospective Stakeholders
- Prospective Users
- Other SMEs
- Sub-Committee Structure Can Be structured to Include Areas As:
- Policy subcommittee
- Regulatory subcommittee
- Standards subcommittee
- Investment & incubation subcommittee
- Customer subcommittee
- Sub-Committees Can Better Reflect Potential Member/Geographic Diversity
- Can Be Augmented With External SMEs As Needed
- Can Allow Potential Members to Participate
- Term and Limits
- Term:  3 year terms
- Limits:  No more than 2 consecutive 3 year terms

*Governance Overview*

## Strawman Functional Organization Structure

*Governance Overview*

## What’s Next

- Next Key Focus Area:
- CRIX Operating Strategy (to be discussed today)
- In concert with Firebird Workstream
- ‘Full Business’ and ‘Incremental’ approach
- Funding Approach
- Service Usage and Commitment
- Return Metrics

*Next Steps*

## CRIX Steering Committee Meeting

November 15, 2005

**November 15, 2005**

*Firebird **Workstream Briefing*

## Agenda/Objectives

- Provide a status update on Firebird business case development
- Validate assumptions and approach for business case
- Review next steps

## Initial Plan/Schedule and Current Status to Develop CRIX & Firebird Plans

*Firebird Business Case Status Update*

## Firebird Scope and Service Descriptions

| Release | Beta (Today) | 1.0  (7/06) | 1.1 (10/06) | 2.0  (12/06) |
| --- | --- | --- | --- | --- |
| Target market | NCI | NCI/FDA | NCI/FDA/ | NCI/ Pharm/ Biotech/ CRO |
| Additional Functionality | Investigators provide information
Ability to setup 1572 packet
Ability to complete 1572 packet
FDA query module | Investigator profile
Manage Registration
Re-registration
Self Initiated Annual Registration
Registration Set-up
Manage Protocol Registry
SAFE Integration
Manual Registration
Workflow Approval
FDA compliance
Legacy data migration
 | Batch notification to FDA
Virus Scan for uploaded documents
Limit upload document sizes
FDA expiration dates & 1572 formats
CV’s for sub-investigators
Security certifications, C&A requirements
Data archival
Access to firewalls, proxies, pop-up blockers, spam filters
Sponsor interface for summary investigator registration data
caDSR Integration
Registration coordinator Minimal global updates
Inspection of Firebird by DSI | Definition & scope of sub-investigators
Data encryption (FDF) & FDF workflow & customization
Dynamic forms template
Sponsor/Protocol specific forms template
Migrating DCP/Pharma data and services to map local registries
Potential use of Firebird signing interface for signing other documents
Enhancing Delegate module for Pharma
Date formats for international investigators |

*Firebird Business Case Status Update*

**NCI Funded**

***Does v2.0 satisfy Industry's min. requirements for adopting Firebird?***
***How will v1.1 and v2.0 be funded?***

## Firebird Deployment Strategy: Services trajectory

- Release 1.1 will meet all of NCI’s needs
- Release 2.0  will focus on the supporting commercial needs
- Future enhancements should meet broader NCI requirements including those of the CTWG*, i.e. medical credentialing

*** Cancer Trials Working Group**

**Functionality**

**Time**

- 90%  NCI needs
- 70% commercial needs

- 100% NCI needs
- 70% commercial needs

- 60% NCI needs

**7/ 2006**

**10/2006**

**Today**

**Beta**

**Version 1.0**

**Version 1.1**

**Version 2.0 **

**12/2006**

- 100%  NCI needs
- 100% commercial needs

**TBD**

**Future**

*Firebird Business Case Status Update*

## The 1572 is a uniform requirement across all clinical trials; therefore, Firebird registry can be applied across all therapeutic areas
A 1572 submission includes creating\updating a 1572 form, an investigator CV, an investigator financial disclosure form, and an IRB approval form
SAFE credentialing costs will be accounted for by sponsors, separate from Firebird costs
Expenses will grow at a constant linear rate (which differs for each category) through Year 5 (ending 12/31/09)
Development costs for v1.1 and v2.0 and all business costs, including operations and maintenance costs, will be assumed by Firebird once v1.0 goes live (7/06)
Subscription based price model, focused on retrieving information out of Firebird for packaging and submitting (logical or physical submission) 1572s
Volume discounts will be given to sponsors that guarantee a high volume (level TBD)
Early adopters will receive a discount for their contributions to development
NCI will receive a discount for its contributions to initial development
FDA will not be charged to use Firebird
Costs for large pharmaceutical companies were estimated at approximately $487.75/investigator to create and submit a 1572, CV, financial disclosure form, and IRB approval form (Source: SeBIX Business Plan)

