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Prepare and submit a written 3-5 page analysis of Case - Salix PharmaceuticalSee attached guidelines salix_case_2.pdf case_study_analysis_guidelines.docx Unformatted Attachment Preview 2 CASE Salix Pharmaceuticals, Inc: Succeeding on the Road Less Traveled I Have My Life Back! “I started having problems with stomach pain and severe diarrhea,” explained Rex Young, a 37-year-old public high school teacher from Riverside, California. “Each day I was making between 25 and 35 trips to the bathroom. This just was not conducive to teaching in high school and because I didn’t know what it was, I got dehydrated and ended up in the hospital. I was diagnosed with ulcerative colitis. Dr. Vinod Mishra, my gastroenterologist, first prescribed a treatment of prednisone (steroid) to fight the inflammation, along with a drug called ASACOL. The prednisone didn’t work very well at all. I had a bad reaction to it and had to quit after four days. The ASACOL seemed to work OK for the first year. However, at the end of the year, I had another very severe exacerbation. I was facing radical surgery – a colostomy – that would remove my lower intestine. This case was written by Leonidas Kyriazis, MBA, and Linda E. Swayne, PhD, both from The University of North Carolina at Charlotte. It is intended as a basis for classroom discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Used with permission from Leo Kyriazis. both02.indd 450 11/11/08 11:09:45 AM SALIX PHARMACEUTICALS, INC. 451 “My doctor asked me if I wanted to try a new drug he had just heard about called COLAZAL from Salix Pharmaceuticals. I was willing to try anything to avoid the surgery and all the unpleasantness of a colostomy for the rest of my life. COLAZAL was amazing! I saw results within the first two weeks and at the end of the first month I was pretty much back to normal. I have been taking COLAZAL now for about two and a half years, in a regimen of 6 pills per day and I am in complete remission. I had a sigmoidoscopy/colonoscopy about three months ago and Dr. Mishra says that my intestine virtually looks like it has never been afflicted. He could not be more pleased with the result. Since I started taking COLAZAL, I gained back weight to where I was before I got sick – my wife says maybe a little bit more – and I was able to return to a normal life. I can say without hesitation – that COLAZAL saved my career and gave me my life back. I bought stock in Salix.” Salix Pharmaceuticals, Inc. “Rex’s story, and many other stories like his, make all the challenges of founding Salix worth while,” stated co-founder Randy Hamilton. He continued, “Salix is a pharmaceutical company with a mission to provide products to gastroenterologists and their patients. The strategy to achieve this goal, as we’ve defined it, is through ’search and development’ rather than the traditional ’research and development.’ We’ve searched the world for chemical compounds that could be developed into therapeutic drugs to treat intestinal disorders.” Lorin Johnson, co-founder, continued the story: “In the fifth century BC, Hippocrates suggested that his patients chew the bark of the willow tree to relieve pain and fever. Native Americans used willow tree bark to alleviate toothaches and other pains. The French pharmacist, H. Leroux, identified the chemical with the therapeutic properties and named it salicin after the scientific name for the willow tree (Salix alba). “In the twentieth century, salicylic acid derivatives (aspirin) were used globally to regulate blood vessel elasticity, reduce fevers and aches, prevent cardiovascular ailments, affect blood clotting, or ease inflammation. Salix Pharmaceuticals was named after our first compound that was derived from the willow tree.” Randy commented, “Our focus on gastroenterology has been a successful niche strategy. We’ve really helped a lot of patients to have normal lives and we’ve become a successful public company.” He continued, “Now we have to keep growing. Can we do that by sticking with gastroenterology? We’d like to in-license additional drugs to be used in gastroenterology – but can we find them? And, if we can find them, can we afford them? Or maybe we should look for new customers here in the US with other specialists – our XIFAXAN could be marketed to general practitioners. Or maybe we should investigate other inflammatory diseases since that’s Loren’s expertise. We are definitely feeling some pressure to grow the company . . .” both02.indd 451 11/11/08 11:09:46 AM 452 CASE 2: SALIX PHARMACEUTICALS INC. The Beginning Salix was created in 1989 by Randy W. Hamilton and Lorin K. Johnson – friends who had both worked for California Biotechnology, Inc. (CalBio), an organization that focused on biotechnology research. Before joining CalBio, Randy was Director of Strategic Planning and Business Development for SmithKline Diagnostics. At 35, he was Manager of Business Development