RaQualia's New Spin on the Startup - Pharmaceutical Executive

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RaQualia's New Spin on the Startup


Pharmaceutical Executive


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."


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