- A 1572 submission includes creating\updating a 1572 form, an investigator CV, an investigator financial disclosure form, and an IRB approval form
- SAFE credentialing costs will be accounted for by sponsors, separate from Firebird costs
- Expenses will grow at a constant linear rate (which differs for each category) through Year 5 (ending 12/31/09)
- Development costs for v1.1 and v2.0 and all business costs, including operations and maintenance costs, will be assumed by Firebird once v1.0 goes live (7/06)
- Subscription based price model, focused on retrieving information out of Firebird for packaging and submitting (logical or physical submission) 1572s
- Volume discounts will be given to sponsors that guarantee a high volume (level TBD)
- Early adopters will receive a discount for their contributions to development
- NCI will receive a discount for its contributions to initial development
- FDA will not be charged to use Firebird
- Costs for large pharmaceutical companies were estimated at approximately $487.75/investigator to create and submit a 1572, CV, financial disclosure form, and IRB approval form (Source: SeBIX Business Plan)

- Current Assumptions

*Firebird Business Case Approach*

**Notes:**
These are our current assumptions, based on our conversations and work over the past few weeks. We need your continued feedback in assessing their validity and making them better reflect the complexity of the true business environment

## An iterative approach is being used to develop the Pricing, ROI, and Financial Summary sections of the Business Case

*Firebird Business Case Approach*

**Firebird **
**Business****Model**

- Estimate Firebird business operations expenses
- Estimate Firebird operations and maintenance expenses
- Estimate Firebird development expenses

**Identify Markets**

- Back into approximate price based on  cost per 1572
**Determine value proposition from investor and customer perspectives**
**Review discounts for various categories**
- Conduct sensitivity analysis to identify key factors (Future)

**Develop Pricing Strategies**

**Refine**

**Validate**

**Validate**

**Refine**

- Identify target market(s)
**Develop potential scenarios for adoption rate**
- Refine market segmentation strategy (Future)

**Validate**

**Refine**

**Develop Cost Model**

**Red text indicates today’s focus**

**Notes:**
We have been using an iterative approach to explore issues around the Firebird business model

Over the last two weeks, we have developed initial cost estimates, identified preliminary target markets and adoption rate projections, and explored potential pricing strategies

Today’s workshops will focus on the items in Bold, Red font to help us validate our assumptions, refine our estimates, and future define our pricing strategy for Firebird

## Cost Model: Expense Categories

- Business Operations Expenses
_**Salaries and Benefits**_ – Costs for staffing a Firebird business office responsible for overseeing all aspects of Firebird
_**Product Management**_ – Costs for requirements and change management of Firebird application
_**Account Management, Integration, and Marketing**_ – Costs for acquiring and managing customer relationships, including basic user training, and sales
_**FG&A**_ – Costs for office facilities, legal and contracting responsibilities, and accounting
- Operations and Maintenance Expenses
_**Operations**_ – Costs for operations and maintenance and help desk
- Development Expenses
-  _**Cost of System Development**_ - Costs related to transition from v1.0 to v2.0
-  _**R&D Plowback**_ – Costs for continued development and modernization of Firebird

**Notes:**
This slide defines the various cost categories that we have considered and estimated to determine the costs of bringing Firebird to market as a viable commercial product

## Cost Model: Fixed vs. Variable Costs

**Fixed costs initially make up almost 98% of expenses in year 0, but moderate to 44% of expenses by year 5 **

_**Variable expense includes: **_volume-related storage and production requirements;  system capacity; additional staffing after year 1; volume-related customer support and usage costs.
_**Fixed expenses includes:**_ initial system development costs, baseline operating platforms, 100% of staffing in year 1 and moderating to 50% of staffing by year 5; R&D costs; base help desk costs, and other fixed overhead expenses including facilities costs.

