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Building Biotechnology Fundamentals of Life Science Technology Commercialization CASE STUDY Headwaters’ Case Study Number One Strategic Failure – Options and Effects Introduction. The Company is a biopharmaceutical company developing genetically targeted medicines. The Company’s mission is to get the right drugs to the right patients and believe that genetically targeted medicines hold the promise of significantly improving patient care including metabolic, cardiovascular, central nervous system and inflammatory diseases. The Company was founded in 2000. Technology Summary. The Company has built one of the world’s leading genetic analysis capabilities. The Company has processed over 70,000 human DNA samples and analyzed several billion genetic variations, and has developed an advanced understanding of the role of genetics in drug response and disease. The result of these studies is the identification of specific patterns of genetic variations called single nucleotide polymorphisms (SNPs) that are predictive of drug response, disease and other traits of interest. In the past, due primarily to technological limitations, scientists selected a relatively small number of SNPs typically clustered in and around a set of candidate genes, which are genes that the scientists would select as potentially playing a role in the trait. However, complex traits, including drug response and common diseases, appear to be caused by many SNPs including those located in genes that would not have been predicted to play a role in the trait, as well as in areas of the genome outside of genes entirely. Advances in technology have allowed scientists to compare significantly greater numbers of SNPs across the entire genome in what are known as high-density whole genome association studies. By looking broadly across the entire genome at hundreds of thousands of SNPs, scientists increase their chances of more comprehensively identifying the SNPs involved in a given trait. Product or Pipeline Summary. Each of the drug candidates in the Company’s pipeline has demonstrated efficacy and safety in a material subset of patients in Phase II or later clinical trials conducted by other parties. The Company intends to improve the therapeutic profile of these drugs and bring them to market by genetically targeting them to those patients most likely to benefit. This improvement may also enable new and expanded markets for these drugs, not achievable in the absence of targeting. The Company believes its leadership in genetic analysis, and its expertise in Spring 2011 1 applying genetics to clinical development, will be critical to its success in developing targeted medicines. At the time of IPO filing, the Company’s lead program, an insulin-sensitizer, is being developed as a treatment for Type II diabetes and the separate indication of Type II diabetes with dyslipidemia. The Company licensed their lead therapeutic from a large Japanese pharma company. Prior to licensing it to us, the pharma company had partnered with Johnson & Johnson in the development of the drug. Following completion of Phase IIb clinical trials, Johnson & Johnson discontinued development of the therapeutic. The Company’s review of previous clinical trial data suggest that without genetic targeting, the compound had a similar efficacy and safety profile to currently marketed drugs. By genetically targeting the treatment to those patients most likely to benefit the Company believes that it can differentiate their compound from competing drugs in its class. Summary of Major Event. Below is a brief overview of a major event that took place and jeopardized the future viability of the Company. Timing of Event: 2007 Age of Company at the Time of the Event: Seven years Brief Description of Event: Cumulative pressures resulting from cost structure, strategic focus and core competence led to a burn rate that could not be sustained began to have a significant effect on the operations of the Company. Financing Summary Preceding the Event. The following is a financing history of the Company. Series A private financing ~$35.8 million September 2000 Series B private financing $100 million March 2001 Series C private financing $30 million January 2003 Series D private financing $74 million February 2005 Filed S-1 to go public via IPO NA April 2006 Withdrew S-1 NA May 2007 Resulting Effects of the Event. As a result of the strategic pain, the Company found itself in a significant situation - heavy cash burn and no clear strategic direction. The Company was initially a platform company based on an impressive genomic technology. Unfortunately, a few years later therapeutics were in vogue and it was expected most companies should move towards that model. How Did the Company Deal with the Event? To be discussed during class. Where Are They Now? To be discussed during class. Spring 2011 2