Xenomouse Case Study Analysis Essay

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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
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The joint venture entails co-development work in phase II, whereas Biopart will take the lead in subsequent phases including in what concerns commercialization activities. Abgenix will, however, remain significantly involved through all stages, which strategically could be important, since it gives the potential for acquiring the complementary assets needed to perhaps single-handedly bring future products to market.

The “Go-It Alone” strategy
The marketing and sales barriers to entry not being scalable, Abgenix would be forced, at one point or another, to either partner or sell its rights on ABX-EGF. However, the company did have the in-house capabilities of taking the drug through the second phase of clinical testing. If the drug successfully made it beyond this point, then Abgenix would be in possession of a much stronger product, as the biggest chunk of uncertainty around drug innovation would have been left behind. This would entitle the company with a much higher bargaining power when entering the negotiations to choose a partner. On the other hand, testing costs ($28 million) would fall entirely upon Abgenix. Would renegotiation allow for the company to compensate that “extra” investment?

Financial assessment -NPV & Risk
From the NPV calculations (Anex III)