**2%**

**33%**

**40%**

**46%**

**51%**

**56%**

**Fixed cost coverage approx.**
**18,500 transactions**
**(approx. $1.7M/yr)**

**Notes:**
After generating initial estimates for each of the cost categories on the previous slide, we analyzed both fixed and variable costs to determine how much costs could change under various conditions and how each category of cost impacts the unit cost

## Market Segmentation Strategy

|  | Description | Companies\Organizations | Number Clinical Trials | Time Frame |
| --- | --- | --- | --- | --- |
| Primary Target Market | Pharmaceutical & biotechnology companies (market cap greater than $50B) and select CROs | Abbott, Amgen, J&J, Pfizer, GSK, Merck, Eli Lilly, etc. | 3024 | First 12 – 18 months |
| Secondary Target Market | Pharmaceutical and biotechnology companies with a market cap between $10 and $50 billion, large government sponsors and select research centers | Bayer, Bristol-Myers Squibb, Genzyme, CDC, VA, Dana Farber Cancer Institute | 2550 | Next 9 – 18 months |
| Other Key Markets | Pharmaceutical and biotechnology companies with a market cap below $10 billion, non-profit organizations, other government sponsors | Amazon Biotech, GeneThera, Akesis Pharmaceuticals | Up to 25,000 | After scale is achieved, between 21 – 36 months |

- Sources: clinicaltrials.gov, Tufts Center for the Study of Drug Development

**Notes:**
Using a market segmentation strategy allows us to focus limited marketing resources on key customer segments that will be vital to success

In a later session we will focus on identifying differences, if any, in the value proposition for each of these market segments and optimum communication strategies

A key finding of our analysis is that adoption rate will be a major determinant of success, so we have focused initial attention on the market segments that have the greatest number of clinical trials and 1572s

As we reach scale and prices become even more competitive, we can expand into other target markets such as small firms

## Adoption rate scenarios were developed to illustrate impact on business model

- A 1572 is required for each PI to initiate a clinical trial
- A revised 1572 is required when:
- There is a change in the principal investigator
- There is an addition of a new sub-investigator
- There is an addition of a local laboratory or health care facility to which study patients make visits
- There is a change in file IRB or IRB’s name
- Source: Mackintosh, Molloy, and Mathieu. *Investigator Sites; Answers to questions about Good Clinical Practice*. **Applied Clinical Trials**, Oct 2003 v12 i10 p44(3)

**Requirements for 1572 Submission**

- There are approximately 41,000 clinical trials ongoing worldwide (30,000 of which are in the U.S.)
- The annual attrition rate of investigators is estimated to be between 25 – 50%
- Estimates range from 21,000 – 70,000 active principal investigators in FDA-regulated clinical trials
- Sources: Tufts Center for the Study of Drug Development, Society of Principal Investigators, and SeBIX Business Plan

**Estimates of Total Market Size**

- Total Annual 1572 submissions to FDA range from 200,000 – 240,000

**Notes:**
We created three scenarios, each based on gaining market share at a different rate, to illustrate how changes in adoption would impact the Firebird business model. 

Each scenario is based on an assumption that current customers would increase their usage over time and that new customers would be found at varying rates

## Key Financial Metrics

**Under these assumptions, we back into an initial base price of $95/1572 submission**
- Positive operating cash flow in year 1
- Break even in year 5 at $95 per transaction
- However, giving discounts will influence all of these factors

**Notes:**
We have analyzed the Firebird business model from two distinct perspectives: that of an outside investor and that of a potential customer. 

The base price of $95 is really the minimum price that an outside investor would consider charging because it generates a minimal net present value.

There is a cost associated with giving discounts– essentially different prices must be subsidized by asking others to pay more or investors must be willing to accept a lower return or take a longer period to get the same return. 

## Firebird Value Proposition

**Firebird creates savings of approximately 29% per 1572 for “large pharma” customer**
- Eliminates document mailing costs (2 mailings per 1572)
- Eliminates document copying and storage costs
- Reduces handling costs for Sponsor by 50% by reducing time required to handle and process forms from 6 hours to 3 hours
- Sponsors would still be responsible for SAFE credentialing costs at approximately $50 per investigator per year

**Savings Estimate Per Transaction**

- Source: Sample Industry cost and savings projections from SEBIX Business Plan

**Notes:**
These costs are based on a small sample of large pharmaceutical companies.

We are trying to gather information on NCI’s costs, but we need your help in determining how consistent these estimates are across the industry.

