Friday, March 27, 2009

Our Blog named to “The Top 50 Pharmaceutical News and Research Blogs”

We generally don't believe in self promotion of our blog, but were recently humbled to be named as one of “The Top 50 Pharmaceutical News and Research Blogs” by “The Pharm Tech Blog” ( ). It is indeed gratifying to be recognized as #9 in this category and to appear with some very well respected other blogs.

We suggest you take a look at their blog which takes the following perspective:

“The Pharm Tech Blog aims to enlighten readers to important information and resources related to medicine, health, and the pharmaceutical industry, from the perspective of a pharmacy technician. This blog serves as an open forum for the exchange of ideas, resources and information related to health, health care and medicine, so feel free to contact us with feedback, article submissions and ideas.”

We also thank them very much for the recognition and pledge to continue our efforts at putting together our independent view of this industry. Thanks go to our chief writer Guy de Lastin for his tireless efforts.

Thursday, March 19, 2009

Bio-tech - Is this the Life Science’s Innovation Engine?

Larry and I have been blogging a lot lately about the tsunami of mergers and acquisitions that has been rolling over the pharmaceutical industry recently. We’ve been amazed at how traditional Big Pharma has been collapsing its own excess capacity back on itself.

Let’s talk about two recently announced deals, Merck (NYSE: MRK) and Schering-Plough (NYSE: SGP), (I won’t join the speculation about Johnson & Johnson (NYSE: JNJ) mixing it up with them) and Roche (SWX Europe: ROG) and Genentech (NYSE: DNA). (Regular readers can probably guess what I’m going to say next.) Which one of these deals makes the most sense from an investment perspective?

If you guessed Roche and Genentech then you’re correct! $46.8 billion is a nice piece of change for Genentech. The usual arguments of synergy, efficiency, etc. were given by management.

Roche gets the immediate benefits that come from such deals, improved revenues, earnings, and cashflow. But, what differs from a deal like Merck’s and Schering-Plough’s is that Roche is buying something new. (Alright, alright, I know that Roche already owned 56% of Genentech, but, at least they’re going in the right direction.) Bio-tech is the business differentiator here.

I haven’t had a chance yet to sit down and review the numbers between this deal and Merck’s but supposedly it’s more expensive. Given the future value of Genentech’s drugs, particularly the cancer treatments, that’s to be expected. The question is has Roche overpaid? I believe that’s it’s too soon to tell.

The hard part will now be making this deal work. Different cultures, national as well as corporate, and products are always hard to mesh together. Keeping key employees, particularly Genentech’s in this case, will be crucial. Given the amount of financing involved, Roche will be under significant pressure to produce results. Today’s markets are very unforgiving of missed expectations. Also, should this very expensive acquisition fail, what’s Roche’s chairman, Franz Humer going to do for his next trick? I’m assuming that Genentech’s chairman, Art Levinson, would be long gone by then.

Right now, the Roche and Genentech deal is the one to watch this year. This one’s the outlier. Something has to give in the pharmaceutical industry. The merging of companies with shrinking pipelines in an era of hostile government healthcare policies does not bode well as a good long term strategy for growth. Oh, for sure, there will a survivor. Just as in the auto industry, there will be a shakeout. I’m not ready to guess who that may be. But, I do feel confident that the bio-tech firms will be in a class by themselves. In the future, I’ll blog about why I believe bio-tech will be the engine driving innovation.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

Tuesday, March 17, 2009

Big Pharma’s Wanna-be’s

I’ve been blogging for awhile about the life sciences industry and things have started to get lively. Between the economy and its impact on the financial markets and the recent spate of mergers, Larry and I haven’t been lacking for blogging topics.

