Abgenix Case Analysis

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t@s$@ Harvard Business School

9-501-061
January 9,2001

Abgenix and the XenoMouse
Meet XenoMouse
"Meet XenoMoussrl\4/'headlined the piece frorn the Abgenix information kit. (See Exhibit 1.) wortl-r meeting, XenoMouse was probably it. While Lee Majors played bionic rnan, Steven Austin, in the popular Six Milliott Dollar Man television series in the 1970s, XenoMouse could well be termed the "Three Billion Dollar Mouse." XenoMouse lived at Abgenix in Frernont, California, just across the Dunbarton Bridge frorn Silicon Valley's farned Highway 101. While no product based on the genetically engineered XenoMouse had yet reached the market, he was the source of the company's near $3 billion rnarket capitalization of March 3L, 2000.

If ever there was a mouse

The product of a seven-year, $40 rnillion research and development effort, XenoMouse was a unique strain of transgenic rnice capable of producing antibodies potentially useful in the treatment of human disorders including cancer, transplant rejectiory and inflammation. The idea of using rnice to produce antibodies for treating human diseases dated back to the 1970s; but only recently had therapies based on this approach passed the rigorous safety and efficacy tests necessary for regulatory approval. Many industry observers were now predicting an "antibody wave" as genornics research identified thousands more possible disease targets for antibody therapy. And, the ner / generation of technologies for generating antibodies from mice, including XenoMouse, were capable of producing therapies which were believed to be more effective and well tolerated by humans. Major pharmaceutical and biotech companies had licensed access to XenoMouse.

In April 2000, R. Scott Greer, President and Chief Executive Officer of Abgenix, described the company as "well positioned to ride the antibody wave" due to a strong financial position from a recently completed series of private placements and follow-on public offerings of stock, raising over $600 million. (See Exhibit 2 for a balance sheet as of March 31,,2000 and incorne statements for years 1998 and 1999.)

Abgenix generated revenues in two ways. First, it licensed XenoMouse technology to numerous corporate collaborators including leading pharmaceutical and biotechnology companies. (See Exhibit 1 for list.) A collaborating company typically identified a specific disease target it was trying to "hit- with an antibody. Abgenix then sold exclusive access rights to using XenoMouse to develop antibodies for that specific target only. A collaborator paid an upfront fee, agreed to payments as the drug development program reached certain rnilestones, and a royalty on sales

Professor Robert Dolan preltared this case ns the basis for class discttssion rather thmt to illustrate eitlrcr inffictiae handling of an adnfiristratiae situatiotr. Certain data luae been disguised.

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501-061

Abgenix and the XenoMouse

should the drug be commercialized. A typical arrangement had total fees before commercialization ranging frorn $7 to $L0 million. Royalty rates ran from 4%-6%.

The Food and Drug Adrninistration (FDA) prescribed and oversaw the drug testing and in humans was perrnitted, "Preclinical Trials" had to show sufficient evidence of safety and desired biological activity to gain FDA approval of an "Investigational New Drug Application" (IND). Testing then proceeded through three phases with humans. Phase I...
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