In this afternoon’s workshop, we will also focus on other key aspects of the value proposition, such as speeding up the process

## Firebird Value Proposition

**Preliminary estimates show that Firebird can save industry up to $950K per year at $95/1572**

**Relative Cost**

**Annual 1572 Submissions**

**Sample Industry Cost**

**50% Below Average**

**25% Above Average**

**Savings Estimate Per Customer**

- Source: Sample Industry cost and savings projections from SEBIX Business Plan

**Notes:**
This slide really magnifies the impact of the savings per transaction for customers with varying costs and numbers of 1572s

The various rows represent hypothetical customers whose costs per 1572 vary from the industry cost gathered from the SEBIX business plan, going up 5% per row and going down 10% per row from the average.

## Several factors influence the development of the Firebird Business Case

- Net Present Value1 is highly sensitive to adoption rate (i.e., gaining market share and reducing unit costs)
- Costs/1572 ranges from approximately $89 to $25 depending upon operating strategy and adoption rate assumptions
- Pricing policies such as discounts influence time to breakeven, operating cash flow and rate of return
- Potential cash flow uses and/or requires
- Debt Service Payments (i.e., repaying initial investors)
- Funding future development of other CRIX modules/infrastructure
- Supporting lower prices/discounting

- 1 Net Present Value, which is the present value of a series of future net cash flows that will result from an investment, minus the amount of the original investment, after Year 5 was used to evaluate the relative attractiveness of each Firebird Business Model from the investor perspective.

*Firebird Business Case Approach*

**Notes:**
During our initial iteration, we determined several key factors that will be important for our discussions today.

First and foremost, reaching economies of scale to reduce unit costs will be a crucial element of success 

## Next Steps

- Today, conduct workshops focused on
- Evaluating/recommending firebird operating strategies (full business or incremental approach)
- Assessing marketing and pricing strategies on the Firebird implementation approach recommended
- In the coming weeks ...
- Refine costs and pricing strategy (including validating key assumptions) based on workshop outputs
- Conduct sensitivity analysis on key variables
- Refine market segmentation strategy
- Develop draft Firebird business case

*Next Steps*

## Revised Project Schedule

*Next Steps*

## AGENDA 

**Welcome**
- Update from Sue Dubman/IBM Janus Presentation
- Workstream Briefings
- CRIX Operating Strategies Workshop
- Firebird Pricing Model Workshop
- Summary and Next Steps** **

## CRIX Steering Committee Meeting

November 15, 2005

**November 15, 2005**

*CRIX **Operating Strategies Workshop*

## Work Session Objectives

- Validate assumptions common to both operating strategy models
- Generate ideas related to controlling costs
- Discuss impact of operating strategy models on adoption rates

## Factors to consider when transitioning Firebird operations and management

- Ability to handle capital for startup expenses
- Expectations for rate of return
- Ability to raise revenue and/or distribute it
- Transfer of government assets and potential recovery requirements

**Organizational Options**

**NCI Hosts & Manages Firebird (for use only by NCI)**

**NCI contracts 3****rd**** Party Organization selected by CRIX Board of Directors (as soon as early adopters join) **

**NCI transfers to 3****rd**** Party Organization (as more modules are added or adoption increases)**

***For Internal NCI Discussion Only***

## Overview of ‘Full Business’ Operating Model

**~ 11 FTEs**
**$2.4M**

- CRIX
- Board of Directors

**Notes:**
Assumes 11 FTEs and $1.1M in other costs.

## Overview of ‘Incremental Business’ Operating Model

**~ 4 FTEs**
**$1.2M**

**Notes:**
Assumes 11 FTEs and approximately $1.3M in other costs.

## Each Operating Model includes Business Operations, Operations and Maintenance, and Development Expenses

- Business Operations Expenses
_**Salaries and Benefits**_ – Costs for staffing a Firebird business office responsible for overseeing all aspects of Firebird
_**Product Management**_ – Costs for requirements and change management of Firebird application
_**Account Management, Integration, and Marketing**_ – Costs for acquiring and managing customer relationships, including basic user training, and sales
_**FG&A**_ – Costs for office facilities, legal and contracting responsibilities, and accounting
- Operations and Maintenance Expenses
_**Operations**_ – Costs for operations and maintenance and help desk
- Development Expenses
-  _**Cost of System Development**_ - Costs related to transition from v1.0 to v2.0
-  _**R&D Plowback**_ – Costs for continued development and modernization of Firebird

**Notes:**
This slide defines the various cost categories that we have considered and estimated to determine the costs of bringing Firebird to market as a viable commercial product

