The business of bringing new therapeutic products to market
is full of challenges.  From high costs
and long development trajectories to unanticipated side effects and questions
of reimbursement, succeeding in the pharmaceutical industry requires
intellectual, scientific, regulatory, and financial acumen. And even that may
not be enough.

 

NPS Pharmaceuticals, a specialty pharma company now focused
on developing novel therapies for rare disorders with substantial unmet medical
need, has lived through the highs and lows that are frequent hallmarks of the
standard industry business model. In the early 2000s, the company was
developing its lead product as a potential blockbuster for the treatment of
osteoporosis, a large market with substantial market opportunity. Unfortunately,
the company received an approvable notice from the FDA that would have required
the company to conduct an additional large trial, which would have been very
costly and would have delayed the approval by years.  Already carrying $191 million in debt and
with a stock price that dropped 37% the day the FDA’s decision was announced,
NPS was in a tenuous financial position. In view of the critical challenges with
which the company was faced, it was a matter of survival to plan for a radical
reorganization of the company’s structure and focus.

Given the risks inherent to the drug discovery and
development process, a need for drastic change is not an uncommon
situation.  Other companies faced with
these challenges typically restructure, continue to focus on what they do best,
and advance one or two of their lead programs. This approach has its
advantages, but what if you excel at making square pegs and the best market for
you is full of round holes?  Rather than
following the typical trajectory, NPS first looked at its portfolio of product
candidates and their potential utility in therapeutic areas with few or no
treatment options and limited competition. 
Then management transformed its business model to leverage its intrinsic
expertise in areas that would optimize the company’s potential for success in
these indications.  This led to a
definition of operational excellence that is focused on identifying and
retaining core and differentiating competencies and assets, and optimizing them
for maximum productivity and value generation.

Find your focus

Putting this definition of operational excellence to work
requires management to identify those areas in which an organization can truly
excel and aligning its financial and
personnel investments accordingly.  After
a strategic review of the company’s assets and programs, we determined that NPS’
strongest value driver resided in the area of clinical development.  The company jettisoned its in-house discovery
research infrastructure which was deemed too expensive with a low probability
of success. The company also transformed it business model to an outsourcing
one, reducing the headcount by 80% and therefore relying on the operational
expertise of outside companies on an as-needed basis. This approach allowed NPS
to drastically reduce its overhead and cost footprint, and led to the
consolidation of the company’s operations in a single facility.  Through outsourcing and the use of
contractors, we have been able to meet operational needs “on demand” without
the need to carry the costs of equipment, facilities and personnel that were
underutilized.

With a focus on clinical development of therapies for rare
diseases with high unmet medical needs, we partnered or out-licensed the assets
that were considered non-core.  This
strategy had the dual benefit of reducing costs that were not essential for
achieving the company’s new objectives and generating capital that could be
used to advance key programs and pay down the substantial debt burden.

Bring out the
microscope

With a new focus and business model in place, NPS sought to
optimize every aspect of its operations for efficiency and productivity.  First we determined which organizational
structure and talent profile were required for our success. We retained key
personnel and complemented them with additional resources that were more
pertinent to the business model. The company then assessed the processes needed
to operate smoothly and efficiently. This analysis identified five company-wide
processes considered critical; these processes were dissected, streamlined and
specific steps to simplification were implemented. SOP’s had to be rewritten
according to the revised processes and training followed. Last but certainly
not least, the operational technologies had to be assessed given that many of
the technologies had been acquired to serve a company 10 times larger and with
a commercial twist, which was not the case anymore given the new orientation of
the company as a development powerhouse. The technologies were retired,
replaced or simplified. Throughout this process, the number one priority was to
maintain compliance given the highly regulated aspects of drug development and
the fact that NPS is a public company.

In order to ensure that the company maintains the highest
level of efficiency, NPS established a mechanism for routine assessment of
processes, personnel and productivity. These periodic assessments give the
company the information that it needs to optimize efficiency and productivity
and stay on track to achieving key objectives. More recently, we took the time
and effort to assess the operational processes, and updated them based on what
we had learned on the operational front and the evolution of the company. In
addition, we hired Six Sigma experts to assist in simplifying and streamlining
our processes even further.

Keep the big picture
in mind

Although excellence and efficiency within an organization
are essential for success, it is important to recognize that a job done to
perfection will still go unrecognized if the target audience fails to perceive
its value. A beautifully formed square peg will find no place in the world of
round holes. At NPS, this means that any given process or procedure is
worthwhile only if it achieves the goals of creating value for patients and
shareholders.  Drug development companies
must take a pragmatic view of their position within the pharmaceutical
landscape and must identify factors that differentiate them from their
competitors. Once they have established a business strategy, they much ensure
that they have the right product and the adequate resources to compete with
established players.

In establishing a business model that increases the
likelihood for success, one could keep Darwin in mind. Companies should consider
the overall environment for pharmaceutical products, and identify niches and
areas of differentiation that are hospitable for their growth and evolution. From
this perspective, the role of regulators and payers is becoming increasingly
important. On one hand, regulators are more and more focused on product safety
and positive risk-benefit ratios. The payers, on the other hand, are more and
more reluctant to reimburse for drugs that may provide only modest benefits.

Recognizing that the pharmaceutical landscape is littered
with the remnants of companies that were “good” at a lot of things, our mantra
for true success has been to be “different, exceedingly well”. Rather than attempting
to take on large pharmaceutical companies in highly competitive markets
cluttered with multiple products, the company chose to build a business based
on a differentiating culture, an innovative business model, and niche indications
that could provide life-transforming value to patients with rare diseases,
while creating value for our shareholders.

Today, NPS has two product candidates in Phase 3
registration programs for rare disorders, a healthy financial standing and
strong investor interest.  While focusing
on clinical development of its lead programs, the company has leveraged
multiple partnerships to reduce its clinical and commercial risk and increase
its likelihood of success.  By retaining
commercial rights in North America, NPS has the opportunity to establish its
own direct revenue streams while remaining eligible to earn substantial
royalties on sales of products marketed by its partners across the globe.

Conclusions

Building a business around the NPS model of operational
excellence may enable other small- to mid-size pharmaceutical companies to
navigate the challenges of their industry. Successfully filling one or more
well-defined niches and capturing a majority stake of a small market are likely
to create more value than can be achieved by competing for a small piece of a
very large market. 

Achieving operational excellence by looking for
ways to excel at doing less rather than more runs counter to much of the
conventional wisdom in the pharmaceutical industry. Yet the innovation gaps,
product failures and shrinking margins within the industry suggest that a new
perspective is needed. Reducing staff, eliminating or out-licensing programs in
which substantial investments have already been made, and staying within a
focus area can be difficult emotionally and operationally. If this were easy,
everyone would be doing it. Companies should consider that the costs associated
with these hard choices are well worth the price if they enable them to truly
transform patients’ lives.  And that’s
the picture that matters most.