While following the industry and researching for my blogs, I’ve been noticing that the industry’s excess capacity is slowly merging itself away. A recent article in Barron’s described Bristol-Myers Squibb (NYSE: BMY) as a mid-sized pharmaceutical company. This got me thinking, who’s in Big Pharma now? Don’t worry, this blog won’t become a tedious list of company names designed to fill space. (BTW, I personally use CNBC’s Pharma Watch List at for those of you who really enjoy lists of company names.) Pfizer (NYSE: PFE) and Wyeth (NYSE: WYE) are merging. So too, are Merck (NYSE: MRK) and Schering-Plough (NYSE: SGP), unless Johnson & Johnson (NYSE: JNJ) have something to say about it. Roche (SWX Europe: ROG) and Genentech (NYSE: DNA) are finally getting together. Jim Cramer of CNBC was speculating about Abbott Laboratories (NYSE: ABT) and
Celera (NYSE: CRA) getting together awhile back. (I wonder if I really need to say “Jim Cramer of CNBC”. Is there anybody on the planet who doesn’t know Jim especially after Jon Stewart got finished with him the other night? But, I digress.) Hey, wait a second, this is starting to turn into one of those tedious lists I was griping about several sentences ago.

Let’s pull out two of those names, Johnson & Johnson and Abbott Laboratories and talk about them for a few minutes. They get tossed in everybody’s list of Big Pharma companies but are they really pharmaceutical companies? Yes, they do research and development, market drugs, and go cap in hand to the FDA like the Merck’s, Pfizer’s, and Lilly’s. But, what about all those other things that they do?

First, both companies have significant businesses in the medical devices sector. Definitely healthcare related. Complicated products with healthy (no pun intended) gross margins, I’ll bet. But, don’t they have similarities to drugs? Insurance companies and Medicare pay for them. Hospitals and similar healthcare providers don’t want a lot of vendors’ similar products with just different enough procedures cluttering their storage rooms and confusing their staffs. Product risk? Remember heart defribulators? I’ll bet Boston Scientific does. That one made Vioxx look a sandlot stickball game.

Next, Johnson & Johnson has a consumer products business, mostly high end goods or their own highly respected brand name products. But, many businesses are finding that highly respected brands are not as recession proof as they once were. Then, there’s what I call the Wal-mart effect. Consumer products companies have been resigning themselves to having to deal with the likes of Wal-mart and the few other remaining retail distributors in this country. Also, consumer products have competitors, names like Proctor & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL) which don’t normally appear in blogs like ours.

Finally, let’s talk about management. Johnson & Johnson has Bill Weldon and Abbott has Miles White. How do they manage the complexity and challenges of such disparate businesses? How are their successors developed and chosen? Anyone of the three business lines described require long careers to master and are different enough to be fairly brutal with newcomers who dabble. Anyone who doubts this should check with Bob Nardelli, formerly of Home Depot, who now works for $1 a year at Chrysler. (I can even get a better rate than that.)

Some argue that buying shares in companies like Johnson & Johnson and Abbott Laboratories is liking buying shares in a mutual fund. I don’t buy it. Mutual funds have administration fees and not the corporate overheads that these companies have. Investors thinking of investing in the life sciences sector should be looking at either specific stocks or actual mutual funds.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

Monday, March 16, 2009

Pharmaceutical Industry Consolidation-And the Winner is Pfizer, Merck or Roche????

And the Winner is Pfizer, Merck or Roche????

We promised our view on the potential results of the 3 "super-mega-global-mergers" that have taken place in the last 60 days and we don't wish to disappoint. As we don't want to keep you in suspense, we think that Roche is getting the most “bang for the buck”, BUT it is highly dependent on the non-integration of Genentech.

Let's start with the contenders-first Pfizer-Wyeth. No surprise here, we think PFE vastly overpaid to get a potpourri of businesses with a dog's breakfast of vaccines, biotechs, consumers and some underwhelming pipeline potential. It seems to us that the major drive here is “synergy”, that is reducing workforce size by nearly 20,000 while plugging some of the $11-13 billion hole that Lipitor going off patent in 2011 creates. The stock market has not exactly been “irrationally exuberant” about Pfizer's 10 year $258 billion spending spree for Warner Lambert, Pharmacia and now Wyeth and has inversely rewarded share holders with a nearly 70% reduction in market capitalization from the day of the Warner Lambert deal close (Pfizer's market cap about $300 billion) to this week's $95 billion. Need we say more?

