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(originally published by Booz & Company)


Getting Big by Going Small

S+B: Other companies in this situation might have asked themselves, What are we good at, and how can we rebuild from there? You seemed to be asking a completely different question.
Rather than thinking about what we did well, we asked ourselves what assets we had that we could redeploy in a new direction to create value. For example, we realized that our parathyroid hormone, which the FDA did not approve for osteoporosis, had the potential to be an effective therapeutic agent for hypoparathyroidism, a condition without a current treatment that affects roughly 65,000 people in the United States. So we seized the opportunity and reoriented our development program accordingly. As a result, we are currently advancing a Phase 3 study that, if successful, will be the basis for filing a new drug application with the FDA and subsequently marketing the product.

The following saying has been with me for a long time: “If you cannot beat them directly, be different exceedingly well.” And this is what we’ve done. In other words, we could not compete head-to-head with Eli Lilly, Pfizer, or the other big pharma companies. I knew we had to be different. The area of rare diseases was extremely appealing because the development cost is relatively modest compared with, say, developing another osteoporosis drug. And you’re working in an area where there’s limited competition. There is unmet need and a lack of effective options for patients.

Now many of the big pharma companies are incorporating similar strategies. Up to two or three years ago, most pharmaceutical companies were focused on blockbuster drugs: products that target millions of patients and can bring in more than a billion dollars. But the big companies now recognize that there are 2,700 or so rare diseases for which treatments are not available.

S+B: Biotech is an innovative industry, and outsourcing discovery and research seems counter to the industry’s typical business model. What led you to such an unusual strategy?
After our crisis, it was a matter of thinking about what we could afford to do. There was an acute sense of urgency. Having a discovery organization is expensive; the return on investment is anyone’s guess. Frankly, we could not wait until someone in a lab discovered something that could be of value 10 years from now. Many companies in the industry suffer internally from not-invented-here syndrome: If it’s not invented here, it’s not good enough. But I think the pharmaceutical companies are moving slowly but surely away from this notion; the number of development deals that they are signing with smaller biotech firms is increasing by the day. The agility, effectiveness, and focus of smaller biotech companies provide a much more efficient way of taking an initial compound created by a pharmaceutical firm and ultimately commercializing it.

S+B: What lessons can other biotech companies take from NPS’s experience?
More and more companies are relying on outsourcing, some more successfully than others. It is attractive to have low overhead, and not to be bound by any in-house capabilities. But running an outsourcing business is much easier said than done. Doing so effectively requires specific kinds of expertise, and a certain level of self-confidence, because you are giving away some of your control to third parties. This is something that took us time and effort to learn how to do at NPS; it was not intuitive. We went through a number of trials and errors, but I think we are at a stage now where we’ve mastered the art of outsourcing as a core competency.

Focusing as we do on late-stage development is a viable business model. It does not take away anything from biotech companies that focus on discovery. But I believe that pre-clinical discovery is a separate business from development, and it requires different capabilities. Transformation is feasible if you embrace your core knowledge, core technology, and core assets to create a unique path for your company.

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