Abgenix

The objective of this case analysis is to recognize the potential of Abgenix’s business model(s) and recommend an appropriate alliance deal with either Pharmacol or BioPart. Abgenix, a platform based biotech company, with its $3 billion XenoMouse in its pocket, is thinking of becoming a FIBCO. Abgenix has two business models for generating revenues. First by licensing the XenoMouse platform technology to collaborators for their specific target, and second by developing proprietary therapeutic antibody programs themselves, then selling off the rights to develop and market the drug. One such proprietary product of Abgenix, ABX-EGF, is in its early stage development, with successful preclinical data. Considering various factors such as i) high market potential of ABX-EGF, ii) Abgenix’s desire to improve its skills & capabilities, iii) risk assessment and strategy to grow and have a sustainable revenue stream, iv) along with a foresight of the inherent “unresolvable uncertainty” of drug development, I would recommend Abgenix to partner with BioPart. This joint-venture based shared approach with BioPart will reduce the risk and cost of failure to ‘half’ while enabling Abgenix to acquire skills and capabilities on this journey. On the other hand, the opportunity cost, if successful, will be more rewarding than pursuing a “hand-off” lower risk, quick revenue business deal with Pharmacol. In the first part of the memo, I will be assessing the alliances qualitatively and in the second part, I’ll be assessing them quantitatively, “side-by-side”. Common Factors pertaining to Abgenix’s deal with either of the companies: Potential of ABX-EGF The EGF receptors are highly expressed in most of the solid tumors, specifically more in prostate, colon and renal cancers. Thus EGF based therapies are considered to have high potential in treating various forms of cancers as well as could potentially become a blockbuster if it passed the safety regulations. The successful preclinical animal data and the fully human nature of the ABX-EGF antibody positions Abgenix in a strong position in negotiating the deal with either Pharmacol or BioPart. Role of Competition in the deal: ImClone’s C225 antibody therapy is already in the Phase III clinical trials and could potentially take away some part of the market share. However, ImClone’s antibody is not fully humanized and still has one-third of mouse protein, thus gives a superior advantage for ABX-EGF. The other advantage of ABX-EGF is that this therapy can be tried and administered as “monotherapy” as opposed to the combination therapies using C225. This also gives “pricing and reimbursement” advantage for monotherapies over combination therapies. In addition, the competition from small molecules is also very close. However, the small molecules will not pose a direct competition and also they have the disadvantage of having some side-effects. The core strength of Abgenix is the XenoMouse technology and with the number of companies focusing on making fully human antibodies, there is high probability of new entrants and making the XenoMouse void soon or later. Thus Abgenix should focus on implementing strategies which will give them growth potential and sustainability in long term, rather than narrowing to one platform based product (XenoMouse). Alliances: Qualitative analysis Financial Merits/Demerits: The alliance with BioPart will be the joint-venture 50 / 50 approach where the cost and revenues will be shared equally between Abgenix and BioPart. Additionally, BioPart will pay in total $10M initially during signing the deal and for the value of the XenoMouse. Apart from the huge (50%) financial returns upon success, BioPart deal reduces the burden of failure to half or more than half, as the cost is shared by BioPart. During the whole development process Abgenix would have developed its internal skills and capabilities. Thus the cost of failure is reduced to more than half considering the benefit of improved capabilities. In short, instead of failing big, partnering with BioPart leverages its financial negative effects to some extent. The alliance with Pharmacol is milestone based and 10% royalty of the sales. This deal is less risky for Abgenix. They do not have to spend any money in the development, instead it receives $28M, before launch, which it could use it for internal development and other projects. However, the drawback here is Abgenix could not learn much from this partnership as Pharmacol will do the development separately. In order to become a FIBCO, the deal like BioPart will give several advantage by sharing of knowledge & resources. Also the royalty structure will make the revenue stream for Abgenix “flat”, unlike the BioPart where, if successful, the growth potential is great and could be sustainable. Given the assumption that the XenoMouse might lose its value with time, Abgenix moving in the direction of becoming a FIBCO seems strategically sustainable. Regulatory and Marketing Aspects: BioPart has the good reputation for innovation as well as managing the regulatory process [p10]. Also BioPart focusses mainly on oncology which gives a know-how knowledge advantage to developing ABX-EGF for cancer therapies. Considering the long regulatory process in getting a drug approved, the reputation and knowledge base adds value to the deal. However, compared to Pharmacol, BioPart’s scale of marketing efforts would be less, which would reduce the final revenue earned by 20%. This 20% less revenue generation could be mitigated by the 50/50 deal which will have higher return than the 10% royalty from the Pharmacol deal. Pharmacol has an established marketing and sales force which is comparable to sales force in big pharmaceuticals like AstraZeneca. Thus, Pharmacol has size and skills needed to bring ABX-EGF in market. Pharmacol also has strong regulatory experience which could benefit the ABX-EGF deal. On the regulatory standpoint, both the companies bring in a fair amount of value to the deal. Other Merits and Disadvantages: The deal with BioPart is more risky, as Abgenix is spending its money on the development along with BioPart. By dealing with Pharmacol, it would have got immediate return which is risk free as it receives payments based on achieving milestones. “Go-it-alone” or “wait and enter a deal” Third option of “go-it-alone” was not a viable proposition if ABX wants to become profitable quickly. And the risks are greater as it doesn’t have enough capabilities and more chances of failing. The history of Biotech Industry & regulatory processes, suggests that even the most successful biotech companies like Genentech & Amgen were able to become FIBCO only by corporate collaborations which accelerated the transformation of such companies to an independent commercial enterprise. Thus the option of go it alone is not a feasible one.