Abgenix, following the business strategy of a platform company, should pursue the deal with Biopart, keeping a joint venture relationship for the development of ABX-EGF. Abgenix’s strategy to generate revenue relies on having the XenoMouse, which is capable of identifying various antibodies for specific targets. Thus, the company focuses on licensing the technology to various collaborators as well as pursuing early stages of drug development before selling the rights to the drug. Given the potential of ABX-EGF to gain FDA approval as well as the financial benefits from the deal, the value proposition from the Biopart is greater than that of the Pharmacol proposition. While the risk of pursuing a deal with Biopart is much greater than that of Pharmacol, the deal itself fits better with Abgenix’s strategy of developing skills and capabilities for the long term and balancing risk and potential rewards. Given that the likelihood of success for ABX-EGF to gain FDA approval and be commercialized is only 40%, the company needs to evaluate the overall expected value of each deal (Dolan, 2001). As depicted in the table below, despite the potential risk of a negative return if the drug development fails in the deal with Biopart, the overall expected value of that proposition is significantly higher than Pharmacol. Pharmacol | | | Biopart | | Probability of success | 40% | | | Probability of success | 40% | | Probability of failure | 60% | | | Probability of failure | 60% | | Revenue of success | 409.5 | | | Revenue of success | 931.9 | | Revenue of failure | 18 | | | Revenue of failure | -35 | | Total | $ 174.60 | million | | Total | $ 351.76 | million |
Table 1: The expected values of deals with Pharmacol and Biopart dependent on their probability of success and failure and the associated profits and costs with each of these scenarios.