## The 1572 is a uniform requirement across all clinical trials; therefore, the Firebird registry can be applied across all therapeutic areas
A 1572 submission includes creating/updating a 1572 form, an investigator CV, an investigator financial disclosure form, and an IRB approval form
SAFE credentialing costs will be accounted for by sponsors
Expenses will grow at a constant linear rate (which differs for each  category) through Year 5 (ending 12/31/09)
Development costs for v1.1 and v2.0 and all business costs, including operations and maintenance costs, will be assumed by Firebird once v1.0 goes live (7/06)

- A 1572 submission includes creating/updating a 1572 form, an investigator CV, an investigator financial disclosure form, and an IRB approval form
- SAFE credentialing costs will be accounted for by sponsors
- Expenses will grow at a constant linear rate (which differs for each  category) through Year 5 (ending 12/31/09)
- Development costs for v1.1 and v2.0 and all business costs, including operations and maintenance costs, will be assumed by Firebird once v1.0 goes live (7/06)

- Current Assumptions for both Operating Models

## Each Operating Model assumes Adoption Scenarios based on annual volume of 1572s

- Annual 1572 submissions to FDA range from 200,000 – 240,000

## The decision tree depicts the impacts of Operating Models and Adoption Scenarios on unit cost

- Today

**Notes:**
This decision tree will take us through today’s workshops, in order to inform the decision of how to implement Firebird. Today, we are faced with two possibilities (two extremes) – a Full Business model, which in our baseline assumptions requires 11 FTEs and apprx. $1.2M in other operating costs; and an Incremental model, which reduces the FTEs to 4 and other costs to approx. $788K. 

In the first workshop, we’ll talk about the costs of these two models, and demonstrate the impact of customer adoption (which is uncertain). This decision tree shows how the costs of each operating model, depending on the adoption scenario, drives a different ‘cost per 1572’. Note that the combination of models and scenarios – result in a range of ‘cost per 1572’ of $25.99 to $89.86.  These ranges are going to change based on your input during the breakout groups.

This range of ‘cost per 1572’s  has important implications for how we price the service to recover our investments. In the second workshop, we will explore how to set the price for using Firebird to ensure we adequately account for this broad range.

At the end of the day, we’ll bring together the results of these discussions (operating models and pricing strategies) and observe how they impact the value of this project over time (i.e., the NPV in Year 5). Our goal, presumably, is not to maximize NPV over time, as is usual in a for-profit venture; rather, our goal is to recover our investments as quickly as we can while still ensuring a viable business model and maximizing adoption.

## Each Breakout Group has one Operating Model package to review and modify

- The group facilitator has an electronic copy and can modify assumptions for:
- Number of FTEs
- Staff rates
- Non-staff cost components and growth rates
- Adoption scenarios and probabilities
- At the end of the discussion session, each group should
- Develop a revised spreadsheet to reflect the group’s modified assumptions (due at noon)
- Prepare to explain how each cost category change will impact the relevant operating strategy
- Create a presentation to report out your modified assumptions and responses to the discussion questions

## Discussion Questions

- When revising the operating model spreadsheet, discuss:
- Are the cost categories and associated growth rates valid?
- What impact does the revised model have on adoption rates?
- What impact does the revised model have on cost per 1572?
- Once you turn in your revised spreadsheets, discuss:
- What are likely capital sources to implement the revised model and what are their terms?
- What resources are available to apply to various cost categories in order to drive down cost? (e.g., leveraging staff from other organizations to staff business office functions)
- Are there industry parallels that we can leverage?
- What strategies can be used to improve adoption in each scenario?

## Full Business Model

November 15, 2005

**November 15, 2005**

*CRIX **Operating Strategies **Workshop Results:*

## Revising the Operating Model Spreadsheet

- Are the cost categories and associated growth rates valid? 		8.3 FTE
- Don’t need to start with a full staff model
- Resources should focus on the product management and services
- Outsource professional services
- Split out professional services as a cost category
- What impact does the revised model have on adoption rates?
- Opportunities above 1572 submission rate to increase volume and adoption rate
- Leverage functionality inherent to 2.0 to further enhance adoption list by supporting other documents (consent form)
- What impact does the revised model have on cost per 1572?	91.18

