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Outsourcing: Hoechst's New Approach to Cost Cutting

Executive Summary

Eager to join the pharmaceutical elite, Hoechst needs to cut costs without creating more labor unrest. As it merges with Rhône-Poulenc into Aventis, HMR is outsourcing all US development to the CRO, Quintiles, looking to cut costs by $100 million over five years and provide a benchmark for the rest of HMR's worldwide development program. Moreover, both Quintiles and HMR hope to use the collaboration, perhaps in tandem with outside investors, to fund additional development projects; Quintiles would be assured the development work, and receive some of the drug's upside; HMR would be able to delay its own buy-in decisions until the projects had generated more actionable data. But the deal raises conflict-of-interest questions: will Quintiles' other clients shy away from a company with extra incentives to develop particular drugs-either those in which it has an equity interest or those of a client with whom it has a special relationship?

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