Xenomouse Case Study

Abgenix and the XenoMouse L IST 1 2 Summary of the Abgenix case ......................................................................................................... - 3 1.1 Challenges ................................................................................................................................ - 3 - 1.2 Market Potential ....................................................................................................................... - 3 - 1.3 Competitors .............................................................................................................................. - 3 - Business Model & SWOT................................................................................................................ - 4 2.1 3 OF CONTENT SWOT Analysis of Abgenix .................................................................................................... - 4 - The three alternatives ....................................................................................................................... - 5 3.1 Hand-in deal (JV) with Biopart as partner ............................................................................... - 5 - 3.1.1 Pros .................................................................................................................................. - 6 - 3.1.2 Cons ................................................................................................................................. - 6 - 3.2 Hand-off deal with Pharmacol as partner................................................................................. - 6 - 3.2.1 3.3 Pros: ................................................................................................................................. - 7 - “Wait and see” (Do phase II’s and then decide) ...................................................................... - 7 - 4 NPV Evaluation ............................................................................................................................... - 8 - 5 Conclusion ....................................................................................................................................... - 9 - 6 Summary of the Manchester Case ................................................................................................. - 10 6.1 Ownership and Structure........................................................................................................ - 10 - 6.2 Key competitive strengths ...................................................................................................... - 11 - 6.3 Strategy .................................................................................................................................. - 11 - 6.4 Profitability ............................................................................................................................ - 11 - 6.5 Future perspectives ................................................................................................................ - 12 - Abgenix case question: 1. Which of the three strategic options for the go-to-market of the ABX-EGF a ("going solo"; JV; licensing-out) Abgenix should take? 2. List the Pros and Cons of each alternative. Try to evaluate each alternative in terms of NPV (Net Present Value). -2- 1 S UMMARY OF THE A BGENIX CASE XenoMouse is a unique strain of transgenic mice which had the capability to produce antibodies that could prove useful in treatment of human disorders like cancer, transplant rejection and inflammation. The main concept of this case is the strategic difficulties associated with the production and gaining approval from the FDA (The Food and Drug Administration). Which Partnership should Abgenix choose with regards to the best interest of the company? 1.1 Challenges In April 2000 the board of Abgenix considered themselves to have a strong financial position to “ride the antibody” wave. R. Scott Greer (President and CEO) faced three key challenges: 1. Choose the right collaboration partners 2. Continue to develop Abgenix skills and capabilities for the long term 3. Properly balance risk and potential rewards in negotiated deals It was hard to foresee the outcome of his choices, because of the unresolvable uncertainty in the biotechnology. There were two programs that was further developed in human testing, the ABX and Epidermal Growth factor (EGF) program which was targeting various types of cancer. 1.2 Market Potential The Epidermal Growth Factor (EGF) had according to an internal Abgenix report the following market potentials:  Cancer is the second-leading cause of death in the United States.  Over one million cases of cancer are diagnosed each year and half receive chemotherapy.  The direct cost of cancer in the United States, including patient care, was estimated in 1990 to be $35 billion or 6% of the total cost of healthcare. 1.3 Competitors  Major competitor producing antibody therapy was ImClone with C225 which was a humanized antibody, not fully devoid of mouse protein.  AstraZeneca with IRESSA, a well-tolerated anti-tumour product -3- 2 B USINESS M ODEL & SWOT Figure 1, describes the value chain of the product development. The two main business that Abgenix focused on were:  Technology licensing of XenoMouse: only step 3, obtained a target validation from their collaborators and generated an antibody.  