9-711-508
REV: APRIL 5, 2011
GIOVANNI GAVETTI
FRANCESCA GINO
The Future of BioP
Pasteur
BioPasteur is at a crossroads. The ccompany’s founders are split on a decision that is critical to its future.
Since they are friends and do not like cconflict, they hired PSL and Co. to act as an external arbitter. You are a
senior consultant at PSL and Co.
Please read the case and answer the question at the end of it.
Before he became an entrepreeneur, Jeff Thompson was a talented mathematiciian. Born in
st
Philadelphia on June 1 1968, Thom mpson received a degree in mathematics summa cum m laude at the
University of Pennsylvania. A loverr of game theory and probability theory, Jeff did not liike risk. But,
ironically, in 2002, after he compleeted a Ph.D. in biological engineering at MIT, Jeff, his
h classmate
Arnold Hand, and the famous MIT T chemistry professor Amy Waitz founded BioPasteu ur, a biotech
venture.
BioPasteur aspired to exploit thee opportunities created by what Arnold and Jeff consid dered to be a
breakthrough innovation. During th heir Ph.D. days, Arnold and Jeff had developed a tech hnology that
allowed micro-organisms to be grow wn quickly in a controlled environment (i.e., 200 timees faster than
current technologies allow) and inex xpensively (i.e., 1% the cost of currently available tech
hnology). At
that point, however, there were feew applications for this technology, and all were reelated to the
development of new drugs that usee special types of micro-organisms to cure diseases by y killing (i.e.,
eating) the substances or bacteria that cause such diseases. Pharmaceutical companiees knew this
category of drugs had great potentiaal, but never invested in them because of the difficulty y and cost of
growing micro-organisms. Amy Waaitz was the worldwide specialist in this sector. Insteead of selling
the technology to pharmaceutical firrms, which were not ready to embrace it, the team ha ad decided to
start a new venture specializing in thhe category of drugs that uses their technology.
Amid some initial skepticism, an nd a couple of early failures, BioPasteur turned profittable in 2006
thanks to a revolutionary blood prressure drug, LOBLOPRIN. At first, the drug took the medical
community by surprise, thereby causing some delays in adoption. However, Waitz’ss reputation,
together with the experimental and clinical evidence demonstrating the drug’s superior effectiveness
e
and safety (e.g. negligible side effeects) compared to the competition, led to the drug being
b widely
used in New England and (to a lesseer degree) across the East Coast. LOBLOPRIN’s penettration in the
rest of the country was slow, howev ver, due to the strong ties that two large pharmaceuticcal firms had
with the medical community. By 22011 profits had reached around $50 million per yea ar and were
expected to grow by 10% per year until 2019, when the many patents protecting BioPasteur’s
____________________________________________________________________________________________________
______________
Professors Giovanni Gavetti and Francesca Gino prrepared this exercise as the basis for class discussion rather than to illustrate either effective or
ineffective handling of an administrative situation.
Copyright © 2011 President and Fellows of Harvarrd College. To order copies or request permission to reproduce materials, ca
all 1-800-545-7685,
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may y not be digitized,
photocopied, or otherwise reproduced, posted, or trransmitted, without the permission of Harvard Business School.
This document is authorized for use only in Dr Yetunde Anibaba's SMP 38 - Module 1 - Yetunde Anibaba - Part (B) at Lagos Business School from Jun 2022 to Dec 2022.
711-508 The Future of BioPasteur
technology were due to expire. What would happen after the end of 2019 was difficult to predict, but
the horizon for BioPasteur’s founders was 2019, after which the team had decided to donate
BioPasteur to MIT. After all, it was thanks to MIT that they could start the venture, and they planned
to go to MIT to start their academic careers (or restart it, in Professor Waitz’s case) after 2019.
Thompson, the managerial mind of the company (Waitz and Hand were focused on scientific and
operational aspects), always kept these plans in mind when making strategic decisions. He wanted to
squeeze as much value as he could within a short window of time.
