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Abgenix and the XenoMouse Case Solution
Abgenix, a pharmaceutical research company, has developed a special strain of transgenic mice, known as XenoMouse which can produce antibodies and is capable of curing diseases like inflammation, and organ rejection upon transplant and has the prospect of curing cancer which was a breakthrough back in 2000. Now it is focusing on developing ABX-EGF, as a potential cure for cancer. The primary difficulties that Abgenix faces are the raising of capital to fund the project, gaining FDA (The Food and Drug Administration) approval, and the time, energy, and resources the rigorous process is going to take. Now the president and CEO of Abgenix, R. Scott Greer is faced with a dilemma. He has to choose among the following options:
Hands-off the rights of ABX-EGF to Pharmacal
Hands-in collaboration with Bio parts as a joint venture
Carry out Phase 2 of the clinical trial itself and decide after that.
Following questions are answered in this case study solution
How do you think Abgenix can best exploit the Xeno Mouse? What should they do now?
What are the pros and cons of Abgenix’s collaborating with a partner on ABX-EGF?
Which elements of the pharmaceutical industry value chain have Abgenix chosen to participate in and what is the logic supporting such choices? Is Abgenix well positioned to create and sustain competitive advantage through these activities? Would you recommend expanding or contracting the scope of Abgenix’s activities? Why or why not?
Who else could capture value from the Xeno Mouse?
If Abgenix chooses collaboration, would it be better off licensing ABX-EGF to the pharmaceutical company or forming a joint venture with the biotech company?
How does Abgenix’s decision about collaborating for ABX-EGF impact its prospects for its other drug development projects?
Evaluate Geoff Davis’s statement that Abgenix should be “out by the end of Phase II” of any drug development program. What drives the optimal timing to exit and/or out-license any given drug development program?
For ABX-EGF, in particular, should Abgenix “Hand-Off,” “Hand-In,” “Do Phase II’s and Then Decide,” or do something else altogether? Provide financial and/or strategic rationale for your recommendation.
Case Analysis for Abgenix and the XenoMouse
1. How do you think Abgenix can best exploit the Xeno Mouse? What should they do now?
The XenoMouse breakthrough has helped put Abgenix on the map. With critical analysis and strategic thinking, it is in the perfect position to gain competitiveness over the other players in the market. First and foremost, Abgenix should undertake projects for further research into the potential advantages of XenoMouse. The projects should be bifurcated as finding cures for different diseases like inflammation, cancer, and but not limited to organ rejection. With progress in each area, Abgenix can not only diversify its portfolio but will also be able to hedge its risk. The breakthroughs will attract other pharmaceutical giants in the industry, bringing new and beneficial deals. Since Abgenix would not be marketing or manufacturing its products itself, it won’t incur any marketing or manufacturing cost. However, it will be able to enjoy considerable benefits in the form of royalties on sales. If we talk about just cancer, in the United States alone, it is the second-largest cause of death, accumulating 6% of the total healthcare cost. If Abgenix positions itself correctly, it can gain significant benefits just by penetrating this single market.
This breakthrough is a major milestone for Abgenix. The antibody wave that emerged using XenoMouse has the potential for curing thousands of other diseases. Furthermore, the company has already licensed the rights of XenoMouse to different Biotechnology companies meaning that it is in a perfect financial position to take the next step. Until now, Abgenix has mostly focused on research and licenses the development and manufacturing phase to other companies. Now the company was in a position to take risks and later capitalize on the risk, meaning that it could explore other phases in the value chain, and instead of mere licensing, it can focus on collaborations in the form of joint ventures as well.
2. What are the pros and cons of Abgenix’s collaborating with a partner on ABX-EGF?
The XenoMouse development opened new doors for Abgenix; it was like the hen that laid golden eggs. It opened new opportunities for Abgenix such as collaborations with other players in the biotechnological industry. However, these collaborations had both pros and cons. Since Abgenix has proved itself as an innovator in the industry and enjoyed a strong financial position, it had an upper hand when negotiating a collaborative deal. This meant that collaborative partners would run the company together and enjoy both the profits and losses. A joint venture would also help Abgenix learn new things in terms of both research and technology which can prove beneficial in the development of its other products. This new knowledge could also mean that now the company could explore other areas in value China and become a dynamic entity. Though it bears high risk, usually the most profitable scenario for a pharmaceutical company is that it carries out phase 3 and the commercialization of the drug itself. Under this JV, upon FDA approval the revenues for Abgenix will skyrocket, and considering a joint venture they won't have to bear the expenses and cost of development alone.
There are a few potential downsides to a collaborative deal as well. For instance, in a collaborative setting, the is always a possibility of a Chinese wall breach meaning that the research development that gives Abgenix its competitive advantage can be stolen. Furthermore, as appose to outsourcing, collaboration is not a risk-free approach. The company will incur around $ 125 million in development costs over the next 5 years. If the drug doesn't get passed the FDA approval process the company would have to bear significant losses. Moreover, a collaborative effort between two or more different companies would mean that people from diverse cultural management backgrounds will be interacting with each other. This can often lead to miscommunication and hindrance in the day-to-day operations of a company.
3. Which elements of the pharmaceutical industry value chain have Abgenix chosen to participate in and what is the logic supporting such choices? Is Abgenix well-positioned to create and sustain a competitive advantage through these activities? Would you recommend expanding or contracting the scope of Abgenix’s activities? Why or why not?
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