Understand the context:
At our Analysis of Business Problems (ABP) class, we were taught the methodology for analyzing cases. they are listed below:
- Identify the problem-by understanding the context
- Define the problem not the symptoms-by proper diagnostic review
- Define the objective-what we are trying to achieve
- Determine the criteria
- Generate alternatives to meet the objectives identified
- Analyse each alternative using the developed criteria, then assessing criteria based on priority and weight
- Make a decision-the quality of decision is heavily depend on information available to us.
Taking these steps into consideration, below is my analysis of the BioPasteur’s case study.
Understanding the context:
BioPasteur, a biotech venture was founded in 2002 by Jeff Thompson, Arnold Hand, and Amy Waitz. Using a developed technology that allowed micro-organisms to be grown quickly in a controlled environment (i.e., 200 times faster than current technologies allow) and inexpensively (i.e., 1% of the cost of currently available technology), they specialized in the category of drugs that uses their technology.
By 2011, profits were at $50m/annum and expected annual growth of 10% until 2019 when the patents protecting BioPasteur’s technology would expire after which it would be donated to MIT.
Define the problem:
BioPasteur developed a drug – DIASTOP that was thought to cure both type 1 & 2 diabetes and have major advantages over alternative drugs.
However, an MIT colleague, Prof Paul Rivers raised the possibility that DIASTOP was dangerous for patients between the age range of 50 to 70 years. With this being the target niche for BioPasteur, the founders were faced with a difficult decision to either release DIASTOP or take it back to the lab for further development.
Define the objective:
Using all available information, decide on DIASTOP with an end goal of squeezing as much value from BioPasteur within a short window of time i.e., between 2011 and 2019.
Generate Alternatives:
- Release DIASTOP to the market
- Take DIASTOP back to the lab for further development
Determine & Analyse the criteria with respect to priority/weight:
- Viability.
Exhibit 1.1:
| Libroprin | Diastop | ||
| Year | Profit | Year | Profit |
| 2011 | $50,000,000.00 | 2011 | $70,000,000.00 |
| 2012 | $55,000,000.00 | 2012 | $70,000,000.00 |
| 2013 | $60,500,000.00 | 2013 | $70,000,000.00 |
| 2014 | $66,550,000.00 | 2014 | $70,000,000.00 |
| 2015 | $73,205,000.00 | 2015 | $70,000,000.00 |
| 2016 | $80,525,500.00 | 2016 | $70,000,000.00 |
| 2017 | $88,578,050.00 | 2017 | $70,000,000.00 |
| 2018 | $97,435,855.00 | 2018 | $70,000,000.00 |
| 2019 | $107,179,440.50 | 2019 | $70,000,000.00 |
| Total Profit | $678,973,845.50 | $630,000,000.00 | |
| Grand Total in profit | $1,308,973,845.50 |
Looking at the table above, releasing DIASTOP to the market immediately would result in a profit of $1.3b between 2011 to 2019.
Exhibit 1.2:
| Libroprin | Diastop | ||
| Year | Profit | Year | Profit |
| 2011 | $50,000,000.00 | 2011 | $ – |
| 2012 | $55,000,000.00 | 2012 | $ – |
| 2013 | $60,500,000.00 | 2013 | $ – |
| 2014 | $66,550,000.00 | 2014 | $ – |
| 2015 | $73,205,000.00 | 2015 | $70,000,000.00 |
| 2016 | $80,525,500.00 | 2016 | $70,000,000.00 |
| 2017 | $88,578,050.00 | 2017 | $70,000,000.00 |
| 2018 | $97,435,855.00 | 2018 | $70,000,000.00 |
| 2019 | $107,179,440.50 | 2019 | $70,000,000.00 |
| Total Profit | $678,973,845.50 | $350,000,000.00 | |
| $ 1,028,973,845.50 | |||
| Less other cost implications | |||
| R&D | $ 48,000,000.00 | ||
| GFT Operational Cost | $10,000,000.00 | ||
| Grand Total in profit | $970,973,845.50 | ||
| Reduced Profit | $338,000,000.00 |
Alternatively, taking DIASTOP in for further development would result in a reduced profit of $338m by 2019.
Note that exhibit 1.2 is working with the assumption that the technology required for the development of DIASTOP would be available by the year 2015 as any extensions would lead to a further loss and ultimately may result in BioPasteur abandoning DIASTOP.
Using the data above, the release of DIASTOP rather than taking it back for further development is a more viable option.
- Probability of a recall procedure.
With BioPasteur being conscious of safety, tests were carried out on 1,000 patients. Of this, 45 developed heart complications while 3 suffered severe consequences and were hospitalized. This shows a failure rate of 0.3%.
The FDA, an institution known for its rigor and fairness has a precedence of a 1% failure rate before exploring a recall procedure. The incident mentioned above shows a failure rate with minimal consequences i.e., below 1% failure rate, thus minimizing the probability of a recall procedure.
Though professor Rivers raised the possibility of DIASTOP being dangerous to patients between the ages of 50 & 70, he did not have direct empirical support for his theory as his report was obtained by treating healthy and non-human subjects.
In addition, the chart in Exhibit 2 does not necessarily support Prof. Rivers’ claim that the drug is dangerous for patients between the age bracket of 50 and 70 as there is no clear correlation between the number of complications and the age of patients.
Finally, while the fear of a recall as expressed by Jeff Thompson is valid, it has been stated in the case study that with him being a lover of game theory and probability theory, he does not like to take risks which has a very high probability of influence in his thought process.
Considering the above, the possibility of DIASTOP being recalled is minimal.
Make a decision:
With the considerations listed above, I would recommend that DIASTOP be introduced into the market as this would align with the objective of squeezing as much value from BioPasteur within a short window of time i.e., between 2011 and 2019 while the potential risk of reputational damage that may result from a recall procedure is minimal.
