* DD&D MAY 2013 Covers_DDT Cover/Back April 2006.qx 4/29/13 8:48 PM Page 2
May 2013 Vol 13 No 4
www.drug-dev.com
IN THIS
ISSUE
INTERVIEW WITH
SNBL’S
FOUNDER, NDS DIVISION
SHUNJI HARUTA, PHD
Pharma Game
Theory
16
Derek Hennecke
Gastric-Resistant
Functionality
26
Large-Volume
Viscous Drugs
32
Transdermal
Frontiers
36
Philip J. Butler
Thorsten Cech
Kevin Cancelliere, MS
Kenneth Kirby
Chandan Alam, MD
Autologous Cell
Therapies
The science & business of drug development in specialty pharma, biotechnology, and drug delivery
Marshall
Crew, PhD
A Call for
Collaboration
to Meet the
Bioavailability
Challenge
Cindy H. Dubin
Prefilled Syringes &
Parenteral Contract
Manufacturing:
Improving for
Flexibility &
Customization
Cecilia Van
Cauwenberghe, MS
Trends & Opportunities in
Particle Design
Technologies - Life
Sciences & Biopharma in
the Spotlight
45
Ronnda L. Bartel, PhD
Tod Borton
Market
Forecasting
Jemma Lampkin
Gerard Loosschilder, PhD
66
16-19-Management Insight 4-DDD-May 2013_Layout 1 4/29/13 4:49 PM Page 16
Management
Insight
Rook to D7: Game Theory in the Pharma
Industry
By: Derek Hennecke,
CEO & President, Xcelience
Drug Development & Delivery May 2013 Vol 13 No 4
Part 4 of a 6-part series offering an
overview of this year’s six best business
books with insights into what they can
teach the Pharma industry.
16
16-19-Management Insight 4-DDD-May 2013_Layout 1 4/29/13 4:49 PM Page 17
hess is an allegory for
decisions people make when confronted
not really considered a credible vendor.
business. Plot several steps
with competitive situations, especially
Catalent held a near monopoly.
ahead of your current move.
when they have limited information
Anticipate your opponent. Compensate
for your weaknesses. Take inventory of
about the other players’ choices.
Such games typically have a Nash
Customers, predictably, didn’t like
it. “Numerous existing Patheon
customers have been specifically
your resources, and use them all for
equilibrium, which (roughly speaking) is
requesting soft-gel manufacturing
maximum advantage before going on
the result when players behave selfishly.
alternatives to their current suppliers,”
the attack.
Many times, there are also cooperative
says Patheon President Geoff Glass to
strategies on the table that would make
Outsourcing-pharma.com. Adding
intelligence. This may be true at the
everyone better off, creating a social
Patheon’s breadth of offerings to
beginning stages, but not in advanced
optimum.
Banner’s patent-pending drug delivery
People believe chess is a test of
play. No matter how clever you are, you
Knowledge of these and other basic
platforms was like sweeping the pieces
can’t win against an experienced player
strategies of the game are essential
off the board and starting the game
unless you, too, have studied the tactics.
reading in today’s business world. In the
fresh. Assuming Patheon now offers a
At a C or 1500 level - not an easy level
world of chess, you need to know a
credible product of equal value to
to achieve - 90% of what players do is
Caro-kann opening from a Sicilian
Catalent’s, there is now the potential for
still just identifying common tactics to
opening so you can anticipate and react
some serious competition.
be able to avoid traps. Business is not
preemptively. In business, you should be
much different.
aware of a couple of approaches to
Patheon should take market share. Not
achieve cooperation in the face of
necessarily. Just having the right product
and a set number of possible moves,
temptations to cheat. Fisher brings us
in the right market isn’t enough. The
allowing us to calculate its complexity.
abreast of several basic and advanced
outcome will depend on how Patheon
The number of legal positions in chess
tactics, including the Tragedy of the
plays the game. Soft-gel customers can
is between 10^43 and 10^50, with a
Commons; Free Rider; Chicken;
also influence the outcome based on
game-tree complexity of approximately
Volunteer's Dilemma; the Prisoner’s
how they play the two major
10^123. In business, the number of legal
Dilemna; the Battle of the Sexes; and
manufacturers against each other. This is
positions is infinite, rendering the
the Stag Hunt.
the point at which business becomes
Chess has a defined playing field
complexity incalculable. Still, just as in
more about game theory than about
chess, there are basic strategies that are
frequently followed, and if you don’t
recognize the moves and deploy them to
product offerings.