Proprietary product development programs i.e. do step 3, 4 and some parts of step 5. Figure 1- Product development value chain 2.1 SWOT Analysis of Abgenix Strengths: Weaknesses:  Xenomouse technology  Does not have a marketing department  No marketing costs  No manufacturing division  No manufacturing costs  Less risky business Opportunities:   Threats: Cancer is the second- leading cause of  FDA’s regulatory programs death in the USA  The process is very costly Over one million caes of cancer are diagnosed -4- 3 T HE THREE ALTERNATIVE S 3.1 Hand-in deal (JV) with Biopart as partner Biopart was focusing on oncology and presented a different opportunity. This would be a 50/50 partnership. This meant that Abgenix and Biopart would run hand-in-hand strategies, sharing costs and profits. Biopart was also willing to make some payments initially to Abgenix.  Biopart would pay $5 million on signing of the deal and $5 million when phase II clinicals began.  All costs and revenues would be shared equally by Biopart and Abgenix.  Abgenix and Biopart would jointly design and conduct phase II tests. Bioart would take the lead on Phase II testing with some involvement from Abgenix.  Biopart would take the lead in marketing, given its existing salesforce for cancer therapies. Abgenix could, if it wished, develop its own salesforce to work alongside Biopart reps. (cost would be shared by the partnership per item #2) Bioparts revenues for the years 1999 were $510 million and it had established a good reputation for innovation and managing the regulatory process. Instead of the substantial fee plus royalties from Biopart as would be the case in a hand out agreement, both companies would run the project and share any costs and profits that incur. This deal would be beneficial to Abgenix in the sense that it would maintain control interest in testing, production and marketing. This would ensure that Abgenix was a part of the critical decision making involving the cost effectiveness of this deal, since they have to make sure it is successfully launched into the market. Figure 2, displays the estimated total cost of development over the period. Figure 2 Product development costs over the whole period -5- 3.1.1 Pros  Attempt to learn “new things” (dynamic capabilities)  Consistent with the industry architecture (Value is from phase III to commercialization)  Higher appropriability of returns (high risk/high reward) 3.1.2 Cons  (10+20+25+35+35+14)/2  Not risk free  80% of the potential market ( if the program gets the FDA approval) 3.2 Hand-off deal with Pharmacol as partner Table 1 Pharmacol is a large pharmaceutical company that Abgenix had no current relationship with. Pros with this partnership was that Pharmacol understood the extraordinary opportunity and market potential for ABX-EGC if the development process was completed. This ment that they would agree to a royalty rate that was considered high by industry standards.  Upon signing of deal: 5$ million  Beginning of Phase II trials: $5 million  If/when Pharmacol begins phase III: $ 8 million  If/when FDA Approval received: $10 million Abgenix would receive a 10% royalty on the sales in perpetuity. In table 1, the projected sales with Pharmacol partnership is presented. This shows a strength growth with a maturity at the end of the 10 year period. Pharmacol is already and established pharmaceutical company which has the skills necessary for guiding the product thorugh the rest of Phase I, II and III. A hand-off to Pharmacol whose marketing capability is firmly in place would enable Abgenix to evade the numerous expenses of introducing a new drug to the market. This option is quite easy, since responsibility on Abgenix only include providing the ABX-EGF. Pharmacol will do the human trails, oversee the regulatory process and effectively market the product. If they do all that, Abgenix will in addition to the initial payments above, receive high royalty rates from the sales. -6- 3.2.1 Pros:  No additional expenditures  Low risk  5+5 M $ upfront fee  Potentially, higher sales than with Biopart (+20%)  Higher royalty fee on sales (10% instead of 4-6% of the selling price) 3.3 “Wait and see” (Do phase II’s and then decide)  Develop in-house capabilities to get FDA approval and market the product.  If they decided to do phase 2 themselves, the other collaborators may not be there again to handoff or for a joint venture.  Will be very costly and time consuming.  