Developing new business opportunity is always challenging and complicated. Especially tricky it becomes when the timing of the market launch is several years ahead and when company has to rely on outside financing. In most cases only strong IPR protection can justify any investments into these kinds of R&D projects.

Starting point for all new products is a clear management vision for competitiveness of the product in the future market place. There has to exist significant value creation potential. In pharmaceutical sector this potential can be best evaluated from research results. Those research results, especially in life sciences, are usually based on statistical inference. On top of vast set of business and medical information, decisions makers have to understand statistical significance of obtained results in order to make good quality decisions.

Statistical results supporting the efficacy of nalmefene, as Lundbeck has now finally shown, were surprisingly compelling already in 1998 when the writer of this story consulted this project forward. At that time Contral Pharma Ltd (later renamed BioTie) was developing nalmefene. Based on available information already in 1998 it was reasonable to expect that the product could finalize last (phase III) trials sometime during years 2003-2004 meaning huge and accessible +500 million euro value for the product. This was also what happened, as can be read e.g. from BioTie 2002 Annual Report: “Decisions on further development and commercialization of the nalmefene projects can be made after we have obtained the results of preliminary phase III studies during the second quarter of 2003.” It is remarkable to notice that nalmefene reached last clinical trials already in year 2003, but gained market authorization only in year 2013, not in 2004 as should have been the case! What happened?

Overconfidence: During 1999-2001 Contral Pharma clinical trials team tried to develop nalmefene to be a drug that solved almost all alcohol related problems, i.e. something that was impossible. Money was spent and no results obtained.

Lack of Capital: By the end of 2001 it became obvious that Contral Pharma needed additional risk financing for commercialization of nalmefene. At same time BioTie, the only listed Finnish drug development company, needed also additional financing. Big institutional investors demanded that Espoo based Contral Pharma and Turku based BioTie should save money by merging operation before they could receive new risk capital. Cost saving was the major driving force between the merger of BioTie to Contral Pharma in year 2002.

Lost focus: after the merger the management of new BioTie didn’t seem to fully realize the potential of nalmefene and even product’s most appropriate way of use was lost. On top of merger activities also subdued results from overly ambitious, own clinical trials directed management interests away from commercialization of nalmefene, the clear lead product of the company.

Swings in market conditions: also the change in financing environment had an impact on nalmefene (mis)management. In late 90s there was ample amount of risk financing available and money was spent accordingly. By the year 2001 the situation had turned very different and even good quality projects didn’t necessarily get financing.

It was followed that in 2003 nalmefene didn’t succeed to meet phase III clinical end points statistically significantly. This was mostly due to two factors 1) relevant initial (statistical) results were not utilized properly, and 2) the number of participants in phase III trials was squeezed too low. Economic loss from lost IPR protection in the US market (expired in 2011) and from lost time advantage against competing technologies was some 500 million euro. Luckily nalmefene possessed so called new chemical entity (NCE) status in the EU markets and thus retained 10 year marketing exclusivity even though also the European patents expired in 2012.

 

Learning points:

1) don’t ever be overconfident
(there are no free lunches)

2) sometimes company mergers don’t bring value
(lost management focus)

3) some mismanagement happens always
(the cost of cumulated errors can be huge)

4) when you have gained exceptional product and/or results, exploit them entirely
(define your focus and keep it!)

5) plan your tests, pilots, R&D etc. properly
(statistical significance of your results is often everything).

6) remembering earlier results and understanding their implications to current strategic / research decisions can’t be overemphasized.

7) applying mathematical tools in very long term business planning is crucial and it has to be consistent.
(everything starts from budgeting and cash flow calculations. Often most simple risk management i.e. calculating “high”, “low” and “medium” scenarios for all cash flows is sufficient.)

9) if and when needed, use outsourced help for the above, especially in last three learning points.

On 1st of March, 2013, Petteri Hirvonen, +358 50 552 96 33