The Treatment of Aki

Published: 2021-09-13 13:20:09
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Category: Health Care, Illness

Type of paper: Essay

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To begin, competition among rivals in this industry is low. At the time of the case, no drugs had been approved for the treatment of AKI. While some drugs were in clinical development, nothing was yet on the market leaving the opportunity for one company to dominate the industry.
The threat of substitutes in this industry is also low. At the time of the case there were only two options available for people suffering from AKI: dialysis, or a kidney transplant. Because these treatment options for AKI are so severe, the propensity of buyers to substitute from a drug to another treatment is low. It is very unlikely that a patient would choose to receive dialysis or a kidney transplant when their other option is taking a prescription drug. Within this industry the threat of new entrants is low. Developing treatments for this disease, whether it be a prescription drug or another treatment option, requires substantial capital requirements. Drug developers spend hundreds of millions of dollars on research and development. This need for significant financial resources favors market incumbents who have industry experience and long running relationships with venture capitalists. New entrants also face barriers related to intellectual property. Obtaining proprietary rights to a drug is an essential first step before the development process can begin. These proprietary rights are obtained early in the development process, long before a viable drug has even been manufactured. Because of this, new entrants are at a disadvantage in that they are barred from the development of certain compounds because of proprietary rights held by incumbent competitors. Ultimately, the barriers to entry are high and dissuade new entrants from coming to market.
The bargaining power of buyers in this industry is low. For the SA-AKI industry, the ultimate buyer is the patient in need of treatment. As I’ve already discussed there are few, if any, suitable substitutes available in this market. Additionally, there are a substantial number of individuals who suffer from this disease. Because of this disparity in the concentration of buyers to sellers, buyers are at an extreme disadvantage. Furthermore, because this product is essentially the difference between life and death for these individuals, customers have low price sensitivity. Buyers essentially must purchase the product and therefore have no power with which to negotiate.
Lastly, the bargaining power of suppliers is high. At the time of the case there was yet to be a drug available on the market to treat this disease. However, because of patents obtained by drug developers, treatments are proprietary and thus when a drug does come to market, it will only be supplied by one firm. This gives the supplier extreme control when it comes to price setting. Looking at each factor in the model I believe that the SA-AKI industry is an attractive industry to be in.
Is the market segment of patients with sepsis associated – acute kidney injury (SA-AKI) a good market opportunity to target? Provide evidence to support your position. (10 points, maximum 100 words)
The market segment of patients with SA-AKI is a good market opportunity to target because it’s both a large market and a market with few viable treatment substitutes. There are about 2 million individuals in the western world that make up the market for SA-AKI treatment. This is a substantial amount of people that need and could benefit from a new drug. The only current treatment substitutes available include dialysis or a kidney transplant. These two alternatives are inferior when compared to simply taking a drug. Lastly, because of the great need for the drug, buyers experience low price sensitivity.
Discuss the pros and cons of the decision to switch from bovine AP to recAP. (10 points, maximum 100 words, bullet points are acceptable)
Cons:

Required AM-Pharma to repeat all the steps in the drug development process that had already been completed with the bovine AP
Required increased funding, time, and commitment to the project
Had a negative impact on the company’s image because the switch represented poor management decision making that resulted in extended development time

Pros

Ensured individuals would feel safe using their product because it couldn’t be infected with mad cow disease, unlike the bovine form of AP
Switching pleased representatives from large pharmaceutical companies and the EMA whose support would be needed further along in the development and marketing process

AM-Pharma needed to convince stakeholders to either invest in the company, support the AM-Pharma program or even buy the company. Please list at least six key success factors that you would make to stakeholders to support the company. (20 points, maximum 200 words, bullet points are acceptable)

Strong and reliable investors’ syndicate that supported AM-Pharma through four funding rounds over ten years for a total of €53 million
Cohesive and experienced management team that fosters a culture of high quality while continuing to support AM-Pharma’s primary goal of value creation
Positive clinical data resulting from two separate rounds of phase I and II trials supporting the treatment potential of AP in several diseases including ulcerative colitis and SA-AKI
The SA-AKI industry presents large market opportunity (with potential revenues of more than €1 billion per year) with no direct competitors currently present
AM-Pharma holds the license for the patent for AP meaning no other firm can legally develop a drug to treat inflammation or tissue damage using the AP compound
Before AM-Pharma had even begun phase II trials for SA-AKI, they received interest from pharma companies to enter into partnerships for drug production