Merck strikes as a version of more of the same. Paying a 30%+ premium (about $41 billion) to combine 2 feeble pipelines and some redundancy (maybe another 20,000 people reduced), "diverse" and/or non-intersecting cultures doesn't strike us as “happy days are here again”. In fact while Pfizer-Wyeth pretends to be a “diversification” play as opposed to a "consolidation", Merck-ScheringPlough doesn't even try to excuse itself with such rhetoric. There is Dick Clark's (Merck's CEO) trying to convince us that Schering Plough is somewhat of an international powerhouse (try telling that to executives of any of Europe's Big 3 pharmaceutical houses), and that Remicade will drive sales of several billion more-can you spell J&J? The reverse acquisition route seems spurious at best-we're no lawyers but can't imagine the transparency of this shenanigan and how it may play with the legal eagles of J&J in New Brunswick. Can we forget about potential in fighting between Fred Hassan (Schering's CEO) and the aforementioned Mr. Clark?

So, back to Roche-Genentech. Sure $95 a share is rich and many a scientist in South San Francisco is going to feel more like a Microsoft Millionaire from the 1980's and therein may lie Roche's opportunity and challenge. Genentech's pipeline is deep and rich with well over two dozen promising candidates and more to come. Much of this has been attributed and rightly so to a combination of brilliant scientists and a laissez faire culture with heralded beer blasts, parties and freedom to explore favorite projects, some of which have become major drugs. The trick is whether Roche's CEO, Franz Humer and his merry band from Basel can convince Art Levinson and Genentech's San Francisco based minions that it's business as usual and that things can only get better from here. We're going to guess that while this is a classic consolidation play, the boys of Basel will do it right.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Larry Rothman

Sunday, March 15, 2009

Big Pharma’s Dividends – How Safe Are They?

Recently, several large companies, Pfizer (NYSE: PFE), General Electric (NYSE: GE), and PNC (NYSE: PNC) have cut their dividends. This got me wondering, what might happen to Big Pharma’s dividends? After all, their share prices have been slammed like everyone else’s lately. (Although, admittedly, not all to the same degree.) I’ve always been suspicious that Big Pharma are not early adopters but followers. And, why not here? All that cash going out to greedy shareholders could be kept in the coffers, and, what do you do with all that cash? Why, either buy somebody else’s company or buy back your own stock. I didn’t say that this would be logical.

The Dow Jones was down about 52% from its 2007 high before its recent comeback. Buying stocks now could produce double the dividend yield from just two years ago. I’ll bet many recent purchasers of Pfizer and General Electric felt that way. But what about companies like Merck (NYSE: MRK), Bristol-Myers Squibb (NYSE: BMY), or Johnson & Johnson (NYSE: JNJ)? Decent returns now, but what about tomorrow?

What impact will Merck’s announced takeover of Schering-Plough (NYSE: SGP) have on its future dividends? I haven’t read of any changes yet but this may only be a matter of time. The media are speculating about Johnson & Johnson making a counteroffer for Schering to preserve its interests with Remicade. What might that do to Johnson & Johnson’s longstanding, unbroken record of annual dividend increases? Or, for that matter, might they have to go back a few years?

Interestingly, after Standard & Poor’s March 12th downgrade of General Electric’s credit rating from AAA to AA+, of the five remaining U.S. companies retaining their coveted AAA rating, two are Big Pharma, Pfizer and Johnson & Johnson. And, Pfizer is on Standard & Poor’s watch list because of its forthcoming acquisition of Wyeth (NYSE: WYE). I’m always amused at the herd mentality exhibited by Big Pharma.

First, everybody went after blockbuster drugs followed by direct to consumer marketing (DTC). Acquisitions came along next, and, now dividend decreases may be the next fad. Lowered credit ratings are just the unintended consequences of doing this.

OK, where does this all lead, you may be asking. (If you own Big Pharma stocks, you’d better be.) Remember several themes that Larry and I have been hammering away at for awhile.

Drug pipelines are drying up. President Obama will do “something” to U.S. healthcare. (Maybe only something easy like authorizing Medicare to negotiate volume discounts on prescription medications.) Unemployment is rising and many of the newly unemployed are foregoing their COBRA plans and other medical expenses until they find new jobs. All of this means that revenues could soon begin to disappear. Cash flow contracts and, well, you get the idea.