PATHEON & BANNER: A
FRESH CHESS BOARD
your advantage, you will be quickly
outmaneuvered, no matter how clever
you are.
Len Fisher’s book, Rock, Paper,
Scissors, is a lively study that illustrates
many of the basic tactics in game
theory; plays that are of infinite value
both in business and in life. Developed
in the 1940s, game theory looks at the
At a glance, it might seem that
The game was pretty much over in
the soft-gel market before Patheon
GAME THEORY & THE
HOLLAND SWEETENER
COMPANY (HSC)
bought Banner. There were only two
players in the market: Catalent, a
To understand the game Patheon
company with a broad range of offerings
and Catalent are playing, it’s helpful to
producing a high-end product with an
recall a classic case study in game
excellent reputation, and Banner, a one-
theory. This is one that was impressed
trick pony producing only soft gels and
upon me not just by my MBA professors
Drug Development & Delivery May 2013 Vol 13 No 4
C
17
16-19-Management Insight 4-DDD-May 2013_Layout 1 4/29/13 4:49 PM Page 18
many years ago, but later when I spent
Neither side would want a price war
more than 10 years working for DSM,
- a game that produces two losers before
the slimmest profit. In 2008, HSC’s
the parent company that owned Holland
it produces a winner. A price war,
parent company finally closed the
Sweetener Company and primary
following Fisher’s thinking, is just
financial spigot, the plant closed, and
problem owner in this Harvard Business
another form of a game of Chicken.
100 employees were laid off.
Review case study on game theory.
How low can you go? The price can go
HSC was a joint venture between
If HSC had at least recognized the
DSM and a Japanese company. It was
subsidizing sales by borrowing from the
possibility of a price war, it would have
formed with only one purpose: to create
larger company’s reserves, until finally
strengthened its opening position with
a competitor to NutraSweet (remember
one player is forced to exit the market. If
what game theorists call a Pay-to-Play
the little swirl on your Coke or Pepsi
the players take the game too far, it’s
strategy. Before entering the market,
can?). NutraSweet was a brand name for
possible to bring both companies down.
HSC should have gone to some of the
This is the point at which game
largest consumers of aspartame and
owned by the Monsanto Corporation. It
theory entered the equation. HSC had to
offered them a price substantially lower
was a sweet market, enjoying 8% returns
put itself in the shoes of its competitor
than what they were currently paying
in 1986, and the market was projecting
and anticipate what Monsanto would do
Monsanto in exchange for guaranteed
75% growth in the following year.
to minimize the impact of HSC on its
volume. By doing so, they would ensure
own bottom line. HSC determined that
that they had enough volume to pay
essentially identical to NutraSweet.
Monsanto would not choose a price war.
salaries and costs and to stay in the
Shipping costs were so low as to be
The pie was big enough for both of
game, before entering the market. If
insignificant, so it didn’t really matter
them, and Monsanto would accept the
Monsanto found out about these deals,
where it was produced. The only real
inevitability of competition, rather than
all the better. Just demonstrating this
basis for competition was price.
risk ruin for both.
staying power might have been enough
The product HSC produced was
HSC was well positioned to
Drug Development & Delivery May 2013 Vol 13 No 4
It didn’t have to play out that way.
so low that both sides end up
aspartame, and a 100% monopoly
18
its 500-ton plant enough to make even
That proved to be a fatal
withstand a price war. It had the
miscalculation, and it was made worse
financial strength behind it to take a
by the fact that HSC made no
beating, as did NutraSweet. But the
preparations whatsoever for what they
fledgling company also brought with it
perceived as the slim possibility that
the Tosoh patented process for
Monsanto would indeed launch a price
manufacturing aspartame, which was
war. HSC was completely vulnerable
less costly and more flexible. In
when Monsanto began aggressively
addition, HSC had better knowledge of
slashing prices. Monsanto, it turned out,
the European market, and access to raw
had a safety net. With multi-year
material supply. Monsanto had good
contracts locking up Coca cola and
reason to take this new threat very
Pepsi as clients, Monsanto was
seriously. For its own reckoning, the
guaranteed volume, and by extension,
Monsanto plant had the capacity to
something of a profit cushion. HSC had
produce 7000 tons, compared to HSC’s
no cushion whatsoever, so the losses
500-ton plant. Monsanto had economies
came hard and fast. For years a bitter
of scale.
price war ensued, but HSC never filled
to dissuade Monsanto from beginning a
price war in the first place.