From 2006 to 2011, BioPasteur invested a large portion of its profits in the development of a drug,
DIASTOP, that was thought to cure both type 1 and type 2 diabetes and to have major advantages
over alternative drugs. Similar to LOBLOPRIN, DIASTOP was conceived with the patient in mind: it
was designed to have very few side effects. Indeed, the medical community had known for a while
that BioPasteur was working on DIASTOP, and many doctors, especially in New England, were
looking forward to its introduction. Conscious of safety, BioPasteur had tested DIASTOP extensively,
and its test results were not as strong as LOBLOPRIN’s had been. Of the many trials conducted in
2009 and 2010 with real patients (10 batches of tests with approximately 100 subjects per batch), a
non-negligible portion of patients (i.e., 45) had developed heart-related complications. Three of them
suffered severe consequences and were hospitalized. After careful scrutiny, and despite these
complications, the FDA approved the drug in October 2010 on the ground that DIASTOP’s
experimental results were no worse than those for the great majority of other drugs in this category.
Prior to approving the drug, the FDA asked BioPasteur to perform an additional batch of tests with
100 30-year-old individuals who had moderate cases of diabetes. The FDA asked BioPasteur to give
different dosages of the drug to different individuals. The results of these tests indicated that there
was no relationship between the daily dosage and the incidence of side effects (Exhibit 1). The
absence of such a relationship is generally taken as good news, as it suggests some cases of side
effects might be coincidental.
In January 2011, Thompson and Waitz participated in the Annual Proceedings of Pharmaceutics,
the most important annual global pharmaceutical conference. Waitz had a major role in the plenary
session on diabetes, in which she divulged the scientific bases of DIASTOP. The presentation
attracted a great deal of interest, particularly because Waitz’s discussant and MIT colleague,
Professor Paul Rivers, raised the possibility that the drug was dangerous for patients between the
ages of 50 and 70, the critical target group for DIASTOP. Professor Rivers did not have direct
empirical support for his theory, which was based on results he obtained by treating non-human
subjects with what he claimed was a similar compound. Some of the participants criticized Rivers’
thesis and protocol: the compound he used was not identical to DIASTOP, and he used it with
healthy (i.e., non-diabetic) non-human subjects. Additionally, the rivalry between Rivers and Waitz
was longstanding: as two superstars in the same MIT department, they had never had a good
relationship, and while Waitz had become a very successful and rich entrepreneur, Rivers’
entrepreneurial ventures had always failed. Yet, given the potential significance of Rivers’ findings,
Thompson and Waitz were concerned about what these results might mean for DIASTOP’s viability.
Thompson was unable to sleep after the plenary session and returned to Cambridge profoundly
upset. BioPasteur had to decide whether to introduce DIASTOP. Despite the FDA’s approval, what
he and the team initially thought was a safe product might be significantly riskier. Thompson
immediately asked Dr. Wesley Anderson, the head of BioPasteur’s laboratory to put together precise
information about the relationship between age and incidence of side effects among DIASTOP users
(Exhibit 2).
On January 20, Thompson, Waitz, and Hand met in private at Thompson’s house in West Chop,
Martha Vineyard’s most exclusive neighborhood, to discuss the most important decision they had
This document is authorized for use only in Dr Yetunde Anibaba's SMP 38 - Module 1 - Yetunde Anibaba - Part (B) at Lagos Business School from Jun 2022 to Dec 2022.
The Future of BioPasteur 711-508
faced since founding BioPasteur: should DIASTOP be released, or should they take it back to the lab
for further development?