**Workshop 1: Full Business Model**

## Operationalizing Revised Model

- What are likely capital sources to implement the revised model and what are their terms?
- Venture capitalist to fund initial investment needs
- What resources are available to apply to various cost categories in order to drive down cost? (e.g., leveraging staff from other organizations to staff business office functions)
- Donated office space
- Outsourcing professional services
- Volunteers from industry to fill positions (such as finance admin.) vs. hiring
- Use Pharma representatives to market/promote Firebird to Industry
- Are there industry parallels that we can leverage? SAFE Model
- What strategies can be used to improve adoption in each scenario?
- Focus on enhancing Firebird functionality past 2.0 to support other documents submitted by industry to FDA)
- Start now marketing Firebird, need to let pharma know this it is for them
- Leverage Firebird revenue generation to support other modules like Janus

**Workshop 1: Full Business Model**

## Full vs. Incremental

- Incremental  - less risky
- Full
- Need for 5-7 companies on board
- Bigger initial upfront cost and higher  per unit price
- More capital to realize a more robust vision for CRIX
- Better ability to market Firebird, Janus and increase pharma participation early

## Incremental Model

November 15, 2005

**November 15, 2005**

*CRIX **Operating Strategies **Workshop Results:*

## AGENDA 

**Welcome**
- Update from Sue Dubman/IBM Janus Presentation
- Workstream Briefings
- CRIX Operating Strategies Workshop
- Firebird Pricing Model Workshop
- Summary and Next Steps** **

## CRIX Steering Committee Meeting

November 15, 2005

**November 15, 2005**

*Firebird **Pricing Model Workshop*

## Work Session Objectives

- Review the role of pricing in product roll out
- Discuss alternate pricing strategies (license vs. subscription vs. transaction)
- Observe impact of pricing on rate of return and operating cash flow
- Discuss incentives and other pricing policies for both models, assuming the “Most Likely” adoption scenario
- Discuss impact of pricing and other ways to enhance adoption rates

**Notes:**
Discount only one method of encouraging adoption and depends on market

## Updated Decision Tree

**Cost/1572 values will be revised prior to this session based on Operating Strategies Workshop breakout groups**

**Notes:**
The objective of this session is to take the results of the breakout groups that we just heard from and think through how we would set a preliminary pricing strategy for each operating model and talk through some of the key marketing questions. After today, we will take these results and delve deeper into them by doing some sensitivity analysis and further validating the estimates and assumptions that you came up with this morning– the objective is not to set the final price, but to get us closer to being able to make an informed decision and use that decision to build out the Firebird business case.

As we discussed this morning, there is uncertainty around how many customers will use the service so we will take that into account in our discussions over the next hour by looking at how changes in those assumptions impact things like cash flow and when Firebird will reach the breakeven point. 

I will run through some background material on pricing strategies, and then we will turn to the models that you revised this morning and look at implications of different price points and strategies such as discounting for different customer groups.

Finally, we will spend some time talking about how best to communicate the value proposition of Firebird to potential customers to make sure that we are appropriately capturing the qualitative as well as quantitative benefits of adoption for customers.

## Pricing strategy begins with a clear articulation of objectives, followed by forming the structure and setting price levels

- Identify and rank priorities (e.g., competitive ROI for large customers and investors, subsidization of small customers, government agencies, non-profits etc.)
- Select behaviors to encourage (e.g., rapid adoption) and discourage (e.g., limiting participation to select customers)
- Determine use of specific pricing mechanisms, including
- Fixed price or flat rates vs. variable prices/fees
- Use of subsidy floors and maximum returns
- Establish basis for price increases and decreases for individual customers
- Understand value received by customers (i.e. upper bound of pricing range)
- Calculate cost-to-serve of each customer (i.e. lower bound of pricing range)
- Set guidelines for use of customized pricing solutions (i.e. “one-off” contracts)

***Price Objectives***

***Pricing Structure***

***Price Levels***

## Pricing levels are bound by ‘Willingness to Pay’ and ‘Cost to Serve’

**Price**

*How much value to share with the customer?*

*Upper Bound*

*Lower Bound*

- Total value proposition to customers
- Cost savings
- Cost avoidance
- Increased speed to market (approval)
- Ease of use

**Willingness to Pay**

- Firebird business operations expenses
- Firebird operations and maintenance expenses
- Firebird development expenses

**Cost to Serve**

**Notes:**
This morning we looked at a range of potential costs per 1572 that were defined by the two operating models and the adoption rate– the number of customers that use Firebird. This was an important exercise because those numbers define the Lower Bound in the diagram– the cost of providing the service is the minimum price. The upper bound is defined by the value proposition for customers– both qualitative and quantitative. 

One of our key decision points is to achieve consensus on the pricing objectives from the previous slide, including how much value to share with the customers (essentially what our NPV for the project should be) because these objectives will largely define our pricing strategy. 