for CalBio, responsible for the commercial aspects of several of the company’s development projects, including human lung surfactant, drug delivery systems, genetic marker diagnosis, and growth factors. In addition, he was responsible for establishing strategic relationships within the Japanese pharmaceutical industry and developing other global relationships. Lorin earned a PhD degree from the University of Southern California and was a post-doctoral fellow at the University of California, San Francisco, before becoming Assistant Professor of Pathology at Stanford University Medical Center. He co-authored more than 70 journal articles and book chapters and co-invented 16 issued patents. Then, he joined CalBio as Director of Scientific Operations and Chief Scientist at the age of 37. His research focused on anti-inflammatory therapeutics. After being caught in management changes at CalBio, Randy and Lorin began talking about starting their own business. A wave of biotechnology research startups had begun targeting basic research. However, Randy and Lorin chose a different path. Lorin stated, “These new biotechnology companies didn’t have any products when starting out and they had to raise a lot of money. We thought maybe we could short-circuit the need to raise a lot of money – and the timeline it took to bring the products to market.” He continued, “At one point, we thought that we might produce our own research products but we soon realized that it was better to market products that were more advanced in the life cycle.” Because Lorin was experienced in researching inflammation at the cellular and molecular level, Randy and Lorin decided to start the company around that research. Inflammation and inflammatory diseases had many manifestations such as arthritis, asthma, and psoriasis. The intestinal tract had two primary inflammatory diseases – ulcerative colitis and Crohn’s disease (both a form of inflammatory bowel disease). Randy summarized, “We looked at these various segments and early on we became interested in inflammatory bowel disease. We began a worldwide search for products that were in an advanced stage of development and we might be able to obtain the marketing rights.” The First Drug With their worldwide knowledge of the pharmaceutical industry, Lorin and Randy identified a compound called balsalazide disodium developed by Biorex, a small research company in London. Lorin realized very quickly that it could become a promising product, and they decided to try to acquire the rights to develop this both02.indd 452 11/11/08 11:09:58 AM THE BEGINNING 453 drug in the United States. Randy remembered, “We thought if we were going to be at all successful in convincing this company to license a product to an unknown, early startup company, we needed to visit them face to face. We used frequent flyer miles to fly to London. We met with Biorex and really got to know them. We weren’t trying to sell our company – we didn’t really have a company at the time – but we believed that they needed to be comfortable with us. Right after meeting with them, we put together a proposal.” He continued, “Biorex was a startup company in 1950. They looked at us and we reminded them of themselves. They understood what it was like to start a company when all you have to offer is desire and a willingness to work hard. They were willing to take a risk with us because they saw themselves in us.” When Randy and Lorin returned to California from London in 1989, they carried an agreement that gave them the right to the in-license of their first product. They immediately incorporated their company and started looking for money to pay the financial commitment to Biorex. Randy said, “Our total capital at that point was $9,500. We were working out of a spare bedroom in my home, which became the Salix world headquarters.” They tried to acquire the necessary capital from venture capitalists (VCs). “We thought that when we went out to VCs with a real product, they would be falling all over us to invest in Salix. We couldn’t have been more wrong! Venture capitalists were more interested in technology than a product,” explained Randy. “We met with over 120 firms and half of them showed some interest, but in all cases the VCs demanded ownership of 50 percent of the company with the first investment of funds, regardless of what the amount was! We had a pretty good idea what balsalazide disodium was going to be worth and they weren’t investing enough! So, we tried a different way.” Lorin picked up, “We decided to contact some industry people we knew to invest capital. We had two takers – John Chappell, a former chairman of SmithKline, and Mark Schlesinger MD, a noted gastroenterologist. John and Mark not only invested $150,000 that we could use to make the necessary milestone payments to Biorex, but also gave us confidence that the product we had acquired was solid.” Flourishing John Chappell suggested that they try to procure the