Will take time before the product becomes profitable even if the product sales are successful. Abgenix would have to incur cost of approximately $28 million on its own. If the first years were successful, the company would have a high bargaining power to either opt for a hand-off or a hand-in agreement. -7- 4 NPV E VALUATION The NPV is clearly more beneficial for Abgenix to consider the JV with Biopart. According to the professor’s calculations he found a NPV of $351,760 using a cost of capital of 15%. The JV option generates a best case NPV of $931,900 and $-35,000 in the worst case scenario, using 0% cost of capital. This emphasises the conclusion which he made, that it is similar to gambling but with more advantageous relations. By JV with Biopart, Abgenix has the ability to learn new things even if the product is not successful. This advantage is crucial for the future development and sustainability of the company. -8- 5 C ONCLUSION The professor stated on the lecture 3/6-2015 that JV with Biopart is the best option because of the ability to learn new things, this is also the actual outcome that took place for Abgenix in 2000. The Biopart partnership would require large amounts of money to facilitate development of the ABX-EGF product. It is also estimated that this option will take approximately five years to get to the market. If the company has a high cost of capital the better choice would be licensing out because of the 40% chance of obtaining FDA approval. This is because the financial return are highly dependent on successful attainment of FDA approval as well as effective marketing of the product. The third option would require Abgenix to incur costs amounting to approximately $28 million on its own. If the year 1 and 2 developments prove to be successful then it would provide the company with a high bargaining power to either opt for a hand-off or a hand-in agreement. -9- 6 S UMMARY OF THE M ANCHESTER C ASE Manchester United has huge amounts of fans and it is not all about soccer. In fact the whole summer tour in 2012 was mainly a commercial campaign. When Manchester United played against Manchester City, the audience around the world scaled to 600 million people. By having a strong commercial strategy, the team can increase the number of sponsors which allows the team to sign better players for the team and expand the organization. In the upcoming years, the 71 year old team manager Sir Alex Ferguson would retire. Ferguson had not only trained the team but also shaped the entire Manchester United organization in terms of scouting, training, discipline and team tactics. The team stood in front of an inevitable transformation. 6.1 Ownership and Structure Between 1991 and 2003, Manchester United PLC was a public company, listed on the London Stock Exchange. In 2005 the company was acquired by the American businessman Malcolm Glazer, owner of the Tampa Bay Buccaneers. The Manchester United governance structure is presented below: Table 1 - 10 - 6.2 Key competitive strengths  One of the most successful sports teams in the world  A globally recognized brand with a large, worldwide following  Ability to successfully monetize their brand  Sought after content capitalizing on the proliferation of digital and social media  Well established global media and marketing infrastructure driving commercial revenue growth  Seasoned management team and committed ownership 6.3 Strategy  Expand their portfolio of global and regional sponsors  Further develop retail merchandising, apparel and product licensing business  Exploit new media and mobile opportunities  The intention to leverage third party media platforms and other social medias to further engage followers  Enhance the reach and distribution of broadcasting rights  Diversify revenue and improve margins 6.4 Profitability Despite large and growing revenues, European professional football is unprofitable. This is quite remarkable, considering the huge amounts of money that is involved in European soccer. Table 2 shows the different teams and their profitability. Table 2 - 11 - 6.5 Future perspectives CEO David Gill concluded that their future profitability depended upon the club’s ability to grow its commercial and broadcasting revenues. With Ferguson’s retirement fast approaching, the club need to determine how the entire system could develop to reach higher standards of performance. It would prove hard to break the existing systems and philosophy developed during Ferguson’s 26 years. - 12 -

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Case Analysis'XenoMouse'Abgenix's new drug development, ABX-EGF, showed much promise to its industry. The company needed to make a decision as to collaborate with another organization or take on the project itself. The following describes the pros and cons of Abgenix collaborating with another organization for ABX-EGF.If Abgenix were to collaborate they would be sharing the risk with their partner compared to embracing all of the risk by attempting it themselves. This is beneficial to Abgenix because they are only liable for the amount they invest into the project. This action is very common in the business world especially when the project is expensive and the outcome is uncertain.Another pro of collaborating is how Abgenix has the opportunity to gain more creativity and innovation. There is evidence on how collaborations with multiple organizations creates the most significant source of innovation. This is due to how these organizations provide resources and capabilities necessary for novel ideas. Also, including another organization allows different perspectives on ABX-EGF in regards to how it should be marketed, any improvements if needed, etc. Collaborating with a company allows Abgenix to gain strengths they did not have before.

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