Did AM-Pharma create value between 2001 and 2014? What were the four most important strategic decisions that were made during this time and what were the positive and negative consequences for each of those four strategic decisions? (25 points, maximum 750 words)I believe that AM-Pharma created value between 2001 and 2014. During this time, executives at AM-Pharma made several strategic decisions to facilitate this value creation. First, in 2001 AM-Pharma licensed the patent for AP from Groningen University. This patent gave AM-Pharma the exclusive right to develop a treatment for inflammatory diseases using the AP compound. Acquiring this patent had significant positive consequences for the firm. Positive clinical trial results found that AP was an effective treatment for multiple diseases. These findings led to increased funding from venture capital firms as AM-Pharma continued over the years to develop the compound. While the outcomes of this decision were for the majority positive, it could be said that by licensing this patent, AM-Pharma was unable to research and test any other potential compounds. The decision to develop this specific compound thus ensured that all AM-Pharma’s time and financial resources would be committed to this course of action. As AP proved to be successful, it appears that this decision had minimal negative consequences.
The next important decision made by AM-Pharma was to switch from a bovine form of AP to a human form. Mad cow disease became prominent in the early 2000s, affecting the supply of bovine sourced AP as well as prompting concern for the safety of the compound. AM-Pharma’s decision to make the transition from bovine AP to human AP had both positive and negative consequences. On one hand, the switch meant that AM-Pharma would have to repeat each step of the drug development process that had already been completed with the bovine form AP. This not only meant increased time and money, but it also hurt the company’s image. However, I believe this decision ultimately had a net benefit for AM-Pharma. Representatives from both the EMA and big pharma companies preferred the use of a human form of AP. By making decisions favored by these entities, AM-Pharma reduces the risk that their drug will not make it to market. This decision essentially increased the value of the developing drug in the eyes of the entities that will determine whether it has a place in the market.
AM-Pharma’s decision to turn down a partnering deal with a large pharmaceutical company in 2010 is the next important strategic decision. Because biotech companies are not financially able to take a drug all the way to market, they often partner with big pharma companies who purchase the compounds usually after phase II. Therefore, the success of a biotech firm is not only measured through successful clinical trials, but also through the terms of the license agreement between them and the pharmaceutical company. In 2010, AM-Pharma was offered a licensing agreement from a pharma company which included terms of $10 million upfront and $180 million in milestone payments. AM-Pharma executives rejected the offer believing that the expectations of the drug being a blockbuster were too high to warrant the acceptance of a mediocre deal. Rejecting the proposal meant AM-Pharma passed up on a significant payday. This is a risky move for biotech firms who rely almost exclusively on financial support from venture capital firms and there was no guarantee of another offer. On the other hand, entering into a partnership too early can result in an inaccurate valuation of the company. By passing up on the agreement, AM-Pharma chose to continue onto phase II of the development process with the hope that more positive study outcomes would result in a better partnership offer from a pharma company.
Lastly, I believe AM-Pharma’s strategic hiring process and company culture has had a significant impact on their value creation over the years. AM-Pharma consisted of a small number of executives with strong management experience and a cohesive, shared mission. AM-Pharma’s small size played a role in its ability to act quickly and adjust efficiently to new challenges. The company focused on hiring individuals with many years of experience. This was an essential aspect of their hiring process because it allowed them to develop their culture of quality. As a biotech firm that must eventually sell their product to a pharma company, producing quality work was of the upmost importance. Individuals with experience were able to handle the high-risk environment and instilled trust in the executives. While this hiring strategy created value through the accumulation of highly skilled employees, the culture was also defined by high pressure and extreme risk which may have contributed to the departure of five different CEOs within a decade.
By mid-2014, the company was at a crossroads. Put yourself in the CEO’s shoes. What strategic options should the company embark on? What are the pros and cons of each option? What options would you choose and why? Note: You are allowed to be more creative here in terms of thinking about options in areas that have not been explicitly mentioned in the closing paragraphs in the case. (15 points, maximum 750 words)
By mid-2014, AM-Pharma had a few different strategic options that the company could implement. Ultimately, the company’s next step was to enter phase II clinical trials testing the new recAP in human patients with SA-AKI. This is a large and complex phase that would require more capital than the company currently had on hand. The case mentions three possible options for the company including: delaying the start of phase II trails until further financing could be obtained from venture capitalists, starting the clinical trails with the assumption that the money would eventually be raised, or reducing the number of clinical trial participants so that AM-Pharma would not require additional capital. Each of these scenarios have both positive and negative aspects.
The first option, delaying the start of the clinical trial, seems to be a valid choice given that AM-Pharma has not had difficulty obtaining funding in the past. The strong investor syndicate had provided the necessary capital to AM-Pharma for over 10 years. It could be assumed that raising the additional capital would take relatively little time. Therefore, there would be a minimal time delay before the start of the clinical trial. However, the case does mention that because of the financial crisis, the availability of funding was scarce. This could mean a substantial delay in the development process which is already years in the making. A delay to market could be detrimental to AM-Pharma if another firm manages to produce another treatment for SA-AKI and beat them to market. Ultimately, timing is very important in this situation. Often drug developers are able to become market leaders because they are the first to market. Because of this, there is a substantial risk in delaying the start of the clinical trial.
The second option of beginning the study without first obtaining the necessary financing is extremely undesirable in my eyes. As a CEO of a biotech firm I would never choose to take that risk, especially if there are other options available. The one positive aspect of this strategy is that the clinical trial would continue without any delay. As mentioned before, a delay could negatively impact the market position of AM-Pharma. Therefore, this strategy of avoiding any wasted time is beneficial from that perspective. However, there is no guarantee that the money will be raised and a misstep like this could be the end for the company. Biotech firms do not have extensive capital reserves like pharmaceutical companies. They rely almost exclusively on venture capital. Thus, if AM-Pharma were to begin the clinical trial using their remaining capital, there is a chance they would be unable to find additional investors. Without this additional capital, the company would not survive. I believe that this strategy is too risky.
The last option of downsizing the clinical trial from 290 to 150 patients seems preferable to me. This option both prevents a delay in the start of the study and requires no additional financing from outside investors. This appears to be a sufficient compromise given the previous two options. While this strategy is less risky than the previous two, I still believe there are negative aspects to it. This strategy may negatively affect the results of the clinical trial given that a larger sample size is always preferred. The case mentions that on average phase II trials are performed using 100 to 300 patients. Making the decision to downsize the study would put AM-Pharma in the bottom half of that range. Using less participants is never preferred given that the more participants in the study, the greater the information gained from it. The results of these studies will ultimately determine whether a big pharma company chooses to license the drug from AM-Pharma. Obtaining a licensing agreement is the end-point for AM-Pharma. It is the last step in a decades long process. Because of the importance of these clinical trials, we cannot overlook the effect that downsizing the participant pool will have on the results. That being said, AM-Pharma’s participant pool would still be within the given range. Given that these are the average numbers used by biotech firms, I will assume that 150 patients are a sufficient number for a phase II trial. Therefore, as CEO I would choose option three and begin the study immediately.

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