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Napo Pharmaceutical Questions

Napo's business model differs from typical biotechs in several ways: it focuses on neglected diseases, takes a long-term approach, targets both Western and emerging markets, forms partnerships where partners take equity stakes, and aims for social impact. While innovative, its distribution strategy of launching in multiple countries simultaneously was difficult to execute. The author recommends Conte take several actions: redesign the organization by hiring experienced pharma professionals, rebuild partnerships by focusing solely on innovation, obtain approvals for additional uses of Crofelemer to make it more attractive to partners, and raise additional capital for clinical trials and short-term expenses.

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Amrit Acharya
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401 views2 pages

Napo Pharmaceutical Questions

Napo's business model differs from typical biotechs in several ways: it focuses on neglected diseases, takes a long-term approach, targets both Western and emerging markets, forms partnerships where partners take equity stakes, and aims for social impact. While innovative, its distribution strategy of launching in multiple countries simultaneously was difficult to execute. The author recommends Conte take several actions: redesign the organization by hiring experienced pharma professionals, rebuild partnerships by focusing solely on innovation, obtain approvals for additional uses of Crofelemer to make it more attractive to partners, and raise additional capital for clinical trials and short-term expenses.

Uploaded by

Amrit Acharya
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Discussion of Napo Pharmaceutical Case Questions

Healthcare in the 21st Century MBA297a.1/PH223a

Amrit Acharya

1. What is the difference between Napos model and the typical biotech? What do you think
of Napos business model?
The differences between Napos business model and that of the typical biotech can be
synthesized under the following broad categories:

Product: Focus on Neglected diseases Only 104 biotech companies worldwide,


or less than 3% focused on neglected disease R&D. In fact, the BVGH report on
Neglected diseases cited in the paper (citation #5) estimates that on average, these
104 biotech companies are working on an average of 1.4 neglected disease
products. In contrast, Napos R&D pipeline included multiple products for
gastrointestinal and metabolic disorders, as well as polycystic kidney disease in
addition to crofelemer and NP-500 (for type-II diabetes).
Focus on long-term versus short-term Napo decided to partner with other
companies to sell and distribute crofelemer. Sometimes companies retained comarketing and co-promotion rights to position them as acquisition-attractive. Napos
strategy made it less financially highly valued, which indicates a long-term focus on
value generation through royalty revenues. This strategy reflects in Napos choice of
seeking mission-based investors who agreed to such long-term investment horizons.
Addressable markets: Both High-value Western markets and high-volume
emerging markets Most biotech firms would seek FDA approvals in the US and
then expand to emerging markets after attaining profitability. Napo chose the
alternate approach first seek developing market partners, attain a critical mass of
volume and then move to established Western markets.
Partnerships: Both Salix and Glenmark, Napos partners had equity participation in
Napo; this philosophy was used to generate alignment of the partners incentives
with that of Napo; however, this was an unusual choice. Additionally, Napo
outsourced the responsibility of regulatory approvals to their partners who had better
competencies in their respective markets; hence it could focus solely on innovation.
Social change: Triple Bottom-Line: Napos core strategy was to ensure their drug
was available to all the people who needed it, wherever they were in the world;
profits would follow. Additionally, through the HFC (Napos non-profit wing), Napo
would return 2% of net profits to cultures that were the source of the drugs raw
materials through social forestry programs. This sustainable model would, therefore
protect both their raw-material supply chain as well as the environment.

Additionally, Napos emergence from Shaman resulted in an atypical approach towards


commercialization where Napo chose to pivot its core crofelemer product into as many
alternate use-cases as possible such as Irritable Bowel Syndrome (IBS) and infectious
diarrhea in children. This strategy allowed them to focus only on Phase-III clinical trials
enabling them to be a less risk-based R&D company than Shaman. Napo can therefore
be classified as a Business Development company whose distribution is handled by
partners in all the international markets simultaneously.
Specific aspects of Napos business model reminded me that of Toyota who also chose
to have equity investments in their chasis/other raw-material suppliers in order to align
incentives, a strategy which worked for them very well. In principle, I agree to such
design of partnerships; however here the relationship was reverse of that of Toyota
Napos distributors invested in them rather than Napo investing in them. As a result,

Discussion of Napo Pharmaceutical Case Questions


Healthcare in the 21st Century MBA297a.1/PH223a

Amrit Acharya

conflicts of interest such as that of Salix marketing an alternate drug with similar usecases, in hindsight were bound to happen as in Salixs point-of-view, Napo was just one
amongst their many partnerships with drug companies and Salix needed to hedge its
risks; similar to how Toyota had equity investments in multiple suppliers to protect itself.
Additionally, I do not agree with Napos distribution strategy. While in principle, more
access is better, practically it is extremely difficult to launch a new product successfully
in even one country, let alone multiple countries simultaneously; I feel a staggered
approach would have been better and still aligned with Napos chosen social mission. I
am again reminded of parallels in Silicon Valley in general, a highly-qualified
engineer/product designer develops a highly innovative product but does not necessarily
have the requisite skills to bring it to market because of idealism; a case-in-point being
Teslas Martin Eberhard. Often it is important to bring-in qualified external management
expertise such as a CEO to run the company like a business and not a startup.
2. What do you think Conte should do next?
Although Conte was surprised by the result of its verdict in Napo vs Glenmark, I wasnt.
In fact, I would not be surprised if Napo lost the verdict in Napo vs Salix as well. I feel
that Conte should action the following decisions:
Organizational Re-design While Conte herself has a diverse set of experiences,
apart from her and the CFO, the company lacks diversity. Since most of Napos
partnerships are with pharma companies, Conte should hire an experienced hire
from the pharma industry to replace/work closely with the SVP-Global Access and
Alliances as the current person in-charge (Neelam) has expertise in policy-consulting
and operations in hospitals, which arent the short-term skills Napo currently needs.
Rebuild and renegotiate existing partnerships Anticipating that Conte will lose
her legal battles, Napo should repair the relationships with Salix and Glenmark and
focus on product innovation alone and not on how their partners should run their own
respective businesses. In order to protect Napos own commercial interests, Conte
can possibly revisit the original decision of not retaining any commercial rights and
attempt to re-negotiate existing contracts with their partners. Such re-negotiation
should include milestone based action-plans from their partners to alleviate any
concerns that Crofelemer is not being introduced-to-market at the desired pace.
Focus on products: The case began on a celebratory note that Napo had
successfully obtained FDA approval for Crofelemer for treatment of chronic diarrhea
in adult HIV patients. Assuming a steep learning curve, Conte should focus on other
Phase-III trials for alternate use-cases of Crofelemer so as to obtain the requisite
approvals at a faster pace and enhance the attractiveness of its drug for its partners.
On a similar note, since Crofelemer is a botanical drug, Conte can explore use-cases
in non-human applications (such as pets or livestock); pet medicine as a whole is
estimated to be a 1-2 billion dollar market (www.ftc.gov).
Raise additional capital for short-term expenses: Though this will be difficult
considering recent legal troubles, Napo needs additional venture funding to fund the
Phase-III clinical trials required for some of the additional use-cases described
above. Now that the company is more mature and can expect shorter lead-times for
obtaining FDA approvals, it can approach traditional sources of venture capital or
even large pharma companies.

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