The analysis of this case addressing the future of ABX-EGF leads me to recommend that Abgenix should sign a deal with Biopart and be involved in the entire process of bringing ABX-EGF to the market profitably. Seven years of hard work and a $40 million dollars investment was what led to the creation of XenoMouse. With a brilliant line up of pharmaceutical and biotechnology companies for the license of XenoMouse and a total market capitalization of up to $3 billion dollars, Abgenix seems to be on a steady path to realize them into a FIBCO, a claim only elite few can make.
The Business Model
Abgenix has four development programs in its pipeline which were in various stages of clinical trials. The usual business strategy is to develop the product until step 3 in the product development value chain, and then to licence it to a pharmaceutical company for further development and marketing. With one product in Phase 3 clinical trials (ABX-CBL), another in phase 2 (ABX-IL8) and ABX-EGF in phase 1 of the clinical trials, Abgenix has covered quite a ground in terms of portfolio enhancement. Since they have a market capitalization of $ 3 billion and substantial liquidity to invest in a project, it will be in the best interest of Abgenix to partner with Biopart. This deal may help Abgenix to take a massive step forward towards becoming a FIBCO.
According to the value by stage diagram, Phase 2 trials are the inflection points. If Abgenix proceeds to phase 2 of the clinical trials, the value of the drug rises and hence they will secure a pioneering position for getting a higher value for their drug. A deal with Pharmacol will have a tarnishing impact as it will reduce the profit that they could earn if they proceed towards the next stage of clinical trials.
Risk Assessment
A hands in deal with Biopart seems much more riskier due to the expenditure that Abgenix has to shell out for the whole process. The developmental cost for this deal is an excruciating $125 million, half of which will be the cost that Abgenix will spend on the deal. In contrast, a deal with Pharmacol will incur no developmental costs to Abgenix as they are not a part of the process.
If the product is not able to successfully emerge through the FDA approved clinical trials, then the loss that Abgenix would have to incur is $10 million. Although the amount of money is huge, the prospect of the drug being successful will profit Abgenix and would engender a substantial return value on the investment.
Market Analysis
The market size for cancer is increasing by 5% every year. With such a growth rate, the value of potential oncology therapeutic increases resulting in a phenomenal profit for successfully developing and commercializing it. Moreover, investing in an ever increasing market will benefit Abgenix to gain a strong foothold in the oncology market. It will further help the commercialization of the other three programs that are in the company pipeline as well.
Biopart possess expertise in oncology and thus partnering up with them will help Abgenix to introduce itself to the market and take capitalize on their clinical expertise to develop and market their product profitably.
In contrast, Pharmacol has a wide market position in the industry. But being a huge pharmaceutical company, it may not value the drug from ABX-EGF program and hence, Abgenix should consider the potential of the company to help develop the product and reach the market. Both the deals will take 5 years for the product launch, but the most profitable one will be the hand in deal with Biopart due to its high reward potential.

Expected Value of the deals
There is a huge difference in the amount of expected value for each deal (refer exhibit 2 and 4). The value of the Pharmacol deal is $174 million and that for Abgenix is $350 million. This enormous difference stems from the fact that the Biopart deal would enable Abgenix to have a 50% share as well as the profits will be equally distributed among the two companies. On the other hand, Abgenix will only receive the 10 % revenue on sales of the drug and will incur no developmental costs with Pharmacol.
Conclusion
The question that needs to be addressed regarding the future of ABX-EGF may be daunting at the moment, but considering the pros and cons of the two deals will help framing the decision more efficiently. Even though the loss incurred if the product does not succeed will be higher by signing a deal with Biopart, the revenues generated and the profit earned will be much higher, making this a much more lucrative deal. Considering the difference in the expected value of the two deals, I opine that it will be in the best interest of Abgenix to partner with Biopart and develop the product.

APPENDIX * EXHIBIT 1: COST OF HANDS OFF DEAL WITH PHARMACOL: 1. | Initial payment | $5 million | 2. | At the start of Phase 2 trials | $5 million | 3. | If Pharmacol begins Phase 3 | $8 million | 4. | If FDA approval received | $10 million | 5. | Royalty on sales perpetuity. | 10% |

* EXHIBIT 2: EXPECTED VALUE OF THE DEAL:
EV(pharmacol) = p(f) * revenue (f) + p(s) * revenue (s)
Where, p (f) = probability of failure; 60%
Revenue (f) = revenue of failure; only the cost of signing the deal is included = $18 million
P (s) = probability of success; given that the likelihood that the product will clear FDA approval and enter the market is 40%.
Revenue (s) = revenue of success; the cost of deal + 10% royalty of sales = $28 million + $380 million = $ 408 million.
EV = 0.6 * 18 + 0.4 * 408
EV (Pharmacol) = $ 174 million

* EXHIBIT 3: COST OF HANDS IN DEAL WITH BIOPART/ABGENIX: 1. | Initial payment by Abgenix | $ 5 million | 2. | Payment by Abgenix once the drug reaches phase 2 | $ 5 million | 3. | Developmental cost of the product | $ 125 million | 4. | Additional cost required for pre market launch of the product | $ 15 million | 5. | Cost of goods sold | 10 % of sales. |

* EXHIBIT 4: EXPECTED VALUE OF THE DEAL WITH BIOPART.
P(f) = 60%
Revenue (f) = 10 million
P (success) = 40 %
Revenue of (s) = 1526 – 35% 1526 = 991.9 million
Developmental cost = 52.5 million
EV (Biopart) = -52.5 + 0.4 (991.9) + 0.6 (10)
EV (Biopart) = $350 million

* EXHIBIT 5 : COMPARISON OF THE TWO DEALS Company | Expected Value (million dollars) | Timeframe for development | Failure Cost | Recommendation | Pharmacol | 174 | 5 | 18 million | No | Biopart | 350 | 5 | 10 million | Yes |

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[ 1 ]. Robert Dolan. Abgenix and the XenoMouse : Meet XenoMouse, Harvard Business School. January 9,2001. Page 1.
[ 2 ]. Robert Dolan. Abgenix and the XenoMouse : Meet XenoMouse, Harvard Business School. January 9,2001. Page 07.
[ 3 ]. Fierce Pharma. Cancer-drug market zooms toward $100B, thanks to costly targeted therapies. Tracy Staton. May 6, 2014.
[ 4 ]. Robert Dolan. Abgenix and the XenoMouse : Meet XenoMouse, Harvard Business School. January 9,2001. Page 03..