For now, everyone’s dividends seem safe. But, so did Big Auto’s and General Electric’s shareholders.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

Friday, March 13, 2009

The Pharmaceutical Industry Merger Mania-”The Consolidation Camp” vs. “The Diversification Camp”

The Pharmaceutical Industry Merger Mania-
”The Consolidation Camp” vs. “The Diversification Camp”

Consolidation in the Pharmaceutical and Biotechnology Industry has been grabbing headlines lately and of course we have a strong point of view about how this may shape or mis-shape the industry going forward. While the biggest headlines involve the Pfizer-Wyeth, the Merck-Schering Plough and Roche-Genentech consolidations, we feel compelled to discuss these and alternatives that may have been considered and the landscape that may develop as a result of these moves.

Let's look at some of the alternative strategies that can be deployed given that most CEO's would acknowledge that the combination of low ROI from R&D investments, patent expirations, demise of the blockbuster model, ineffectiveness of the sales force armies, excess manufacturing capacity, increased regulatory oversight, significant pricing pressures, and the lack of success (failure?) of large consolidations wreak havoc with long term direction.

Chris Viehbacher, the new CEO of Sanofi characterized two strategic camps in a recent interview with Bloomberg News-they are the “Consolidation Camp” and the “Diversification Camp”.

To us, Pfizer is the prime example of the Consolidation Campers with expenditures of nearly $200 billion in the last several years to acquire Warner Lambert and Pharmacia along with several other smaller acquisitions, only to have its stock market cap for the consolidated company reach under $100 billion despite loads of restructuring, re-engineering and synergy targets. It appears that once synergy targets are met (1-4 years), company values as measured by stock market capitalization seem to wane quickly and the quest/thirst for more consolidation continues at a frantic pace.

For us the leaders of the Diversification Campers are Johnson & Johnson and Abbott. Both companies have major lines of business outside traditional large molecule pharmaceuticals with significant and growing businesses in consumer healthcare and medical devices and diagnostics. Their acquisition strategy seems to be small to mid size chunks, notably J&J's $16 billion+ acquisition of Pfizer's Consumer Healthcare Businesses as well as numerous biotechnology companies, while Abbott has acquired Advanced Medical Optics (AMO), Guidant's Vascular Intervention and Endovascular businesses and Kos pharmaceuticals.

Both J&J and Abbott seem to have incremental “bite sized” acquisitions, all meant to provide a portfolio of “health care” lines albeit balanced among multiple sub segments of the industry. Both companies seem to have accelerated the success of these acquisitions by leveraging existing franchises and/or management and infrastructures. Notably one wonders why they haven't or if they might look at generic pharmaceuticals and/or animal health to round out their portfolios.

We will next discuss our opinions of the recent merger wave and who were the smart ones (could it be Pfizer, Merck or Roche??). Stay tuned and we will look at other alternatives we think may be developing.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Larry Rothman

Thursday, March 5, 2009

Hunter & Williams – Thoughts About Satyam, After Satyam (Pt. III)

Larry and I recently had an opportunity to talk with Randy Parks and Jim Harvey, attorneys at Hunton & Williams LLP and co-chairs of its Global Technology and Outsourcing practice about the impact of the Satyam affair on global outsourcing. Hunton & Williams has 1,000 attorneys in nineteen offices worldwide. The Black Book of Outsourcing ( ) ranks them as the number one outsourcing law firm in the world. Randy and Jim focus on the customer side of outsourcing deals although they have done some suppliers. This is the third and final of three blogs from this interview.

Jim said that there will be significant costs to add controls posing Indian outsourcers with a choice, either pass through the costs to their customers or reduce margins. A balance will have to be struck. I asked if the Indian outsourcers would be losing a key differentiator by adding these controls and their related costs. Jim reiterated that everything would be done with a balance. He didn’t feel that India would kill the golden goose.

With regard to immediate impact to Satyam, Jim pointed out that it has lost contracts with Caterpillar and State Farm. But, Satyam also wrote fifteen new outsourcing contracts during this past January. So, the jury may still be out on what their customers do. As Jim explained, the reasons for going to Indian outsourcers, labor arbitrage, expertise, and fantastic COE’s are still there.

We then asked Randy and Jim what a company should do if presented with a Satyam situation with its outsourcer. First, the customer should pull every operational risk mitigation lever in the contract. (Which assumes the customer had their attorneys include them in the first place.) Next, pay more attention to the deal in the early stages, send in a security team to review all key components of the contract. Do a triage, a risk adjusted decision process and identify what can be left, taken away, and what would it all cost. If there is no other way, then the customer should just buy its way out of the contract and move to existing providers.