license for the global rights to balsalazide disodium. Biorex was convinced and in 1991 Salix obtained global rights for this product. In 1993, the fact that Salix had a worldwide product in its portfolio opened doors. Astra, a Swedish company, and Menarini, an Italian pharmaceutical company, purchased licenses from Salix to exclusively distribute balsalazide disodium in specifically defined, non-competing, areas. The cash received for the licenses enabled Salix to begin the costly process of having the product approved for human use in Europe and the United States. Because Salix needed additional money in 1996 to continue its testing activities, the company listed on the Toronto Stock exchange raising $10 million. That both02.indd 453 11/11/08 11:09:58 AM 454 CASE 2: SALIX PHARMACEUTICALS INC. same year, Salix identified a second product, rifaximin, and licensed its rights from an Italian company, Alfa Wassermann. In 1997, balsalazide disodium was approved in Europe; and Astra began promoting it there under the brand name COLAZIDE. A Bit of Good Luck In 1999, Astra merged with Zeneca, the pharmaceutical division of the British giant Imperial Chemical Industries, becoming the seventh largest pharmaceutical company in the world. Balsalazide disodium was a fairly minor product for AstraZeneca. AstraZeneca contacted Salix and tried to sell back the license. Randy remembered, “We said, ‘Wait a minute, you’re walking away from the deal. There are payments that you really should be making. You can give it back to us but you should pay us the money you owe us for the development and loan us the money to find another partner.’ AstraZeneca gave it back and we owned the license to an approved drug! In the furor of the merger, we were a minor issue. To avoid any legal implications, the management of AstraZeneca just decided to throw us into the big bucket of merger expenses.” Lorin added, “They [AstraZeneca] actually paid us to fulfill the contract we had and loaned us some money that allowed us to find another partner in Europe.” Moving Ahead In the spring of 2000, Shire Pharmaceuticals, a UK company, paid Salix $24 million to acquire the rights to balsalazide disodium for Europe (except southern Europe where Minarini maintained its license to be the distributor). In July 2000, the FDA approved balsalazide disodium for use in the US market under the brand name COLAZAL. Salix decided to distribute COLAZAL itself and listed on the NASDAQ exchange to raise additional funds to hire a sales force. In 2001 COLAZAL was launched in the US market. In 2002 the company acquired from Dr. Falk Pharma the license for the granulated version of mesalamine and started the clinical tests for it to be approved for the treatment of ulcerative colitis. In 2003, Salix acquired from aaiPharma the exclusive rights to sell ASAZAN tablets and launched that product in 2004. Also in 2004, Salix acquired from King Pharmaceuticals two corticosteroids – ANUSOL-HC and PROCTOCORT – and launched them in the American market along with the FDA approved rifaximin under the brand name XIFAXAN. All the Salix drugs were marketed to gastroenterologists. The timeline is summarized in Appendix I. Additionally in 2004, Salix signed a license agreement for Pharmatel of Sydney to market COLAZAL in Australia and New Zealand. To market its products outside the United States, Salix formed strategic alliances to avoid the significant costs, risks, and infrastructure inherent in assembling an international sales force. (See Appendix II for Salix strategic alliances.) both02.indd 454 11/11/08 11:09:59 AM THE PHARMACEUTICAL INDUSTRY 455 The Salix Strategy Emerges Salix dedicated its efforts toward identifying and acquiring (in-licensing) latestage or early marketed proprietary pharmaceutical products that had an existing base of safety and efficacy data for the treatment of gastrointestinal disease. Salix focused on late-stage products attempting to reduce the risk, time, and expense that it invested in products compared to traditional pharmaceutical companies. Salix focused its time and energy on maximizing the commercial potential of its licensed products. Operations that were not core for the business, such as manufacturing, were outsourced. Resources were not tied up in “bricks and mortar” but rather invested in activities directed toward increasing product sales. Salix was a marketing-focused organization and employed a direct sales force to promote its products to the fastest-adopting, highest-prescribing gastroenterologists in the United States. Salix CEO Carolyn Logan believed, “Our specialty sales force – and the high level of service they are able to provide – allows us to capitalize on the opportunity to build a franchise with the gastroenterology community. And, our sales force allows us to attain higher profit margins and better control over distribution because we sell our own products.” The Pharmaceutical Industry The pharmaceutical industry actually