## Three basic business models for Application Service Providers are License Fees, Subscription Fees, or Transaction Fees

|  | License Fees | Subscription Fees | Transaction Fees |
| --- | --- | --- | --- |
| Description | An upfront fee for the right to use application | Subscription price regardless of number of transactions | Flat fee per transaction |
| Seller Revenue Nature | Non-recurring or recurring | Recurring | Recurring |
| Buyer Accounting Treatment | Capital Investment | Expense | Expense |
| Buyer’s ROI Synchronized with Cash Outflow | No | No | Yes |
| Software Resides | Buyer internally hosted | Buyer internally or third party externally hosted | Third-party externally hosted |
| Encourage Buyers to Transact | Yes | Yes | No |
| Suitable Buyers | Large buyers with fixed transaction volumes | Medium to large buyers with large fixed transaction volumes | Small buyers with a small transaction volume or unpredictable spot buying |

*Source: **	**Stephens Inc.*

**Notes:**
We should put some careful thought into the bottom row of this chart, because it is the second key component to our pricing strategy– HOW customers will pay, once we have figured out how much they will pay. A key point is that we are free to use multiple models in developing our pricing strategy if that will make the Firebird offering more attractive to customers. 

## Buyer’s ROI Synchronized with Cash Outflow

**LICENSE OR SUBSCRIPTION FEE MODEL**

**TRANSACTION FEE MODEL****(PAY AS YOU GO MODEL)**

**ILLUSTRATIVE**

*Source: **	**Stephens Inc.*

**Notes:**
This slide is to illustrate Row 4 from the chart on the previous page– it shows when customers get their return on investment in each of the three basic business models. The key point is that the license or subscription fee models require customers to pay up front and then get their ROI back over time, as opposed to a transaction model where ROI is achieved at the same time. Different customers, especially small start ups, may have different needs and be less willing to pay upfront.

## Subscription based price model, focused on retrieving information out of Firebird for packaging and submitting (logical or physical submission) 1572s
Volume discounts will be given to sponsors that guarantee a high volume (level TBD)
Early adopters will receive a discount for their contributions to development
NCI will receive a discount for its contributions to initial development
FDA will not be charged to use Firebird
Costs for large pharmaceutical companies were estimated at approximately $487.75/investigator to create and submit a 1572, CV, financial disclosure form, and IRB approval form (Source: SeBIX Business Plan)

- Volume discounts will be given to sponsors that guarantee a high volume (level TBD)
- Early adopters will receive a discount for their contributions to development
- NCI will receive a discount for its contributions to initial development
- FDA will not be charged to use Firebird
- Costs for large pharmaceutical companies were estimated at approximately $487.75/investigator to create and submit a 1572, CV, financial disclosure form, and IRB approval form (Source: SeBIX Business Plan)

- Current Assumptions

## Description of Discount Categories

_**Rate of Price Decrease**_ – Amount overall prices fall each year to account for changes in unit cost (same across all categories)
_**Year Price Decrease Begins**_ – Year in which overall price decreases start
_**High Volume Discount**_ – Amount of discount for customers guarantee a high volume
_**Early Adopter Discount**_ – Amount of discount to encourage key customers to switch and/or repay initial capital contribution
_**Year Early Adopter Discount Ends**_ – Year in which Early Adopter Discount is no longer in effect
_**Sponsor Discount**_ – Amount of discount to repay NCI’s initial contribution to Firebird
_**Year Sponsor Discount Ends**_ – Year in which Sponsor Discount is no longer in effect

**Notes:**
We get deep into discounting as incentive, but open to others– especially qualitative aspects of value proposition

## Discussion Questions

- What are Firebird’s overall pricing objectives?
- Is there a desired/required rate of return for ‘investors’?
- Are there other pricing objectives (e.g., positive cash flow as soon as possible, subsidizing non-profits or other organizations)?
- What are effective communication strategies for each value proposition (positioning and messaging)?
- What is the value proposition for target customers?
- How do customers prefer to pay (subscription-based, transaction, other) and how consistent are their preferences?
- How do we incentivize/communicate value to investigators to encourage adoption?

## AGENDA 

**Welcome**
- Update from Sue Dubman/IBM Janus Presentation
- Workstream Briefings
- CRIX Operating Strategies Workshop
- Firebird Pricing Model Workshop
- Summary and Next Steps** **