Note that Randy’s and Jim’s advice is based on work that is done before. Another example of preparing in advance for outsourcer problems is the inclusion of financial covenants in outsourcing contracts. Examples of such provisions are change of control and deterioration in financial ratios covenants, the latter should be treated like high yield debt covenants. They indicated that vendors have been careful to avoid such covenants. Also, customers should build ongoing monitoring into future contracts.

As we wrapped up our interview with them, they summarized by saying that the Satyam affair would increase anxiety for sourcing relationships in the short term. There would be a broad brush taken temporarily and unfortunate conclusions drawn about geography and outsourcing in general. There are extremely talented resources at fairly competitive rates available in India. The value proposition is still in place. Specifically, Satyam could benefit from the economic timing. Business decision making is in paralysis right now. This matter could be finished for Satyam right now. A data point for when the markets recover. (Although, Satyam’s board of directors has announced a solicitation of bids for the company in the near future.) And, don’t forget those very high customer satisfaction scores that Satyam has consistently had.

Larry and I would like to thank Randy and Jim for taking the time to speak with us and appreciate their candid comments about the impact of Satyam on the outsourcing markets.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

Tuesday, March 3, 2009

We Talk with Some Renowned Attorneys about the Satyam Scandal, India and the Future of Outsourcing (Part II)

Larry and I recently had an opportunity to talk with Randy Parks and Jim Harvey, attorneys at Hunton & Williams LLP and co-chairs of its Global Technology and Outsourcing practice about the impact of the Satyam affair on global outsourcing. Hunton & Williams has 1,000 attorneys in nineteen offices worldwide. The Black Book of Outsourcing ( ) ranks them as the number one outsourcing law firm in the world. Randy and Jim focus on the customer side of outsourcing deals although they have done some suppliers. This is the second of three blogs from this interview.

Randy and Jim both emphasized that “serious deals need to be done seriously.” They noted that in the early days of outsourcing/offshoring deals there was a great deal of anxiety and tension along with less care than now. Satyam is a good reminder of the need for attention to detail and care.

Since also serves the interests of the consulting community supporting the life sciences industry, Larry and I naturally asked about their involvement in outsourcing transactions. Randy and Jim replied that for sophisticated transactions there is a role for both professional advisors and law firms. Communications between them should be open. Their roles are complementary. They felt that consultants have superior research facilities to do the empirical analysis.

We returned to the Satyam affair and asked if they thought that might be other occurrences in the future. “Who knows?” , they replied. Human nature being what it is, sure, recurrences are possible. The hope is that regulatory changes that will inevitably arise from this will prove effective. Satyam is regrettable but shouldn’t be repeated.

Randy and Jim declined to speculate on what other outsourcers may have problems in the future and were unaware of any such circumstances.

Jim noted that there were no public events that rise to the extent of what happened at Satyam. He added that moving data overseas exposes it to the risk of theft. But where data theft has occurred, it has been in the developed world, not in India or the Philippines. Jim was reluctant to feed the fear because these incidents are isolated not systemic with what we know today. He cited Enron as an example. Just because Enron had problems doesn’t mean that every energy company is run that way. Enron was only one company with many lessons learned. Similarly, Satyam will cause India to look at the regulatory oversight of its companies. Information security laws have already moved quickly because of the Satyam incident.

Larry asked about Indian regulatory impacts. Jim suggested that the interlocking boards of directors across Indian companies would be looked at. He speculated that as with the Enron aftermath, the regulatory reaction will be strong, swift, severe, and, perhaps, overdone.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin

Monday, March 2, 2009

The Impact of the Obama Health Plan on Pharmaceuticals-The Final Nail in the Coffin or a New Beginning-Our Thoughts

It seems as if the economic world is in collapse and the Pharmaceutical/Biotechnology Industry is not being spared. In fact the headlines suggest the industry is in for very rough sliding - witness the collapse of share prices for major Pharmaceutical and Biotechnology companies this week after President Obama unveiled his new health care initiatives. The President has proposed greater rebates to Medicare from Pharma which will significantly impact profitability (and by extension the incentives for R&D and new drugs). The administration is pushing for bio-equivalent biotechnology compounds to lower the costs to the consumer for these generally targeted, expensive compounds (and once again making the biotechnology companies far less attractive). Add to this the administration's proposal to make reimportation of drugs far easier (again to supposedly benefit the consumer) and layer on top of that the already existing problems of low pipeline productivity, the demise of the blockbuster model, decreased effectiveness of the sales force, excess manufacturing capacity, bloated administrative expenses and it is easy to conclude that the industry could be headed for disaster.

