With Crisis Comes Options
Says Nagahisa, "In the midst of realizing I would have to empty the physical plant and lay off 90 percent of our research
staff, I thought of the conversations I had with [former Pfizer CEO Jeff] Kindler and the R&D leadership team about the unrealized
potential of our portfolio. Specifically, I estimated 70 percent of Pfizer's IP holdings were sitting on the shelf, being
neither reviewed or used. In that simple statistic, I detected a potentially useful new business model where we and Pfizer
could exploit these IP assets through a spinoff venture in which it holds a minority share while booking royalties from any
successful product commercialization." The risk for both parties was low, and the Japanese knew that even the perception of
risk pushes many otherwise good deals off the tracks.
Nagahisa also realized that the closure would create a rare opportunity to selectively choose some of the best scientific
talent in the country. In Japan, the turnover that creates a dynamic, flexible base of human assets is missing—workers are
protected and employment mobility is discouraged. Participating in a startup was certainly a change from the resource-rich
but bureaucratic culture imposed at a distance by a US company like Pfizer. "I started talking to staff and asked them about
their experience as Pfizer employees. The common thread was a sense of disengagement. We had scientists spending most of their
time doing things mandated by a global rulebook, or because the US management wanted it or it was perceived as our party line
for the local constituencies. I said to myself: Where is the accountability? Who carries ownership? Success was defined internally,
by meeting targets that guaranteed the annual salary bonus but had little to do with delivering value to the customer."
A Startup's Steady Footprint
A combination of factors resulted in some useful contributions from Pfizer that led to the launch of the new company in February
2008. RaQualia was able to rely on the credibility bestowed by Pfizer's 19 percent equity stake, which brought in two other
major investors—Japan's SMBC Ventures and Coller Capital of the UK—and a group of smaller ones for a total cash infusion of
just over $100 million. In addition, Pfizer gave RaQualia access to the IP from Nagoya's six discovery and development programs
as well as local marketing rights to two of its leading US products, including the blockbuster anti-psychotic Geodon (ziprasidone).
In fact, some 95 percent of the new company's pipeline was drawn from the Nagoya file. In a negotiation that took only nine
months, Pfizer opted to retain some parts of the Nagoya development portfolio, dividing up the pain franchise while divesting
from the entire GI field, which became the centerpiece of the RaQualia research program. Pfizer received the equity stake
as well as first-look rights on two early-stage projects.
Capitalizing on this insider perspective, RaQualia was able to build a development program that connects to the needs of both
the local Japanese market—where many common patented medicines are still unavailable to patients—and to broader opportunities
in Asia and globally. In March, RaQualia completed negotiations with Meiji Seika Pharma on a license to market Geodon in Japan
for the treatment of schizophrenia.
Wresting Value from a Willing Workforce
The biggest asset obtained was human capital. With over 400 scientists at Nagoya effectively out of work, RaQualia was able
to vet a strong team of experienced investigators, absent all the management and associated transaction costs associated with
the launch of a new venture. In a process that was largely self-selecting, Nagahisa assembled a team of 70 professionals drawn
from the 400. The new organization was launched from scratch, drawing in people comfortable with the idea of eliminating the
traditional hierarchical divide between boss and subordinate; where there are no mandatory assignments, with voluntary participation
on teams; and transparency is the basis for all communication, both inside and outside the company. Nearly four years later,
the structure is still very lean, with the original 70 melded into a total work force of just 79 people.
According to Nagahisa, "What binds this together is a consistent focus on delivering value at every stage of development,
from idea to proof of concept and beyond. There is no certification of a colleague's success unless this takes place, whereas
in most Big Pharma organizations, your bonus is built around easy-to-grasp metrics like generating five leads in a calendar
year. But what does this really have to do with finding and delivering a drug to a patient and payer community that wants
it? So all our people work around a very simple standard of performance: creating value outside the company. Value has to
be recognized—and as a commercial enterprise the proof point is always with the customer."