Harvard Case - Negotiating Partnerships in the Healthcare Industry (A): The Pharmac and Respire Deal
"Negotiating Partnerships in the Healthcare Industry (A): The Pharmac and Respire Deal" Harvard business case study is written by Stefanos Zenios, Robert Chess, Sara Gaviser Leslie, Lyn Denend. It deals with the challenges in the field of General Management. The case study is 10 page(s) long and it was first published on : Jan 14, 2008
At Fern Fort University, we recommend that Pharmac proceed with the partnership with Respire, but with careful consideration of the terms and conditions of the agreement. This partnership holds significant potential to improve access to innovative respiratory treatments for New Zealanders, but it requires a robust framework to ensure both parties achieve their objectives and maintain their respective reputations.
2. Background
This case study focuses on the negotiation between Pharmac, New Zealand's government agency responsible for procuring pharmaceuticals, and Respire, a company developing a new inhaled drug treatment for chronic obstructive pulmonary disease (COPD). The case highlights the complex dynamics of negotiating partnerships in the healthcare industry, where balancing cost-effectiveness, innovation, and patient access is paramount. The key protagonists are:
- Pharmac: A government agency with a mandate to procure pharmaceuticals at the lowest possible cost while ensuring access to essential medicines for New Zealanders.
- Respire: A company developing a novel treatment for COPD, seeking to secure market access and generate revenue to sustain its operations and further research.
3. Analysis of the Case Study
This case can be analyzed through the lens of several frameworks:
- Porter's Five Forces: The healthcare industry is characterized by high bargaining power of buyers (patients and insurers), moderate threat of new entrants due to regulatory hurdles, and high threat of substitutes due to the availability of generic drugs. Pharmac's position as a sole buyer gives it significant leverage in negotiations, while Respire faces competition from existing treatments and the potential for generic substitutes.
- Strategic Analysis: Pharmac's strategy is driven by its mandate to ensure affordable access to medicines, while Respire's strategy focuses on achieving market access and maximizing revenue. The partnership presents a potential win-win scenario, but both parties need to carefully align their strategic objectives.
- Negotiation Framework: The case highlights the importance of understanding the other party's interests, identifying potential areas of common ground, and being prepared to make concessions. Pharmac needs to balance its cost-effectiveness objectives with the need to incentivize innovation, while Respire needs to be realistic about the pricing and reimbursement terms it can secure.
4. Recommendations
- Clearly Define the Partnership Scope: Pharmac and Respire should clearly define the scope of the partnership, including the specific drug, target patient population, and duration of the agreement. This will help to avoid future misunderstandings and ensure both parties are aligned on their expectations.
- Establish a Robust Pricing and Reimbursement Model: Pharmac should negotiate a pricing and reimbursement model that is fair to both parties and aligns with its cost-effectiveness objectives. This could involve a tiered pricing structure, performance-based payments, or a combination of both.
- Develop a Comprehensive Data Sharing Agreement: Pharmac should ensure access to data on the drug's effectiveness and safety, allowing for ongoing monitoring and evaluation of the partnership's impact. This data can also be used to inform future pricing negotiations and decision-making.
- Establish a Joint Steering Committee: A joint steering committee with representatives from both Pharmac and Respire should be established to oversee the partnership, monitor progress, and address any issues that arise. This will ensure transparency, accountability, and effective communication between the parties.
- Consider a Phased Approach: Pharmac could consider a phased approach to the partnership, starting with a pilot program to assess the drug's effectiveness and safety in the New Zealand context. This would allow for a more gradual introduction of the drug and provide valuable data for future decision-making.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The partnership aligns with Pharmac's mission to ensure access to essential medicines while maintaining cost-effectiveness. For Respire, the partnership provides access to a large market and potential for significant revenue generation.
- External Customers and Internal Clients: The partnership benefits patients with COPD by providing access to a potentially more effective treatment. For Pharmac, the partnership provides access to a new drug and potential for improved patient outcomes.
- Competitors: The partnership needs to consider competition from existing treatments and the potential for generic substitutes. Pharmac needs to ensure that the pricing and reimbursement model is competitive and incentivizes Respire to continue investing in innovation.
- Attractiveness: The partnership holds significant potential for both parties, but it requires careful negotiation and a robust framework to ensure success. The attractiveness of the partnership will depend on the specific terms and conditions agreed upon.
6. Conclusion
The partnership between Pharmac and Respire has the potential to be a win-win scenario, providing access to innovative respiratory treatments for New Zealanders while supporting the development of new drugs. However, careful consideration of the terms and conditions of the agreement is crucial to ensure both parties achieve their objectives and maintain their respective reputations. By establishing a clear scope, robust pricing and reimbursement model, and effective governance structure, Pharmac can maximize the benefits of this partnership while ensuring it remains aligned with its core mission.
7. Discussion
Other alternatives not selected include:
- Pharmac rejecting the partnership: This would limit access to the new drug for New Zealanders but could be justified if the pricing was deemed too high or the drug's effectiveness was not sufficiently proven.
- Pharmac negotiating a lower price: This would require significant concessions from Respire and could potentially jeopardize the company's financial viability.
Key assumptions of the recommendations include:
- Respire's drug is effective and safe: The success of the partnership hinges on the drug's ability to provide a significant benefit to patients.
- Pharmac's budget is sufficient to cover the cost of the drug: The partnership's financial viability depends on Pharmac's ability to allocate funds for the drug's procurement and reimbursement.
8. Next Steps
- Negotiate the terms of the partnership: Pharmac and Respire should engage in detailed negotiations to finalize the scope, pricing, reimbursement model, and governance structure of the partnership.
- Develop a data sharing agreement: Both parties should agree on the specific data to be shared, the frequency of data sharing, and the methods for data analysis.
- Establish a joint steering committee: The committee should be composed of representatives from both parties and meet regularly to monitor progress and address any issues.
- Implement a phased approach: The partnership could start with a pilot program to assess the drug's effectiveness and safety in the New Zealand context.
- Continuously monitor and evaluate the partnership: Pharmac should regularly assess the partnership's impact on patient outcomes, cost-effectiveness, and innovation. This data can be used to inform future decision-making and ensure the partnership remains aligned with its objectives.
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Case Description
This case has been developed to facilitate a negotiation exercise related to the formation of partnership deals in the healthcare industry. It is based on actual information, but reflects a hypothetical situation involving two companies and a product that have all been disguised. The scenario described within the case involves Pharmac, a large pharmaceutical company, and Respire, a small medical start-up. Pharmac and Respire began negotiating a partnership to develop and eventually market an inhaled form of parathyroid hormone (PTH) to treat osteoporosis. If successful, this product would improve the available options for the treatment of osteoporosis. It was also expected to produce "blockbuster" sales since it would make PTH, an already extremely effective treatment option, more convenient and appealing to a large segment of untreated patients who were injection-averse (injection was the standard delivery mechanism for this drug). Development of the product was highly speculative and was expected to take six to seven years due to early stage development of the inhalable delivery system and the multi-year Phase III fracture trials required for approval. Pharmac had released the first man-made, injectable form of parathyroid hormone, called Strocal, in 2002. However, no one had yet developed a non-injectable version of PTH, despite efforts by Pharmac and other companies that spanned more than a decade. Respire's goal was to be the first company to solve this problem by developing an inhaled formulation and a device to deliver Strocal through the lungs in a safe, effective, and reproducible manner. Enough information is provided within the case to enable students to negotiate terms for royalties, milestones, exclusivity provisions, and an equity investment. At the end of OIT-81A, information known to Pharmac (but not to Respire) is provided. In OIT-81B, information known to Respire (but not to Pharmac) is given.
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