THE PAY-TO-PLAY
MANEUVER IN ACTION:
THE RANBAXY TEVA DEAL
Here is an example of the Pay-toPlay Theory used effectively. Last year,
Ranbaxy was confronted with a major
quality complaint from the FDA. Having
just secured a 180-day exclusivity period
to produce the first generic competitor
to Lipitor as it came off patent, this
potentially mega-lucrative deal was
suddenly threatened.
16-19-Management Insight 4-DDD-May 2013_Layout 1 4/29/13 4:49 PM Page 19
Ranbaxy chose to create a back-up
did not make a serious competitor to
plan. If the FDA halted production in
many buyers. Patheon is changing that
their own plant, they would have another
by incorporating Banner’s soft-gels as
plant in the wings pre-approved and
part of Patheon’s broader array of
ready to produce for them. Ranbaxy
offerings. But just being there as a
turned to Teva.
viable competitor is not a guarantee of
This was undoubtedly a solid
strategy on Ranbaxy’s part, but Teva is
BIOGRAPHY
success.
What happens now depends on how
also clever. Teva might have sat meekly
Catalent and Patheon play the game.
on the sidelines waiting and hoping that
Much as in the HSC case, there is the
the understudy would be needed, but
potential for a price war here. Catalent
instead, it made a deal. Teva gave
customers could be waiting quietly for
Ranbaxy its word that it would be
Patheon to offer up lower prices, so that
Derek G. Hennecke is President and
Ranbaxy’s back-up, in return for
they can take those back to Catalent and
CEO of Xcelience, a CDMO in
promise of payment either way. If
force Catalent to lower its prices. If they
formulation development and clinical
Ranbaxy didn’t need Teva, Teva would
then stay with Catalent - playing it safe,
packaging located in Tampa, FL. Mr
still receive a payment just for its
arguably - Patheon could find itself in
willingness to be ready in the wings.
HSC’s situation. Without a basic level of
Ranbaxy apparently considered this a
business - without being paid to play -
worthwhile investment because it
Patheon could be forced to exit the
Hennecke worked for DSM as a turn-
accepted the deal, and in the end, Teva
market. Then Catalent can crank the
around manager in the global drug
collected the payment without ever
prices back up, and customers will be
development community, managing an
having to produce a single tablet.
back in the same position they were
It’s risky to do business without
some form of guarantees. Wherever
before.
Similarly, if Catalent locks up the
Hennecke launched Xcelience as a
management buyout in 2007, and the
company has more than doubled in
size. Prior to starting Xcelience, Mr.
anti-infectives plant in Egypt,
technical and commercial operations
in a JV in Mexico, and a biologics
facility in Montreal. He developed the
possible, you should look for ways to be
major customers with long-term multi-
formulation and business strategy of
paid to play. If the market sees value in
year contracts, Patheon may never gain a
several drug compound introductions
what you have to offer, there is usually
foothold.
such as clavulanic acid, erythromycin
someone who will be willing to pay for
your involvement.
As is often the case in business,
both companies have a quality product
derivatives and Tiamulin. A Canadian,
he covets the Florida sun, but can't be
competition. But the outcome won’t
PAY TO PLAY: THE SOFT
GEL MARKET
necessarily be determined by the quality
of the offering. It will be determined by
the way the game is played. u
According to Patheon, soft-gel
capsule customers are demanding
competition in this market. That seems
likely because Catalent has been
operating in a near monopoly - Banner
is an avid fan of the Tampa Bay
Lightning.
Drug Development & Delivery May 2013 Vol 13 No 4
kept away from the rink for long. He
to offer in a lucrative market that wants
19