Lessons on Bouncing Back From Disaster


Xconomy New York — 

Disaster is defined by Merriam-Webster as a sudden or great misfortune or failure.

In 2006, NPS Pharmaceuticals had certainly experienced its own “disaster.” With much of the company’s resources dedicated to building a commercial infrastructure in anticipation of FDA approval of its lead product for osteoporosis, the company was thrown a curve ball. NPS received an approvable letter requiring an additional clinical trial, with the consequence of delaying a potential approval by at least four years.

NPS’s stock fell nearly 40 percent on news of the FDA’s action, cash reserves were running out, and the company was faced with a significant debt burden of $191 million that was due in 2007.

Sadly, this scenario is all too familiar to many development-stage company executives.

I joined NPS to help deal with the aftermath of the corporate setback. Before we could evaluate our long-term options, the company needed to stop the bleeding by dramatically reducing cash burn, while maintaining a functional organization. This drove the painful, but necessary, first step of reducing headcount by 53 percent (230 full-time employees) by eliminating the commercial and medical affairs organizations and closing one of the company’s sites.

Then we had to ask ourselves “what next?” Was there a path forward for NPS as an innovative biotechnology company, or were we fated to take a safer route at the cost of creating value? While we evaluated and later implemented our long-term strategy, we learned many valuable lessons, some of which I share with you here.

1. Choosing a company mission based on a “the road less traveled” can ultimately be more rewarding and create greater value for investors and patients.

We shifted our focus from the primary care setting to rare disorders with high unmet medical needs, limited competition, and treatment by physician specialists. This focus created a path forward in whichNPS could control its own destiny and address a void in the marketplace, given that approximately 2,700 rare diseases do not have FDA-approved treatments. We chose not to compete with big Pharma and apply a phrase that I often use: “If you cannot beat them directly, be different exceedingly well.”

While our investigational parathyroid hormone failed to win FDA approval for osteoporosis, we refocused our efforts to develop this product, which is now known as Natpara, for another condition called hypoparathyroidism, in which patients lack this hormone. The appeal of this path was clear. The mechanism of action was intuitive, the medical need was great, and there was no approved drug for this indication. We expected a shorter and less costly development process given the rarity of the disorder and the fact that a great deal of work had already been done for osteoporosis. In addition, we would have a seven-year period of market exclusivity upon approval given the orphan status of this indication. Fast forward to the present: We are gearing up to file our Natpara marketing application in 2012 after announcing highly statistically significant results from our pivotal phase 3 study with a p-value that included 9 zeros.

Similarly, the company had been developing teduglutide (known as Gattex), but it wasn’t deemed a priority and the advancement of the program lingered. However, consistent with our new strategy, we jumpstarted the clinical development of teduglutide for adult short bowel syndrome, a rare condition affecting approximately 15,000 people in the U.S. We were also very pleased to have a positive pivotal study that supported the filing of a marketing authorization to the FDA in November 2011.

2. Identify and nurture your core competency. Outsource or partner the rest.

We decided to dramatically change our business model, shifting from the dogma of the fully integrated pharmaceutical company (FIPCO) to a strategic outsourcing model. In implementing the model, it was critical to identify the core competencies needed internally to be successful and assess them against other execution activities that could be contracted out. We determined that the company could be run with about 40 employees. After evaluating the 200 or so employees who were still with the company at that time, only 19 made the cut, which triggered a simultaneous launch of hiring and downsizing. The strategic outsourcing model necessitated very careful attention to maintaining compliance while transitioning the company’s location, standard operating procedures or SOPs, and activities execution.

3. Creating a culture by design

Creating a “new” culture would have been incomplete and certainly not successful if attention had not been given to defining the culture of the company and implementing it “by design.” We chose integrity and respect as non-negotiable ethical values. Personal accountability, excellence, and teamwork were named as sine qua non values to operate in a strategic outsourcing environment. The last value we added was “fun,” given the importance of enjoying what we do and celebrating our accomplishments as we advance our goal of bringing innovative medicines to patients who need them. Today NPS values permeate all aspects of the company’s operations. The “fit” is a necessary condition of recruiting talent to NPS to ensure individuals share the NPS values. Our values carry through to our performance evaluations, compensation, and all aspects of operations and communication.

Since the regulatory setback in 2006, NPS is now a successful company with a product in regulatory review and a second product that will be in regulatory review next year. We have a strong financial position with significant royalty revenues that we expect will provide very meaningful cash flows to the company in 2013 and beyond. We only have 84 employees with a very low turnover rate compared to our peers. We hope that the road less traveled will end up being a superhighway once our products are approved and successfully launched. A transformational period lies ahead for NPS—stay tuned.