BUT WAIT, is it possible that despite these significant challenges, management may indeed have the opportunity for a classical transformation resulting in a leaner, more adaptive and focused business. While we don't want to be presumptuous and suggest this would be an easy move, several combination's of existing models and processes can be deployed to make the transition. Concepts such as the virtual company, focused R&D based on pharmaco-economics, better use of information management, highly targeted marketing and sales, rational out tasking, staff leasing, and/or global outsourcing and myriad more can be deployed for competitive advantage and profitability. The dilemma may very well be a management that is either too risk adverse, complacent or (hopefully not) incompetent.

As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Larry Rothman

Sunday, March 1, 2009

We Talk with Some Renowned Attorneys about the Satyam Scandal, India and the Future of Outsourcing

We have discussed our thoughts about the outsourcing business and its viability over the last few months and had a real opportunity to have two highly regarded attorneys discuss their point of view about the global outsourcing business in general and the impact of the Satyam financial scandal in particular.

Larry and I had a wide ranging discussion with Randy Parks and Jim Harvey, attorneys at Hunton & Williams LLP and co-chairs of its Global Technology and Outsourcing practice about the impact of the Satyam affair on global outsourcing. Hunton & Williams is a very large and well respected law firm with over 1,000 attorneys in nineteen offices worldwide. The Black Book of Outsourcing ( ) ranks them as the number one outsourcing law firm in the world. Randy and Jim focus on the customer side of outsourcing deals although they have done some suppliers. This is the first of three blogs from this interview.

We asked Randy’s and Jim’s about their impressions of the Satyam affair. Interestingly, Randy started by saying that he was disappointed by Satyam's behavior. Satyam had been a fantastic story, from nothing to a star in the globalization outsourcing market in ten to fifteen years and now to have to take a big black eye over this. He continued by saying that many Indian firms get higher customer satisfaction scores than firms based in the U.S. and emphasized that one bad apple doesn’t spoil the whole industry-he specifically pointed out that Enron was a single company disaster that did not permeate the entire energy industry.

We next moved onto what the warning signs were at Satyam, if any. First and foremost from our discussion was their reply that it would have been very difficult for a client to detect the fraud that was occurring-so we infer that best defense is a good offense-see their recommendations below. Jim stated that on a chronological time line (retrospectively) there were signs at a corporate level that some things were amiss. First, there had been rumors of a data breach at the World Bank, later found to be baseless, followed by the attempted sham real estate transaction. Randy also asked how they managed to keep $700 million in a bank without earning any interest and noted that the CFO deflected a reporter's query on this matter.

They explained to us that it wasn’t reasonable to expect customers to have the visibility to an outsourcer’s business to permit the type of transparency necessary to detect a fraud such as Satyam’s. Further, additional protection costs a significant amount of money and effort, and, then, would they work?

Randy and Jim agreed that developing a theoretical business model to protect against this type of situation would be an interesting intellectual exercise but wouldn’t be practical.

The next topic that we discussed was the lessons learned from the Satyam affair. Randy and Jim stressed operational execution of contract terms with outsourcers was and is the key to protecting a client from such issues, and even these are not entirely fool proof. They gave five recommendations that would be of use to our readers:

• Diversify the vendor pool-have a minimum of 3 suppliers.
• Take care of the data by offsite backups, assume catastrophic failure.
• Have source code drops.
• Manage the vendor relationships-enforce and exercise the contract terms.
• Take possession of dedicated machines.

Now, the caveat with these approaches is that they lower the anticipated savings expected from outsourcing deals. For example, the last point talks about dedicated machines which would cost more than shared machines. Randy and Jim noted that many contracts have these terms included but customers don’t exercise them. (I was polite and didn’t point out that such customers lose a second time because they’ve also paid their attorneys to draft such contracts and don’t use them properly.)


As always, we welcome your feedback. Please contact us at We look forward to hearing from you.

Contributed by Guy de Lastin