What Are the Pros and Cons of Abgenix's Collaborating with a Partner on Abx-Egf?

1) What are the pros and cons of Abgenix's collaborating with a partner on ABX-EGF?

Before a new drug can be released to the market, it has to undergo a regulatory process. To complete the process, first the drug company (the sponsor in the process) has to submit information to prove that the drug is safe and effective. Pre-clinical data first has to be submitted before clinical trials can be conducted. After demonstrating the safety and efficacy of the drug through successful clinical trials, the sponsor company submit that information, along with information on manufacturing specifications, drug stability and bioavailability, and suggested packaging and labeling, as a "new drug application" (NDA) to the FDA. The NDA is then reviewed by teams of FDA employees, including physicians, statisticians, chemists, pharmacologists, and other scientists who assess the validity of the sponsor's claims. FDA inspectors also examine the facilities in which the sponsor intends to manufacture the drug The outcome of such process could be "approved", "approvable" (meaning adjustments have to be made), or "not approved".

As one can see from the above process, the testing and regulatory process alone is a long, costly process entailing significant risks for a drug company. Startups often lack the financial resources and expertise to shoulder alone the risks of such process, let alone in situations where they have not gone through this process before.

Collaboration would allow Abgenix to obtain rapid access to complementary assets -- the skills and resources of its collaboration partner to through the testing and regulatory process, and the commercial launching and marketing of the drug afterwards. As a result, ABX-EGF can significantly reduce the time to get ABX-EGF out to market. This is especially important since its competitors Astrazeneca and Genentech were already working on EGF pathway drugs already. By shortening the development time, and retain all the first-mover advantages of the drug in the ABX-EGF path

Collaboration can also significantly reduce the costs and risks of Abgenix in the ABX-EGF project. Regardless of which of the two available collaboration mode it chooses, Abgenix would be able to reduce its asset commitment and enhance its flexibility; and have a collaboration partner to wholly or partially bear the cost and risks of the subsequent testing and regulatory process. Moreover, upfront payments would provide short-term cash infusion.

On the flip side, by opting for collaboration, Abgenix will not achieve full potential revenue as it can achieve if it were to go solo. Abgenix might risk exposing the proprietary ABX-EGF technology, making it vulnerable to expropriation if the partner ends up being a potential competitor. Abgenix would have to yield some of the control over their development process and the use of the ABX-EBF drug.

2)

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?

The main differences between joint venture and licensing out are as follows:

a. Monetary: In the short term, Abgenix needs cash infusion. Both collaboration modes would provide that. By licensing out, however, Abgenix would not have to bear further costs for further developments, testing, regulatory, manufacturing and marketing of the ABX-EGF product, whereas in the Joint Venture option, Abgenix still has to shoulder a share of such costs and risks.

b. Speed: Abgenix's competitor's are already developing drugs targeting the same EBX pathway. Should too much time be spent before the product is launched, Astrazeneca and/or Genentech might get their products out in the market first and obtain first mover advantage. Once the customer base gets used to the products from Genentech and Astrazeneca it might be difficult for customers to switch back to ABX-EGF.

The above two factors would suggest that licensing out being a better option than joint venture.However, such advantages of a collaboration mode of licensing out must have been well known to Abgenix management, yet Abgenix still initially considered a slow, costly strategy of going solo. This is a reflection on Abgenix's desire to maintain control of the ABX-EGF technology and reap bigger potential benefits. The collaboration strategy of collaboration through joint venture would give Abgenix a better chance to develop its own capabilities in the testing/regulatory/manufacturing/marketing areas. This suggests Abgenix to not pursue a collaboration mode where it stands little chance to access its collaboration partner's capabilities

Whether licensing out or joint venture is better depends on the exact need for shortening the time needed for product launch vs the benefits of greater control, potential revenue, and developing/accessing new competencies. While from s short-term perpesctive, licensing out might look the better alternative; but once weighing the benefits of accessing other firms' competencies, it might be better to opt for a joint venture if speed to launch the product is not too much of an issue.

3) How does Abjenix's decision about collaborating for ABX-EGF impact its prospects for its other drug development projects?

Either mode of collaboration appears to bring up-front short-term cash Abgenix needs in its other drug development projects. Monetary wise, Abgenix's decision to pursue collaboration instead of going solo will help the firm to reduce is asset commitment and enhance its flexibility.

In the long term, Abgenix would need to either develop, or access the competencies that it lacks in testing and regulatory process, commercially launching and marketing of drugs. Joint venture will provide such need to access the other firm's capabilities better than the alternative strategy of licensing out to the pharmaceutical firm.

A potential source of concern is if the collaboration partner might end up exploiting the relationship and expropriating Abgenix's knowledge of ABX-EGF, or even on a larger scale, the competencies developed through the whole XenoMouse project in the long term, while giving little in return.

4)

What are the advantages and disadvantages of collaborating on a development project?

Collaboration enables a firm to obtain necessary skills or resources more quickly then developing them in-house,