consisted of all enterprises that were involved in the invention of drugs, production of the active substances in drugs, formulation of drugs, and promotion of drugs to the public, as well as the specialists who prescribed the drugs. The Products A drug was considered to be any article (other than food) intended to be used in diagnosis, treatment, prevention, mitigation, or cure for humans or other animals. Drugs were classified as prescription, generic, or over-the-counter (OTC). Prescription drugs were sold only in pharmacies and required a written authorization (a prescription) from a physician. Physicians prescribed a drug that they believed would improve the health of their patients, although a drug that had not been approved by the FDA was sometimes prescribed for a disease or illness. Termed “off-label,” it was a prescription drug approved for the treatment of a specific illness or disease, but prescribed for a patient with a different illness or disease because some medical testing published in a medical journal had suggested it as a drug to try when other recognized treatments failed. Generic (or generic equivalent) drugs contained the same active ingredient as a specific brand name prescription drug and required a prescription, but were only allowed to be produced after the brand name drug’s patent had expired. OTC drugs were freely available to the public and were sold in drug, grocery, and discount stores. both02.indd 455 11/11/08 11:09:59 AM 456 CASE 2: SALIX PHARMACEUTICALS INC. Exhibit 2/1: Average Retail Prescription Prices of Drugs Year Brand Name Generic 2002 2003 $75.82 $84.21 $27.16 $30.56 Source: National Association of Chain Drug Stores, Facts & Resources, Industry Statistics (see: http://www.nacds.org/wmspage.cfm?parm1=507). BRANDED PRESCRIPTION VERSUS GENERIC DRUGS New products that were the result of research and development (R&D) by pharmaceutical companies were usually covered by patents. Patented products enjoyed exclusivity (monopoly) in the market to sell the active ingredient for a specific indication (condition or disease) As long as the drug was protected by a patent, monopoly pricing was in effect and the price was usually well above the price of the same product after the patent expired. Exhibit 2/1 compares the average price of patented, brand name drugs versus generic drugs. PRESCRIPTION VERSUS OTC The Food and Drug Administration (FDA) through its OTC Drug Monographs defined 80 therapeutic categories and 800 significant active ingredients that could be used by consumers in self-diagnosis and self-treatment without prescriptions. More than 100,000 products were manufactured (mainly by pharmaceutical companies) for the OTC market. The pharmaceutical companies had some, but not complete, freedom to decide whether a product would be sold as an OTC drug. When the preparation contained an active ingredient that was one of those contained in the list of 800, it could be sold over the counter. If a product contained an active ingredient that was not on the OTC list, it had to be registered with the FDA and usually became a prescription drug. Pharmaceutical companies were able to request that any prescription product be transferred to the OTC list, but FDA approval for the change depended on the nature of the product and its safety for public use. Regulation FDA Approval Process To introduce a new drug to the US market, FDA approval was required – a complicated, time-consuming, expensive process with no guarantees. Exhibit 2/2 outlines the process. The organization seeking approval (the “sponsor”) went through two different evaluation stages: both02.indd 456 11/11/08 11:09:59 AM R E G U L AT I O N 457 Exhibit 2/2: New Drug FDA Approval Process Pre-Clinical Research Clinical Studies E NDA Review Phase 1 E Phase 2 Synthesis and Purification Phase 3 Accelerated Development/Review Animal Testing Short-Term E Treatment IND Parallel Track Long-Term Institutional Review Boards Industry Time FDA Time IND Submitted Sponsor/FDA Meetings Encouraged Advisory Committees NDA Submitted Early Access: E Subpart E Review Decision Sponsor Answers any Questions From Review 1. The Investigational New Drug (IND) Review Process to determine whether the product was suitable for use in clinical trials, and 2. The New Drug Application (NDA) Review Process to determine the benefit/ risk profile of a drug prior to its approval for marketing to physicians. One of the most important parts of the drug approval process was the clinical studies that were designed to distinguish the drug’s effect from other influences on humans – for example, a spontaneous change in disease progression or the effect of placebo (an inactive ingredient that looked like a test drug). In the United States these studies were typically conducted under informed consent of participants. There were three different phases of trials in the pre-approval stage and one in the post-market ... Purchase answer to see full attachment