According to Anderson, the latter option would require at least four years of major investments
because the company had reached a point where improving the product further would necessitate an
increased investment in BioPasteur’s core technology. Anderson estimated that $12 million per year
in R&D was needed to improve DIASTOP significantly. In this scenario, DIASTOP could be
introduced in early 2015. Because the team believed DIASTOP would become an instant hit, the
projection was that DIASTOP could earn more profits than LOBLOPRIN immediately after it was
introduced. DIASTOP’s estimated profits were a steady $70 million per year. It was possible,
however, that BioPasteur would run into unexpected difficulties in making the needed technological
improvements. According to Anderson, there was at least a 50% probability that the technology
would only become available much later than 2015, which might lead to BioPasteur abandoning
DIASTOP if no improvements were made before 2017.
On the other hand, the market was ready for DIASTOP. Profits were expected to accrue at a clip of
$70 million per year even for the current, unimproved version of the drug. Each box of DIASTOP
would last the average patient a full year, and BioPasteur would earn $5,000 in profits from each box.
BioPasteur estimated annual sales of 14,000 boxes, 80% of which would go to its core customers in the
45-to-70 year old category). The FDA had already given its approval. A marketing campaign had
already begun. Doctors were eagerly awaiting the drug, which was already in production. BioPasteur
outsourced production to a third party company, GFT, located in New Jersey. BioPasteur had already
given GFT $5 million to cover initial operational costs, and it had signed a contract for the production
of DIASTOP for the first two years, guaranteeing GFT $10 million independent of the quantity of
DIASTOP sold during the first six months of production.
Thompson laid out his concerns. DIASTOP was a dangerous proposition. According to him, the
tests were not very good, and the words of Professor Rivers still echoed in his head. In addition,
Anderson’s analysis suggested there might be an effect of age on complications. Further, there was a
moral issue. Thompson was afraid that some of the patients could suffer long-term negative
consequences. Finally, Thompson emphasized that if it was reported that DIASTOP caused even a
few severe episodes of heart problems, the drug might be recalled. Always vigilant, the FDA
generally initiated a recall procedure if the side effect was systematic and severe. For example, the
FDA recalled a recent drug introduced by Liposci, another Cambridge-based biotech company, after
1% of all individuals who used it were hospitalized with a high fever within the first year of the
drug’s release. The consequences of a recall would be predictable for BioPasteur. The pharmaceutical
business is based on doctors’ acceptance. BioPasteur had a wonderful reputation, and its success
relied on doctors’ beliefs that BioPasteur was a patient-friendly company. A recall could jeopardize
LOBLOPRIN’s sales, especially since major advances had been made in more conventional blood-
pressure drugs.
Waitz and Hand had a different opinion. They agreed with Thompson’s diagnosis that a recall
would have devastating consequences for the company. It would probably mean the end of
BioPasteur. But they thought Thompson was overreacting. They had faith in the FDA, an institution
known for its rigor and fairness, which had given the green light for the drug’s release. Consistent
with the FDA judgment, they thought the incidence of side effects was acceptable. This conclusion
was consistent with their belief that pharmaceuticals were not an exact science, a fact that they felt
must be accepted. For them, DIASTOP needed to be introduced in the marketplace. Now.
This document is authorized for use only in Dr Yetunde Anibaba's SMP 38 - Module 1 - Yetunde Anibaba - Part (B) at Lagos Business School from Jun 2022 to Dec 2022.
711-508 The Future of BioPasteur
B
Exhibit 1 Relationship between compllications and dosage
2.5
1.5
Complications
0.5
0
5mg 10mg 15mg 20mg
Drug intake (mg)
Source: Casewriter.
Exhibit 2 Relationship between compllications and age
7
6
5
Complications
4
3
2
1
0
20-25 25-30 30-35 35-40 40-45 45-50 50-55 55-60 60-65 65-70 70-75
Age
Source: Casewriter.
Question Would you recommend
d that Thompson & Co. introduce DIASTOP?
This document is authorized for use only in Dr Yetunde Anibaba's SMP 38 - Module 1 - Yetunde Anibaba - Part (B) at Lagos Business School from Jun 2022 to Dec 2022.
