In April 2000, the biopharmaceutical company Abgenix faced the important strategic decision of how to most profitably commercialize its XenoMouse based high potential cancer product ABX-EGF, which had reached phase I clinical trials after having successfully passed preclinicals.
Specifically, Abgenix had to choose among three salient alternatives for the route to market of ABX-EGF. These were: 1. Entering into a licensing agreement with “Big Pharma” Pharmacol, yielding a series of development fees as well as royalties of Pharmacol’s ABX-EGF sales. 2. Forming a joint venture with the biotech firm Biopart, equally sharing all future costs and profits. 3. Pursuing a “go-it-alone” strategy through the end of phase II trials, thus postponing the decision of whom, if any, to partner with. The first two alternatives were somewhat consistent with Abgenix’ past business model that yielded revenues in two ways: 1) by issuing exclusive licenses to use XenoMouse for drug development targeting specific diseases to leading pharmaceutical and biotechnology companies and 2) by undertaking the early stages of XenoMouse based drug development and subsequently selling off the rights to further develop and bring the drugs onto the market. In contrast, the “go-it-alone” method would require an expansion of Abgenix’ resource base and capabilities: a more risky approach with the potential of a relatively high value generation.
In order to arrive at conclusions as to which alternative Abgenix should opt for, the three alternatives are analyzed in the following pages based on a financial assessment in the form of strategic assessment as well as an NPV analysis. Strategic assessment
In addition to the strictly financial analysis based on potential risk and reward prompted by each of the three alternatives, a strategic assessment is crucial to single out Abgenix’ current resources and capabilities so as to unveil its core competencies. Once this is understood, the appropriateness of Abgenix’ skills relative to the three options of moving forward the ABX-EGF can be addressed. Also, it can be determined whether there are any strategic learning opportunities associated with each of the options.
Abgenix’ competitive advantage
According to the case Abgenix’ key asset is its ownership of the humanized transgenic mouse, capable of producing antibodies, specifically targeting human diseases. Thus, having XenoMouse as a resource renders possible a vast array of antibody therapies, the development of which can either be undertaken in-house or licensed to a corporate collaborator for payment of, typically, an upfront fee, early development fees as well as royalties following market launch of a given treatment. Abgenix believes that XenoMouse is superior to other humanized mice and, importantly, to the HuMAb-Mouse owned by Medarex, which had also proved promising.
Utilizing XenoMouse, Abgenix has a competitive advantage in antibody development to specific disease targets, which normally are discovered and validated by Research and Technology Organisations (RTOs) or small technology firms. Once antibodies for a specific target have been developed, Abgenix has in-house the capabilities to carry the therapy based hereupon through preclinical trials and until phase II clinical trials. Reaching the end of phase II trials with a therapy entails substantially more perceived value from potential buyers than having a product in phase I, such as ABX-EGF. Throughout phase III the “value per effort” is sloped significantly lower than for phase II. Thus, strictly considering value at the time of handing off a therapy, the end of phase II is the ideal moment to sell (Annex 1).
This knowledge is consistent with Abgenix’ previous work. As such, the company has never taken a product through phase III by itself, and further, does not immediately have the human resources to do so, as no employee has tried it before. Thus, Abgenix capabilities do not...
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