Collaboration Strategies

- Chapter 8

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Table of Contents
OPENING CASE : The XenoMouse OVERVIEW REASONS FOR GOING SOLO - Availability of Capabilities - Protecting Proprietary Technologies - Controlling Technology Development and Use - Building and Renewing Capabilities ADVANTAGES OF COLLABORATING

TYPES OF COLLABORATIVE ARRAGEMENTS - Strategic Alliances - Joint Ventures - Licensing - Outsourcing - Collective Research Organizations
CHOOSING A MODE OF COLLABORATION & MONITORING PARTNERS

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Opening case : The XenoMouse

Discussion Questions: 1. What are the pros and cons of Abgenixs collaborating with a partner on ABX-EGF?

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? 3. How does Abgenixs decision about collaborating for ABX-EGF impact its prospects for its other drug development projects?

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Opening case : The XenoMouse

The XenoMouse

- After spending 7 years and $40 million in research and development, Abgenix had created a very special mouse. The XenoMouse was a strain of genetically engineered mice capable of producing antibodies with human protein sequences.

- These antibodies had great potential for treating human illnesses, including cancer, arthritis, and organ transplant rejection .

- Major pharmaceutical and biotechnology companies were lined up to license access to XenoMouse, and the stock market was so enthusiastic about Xeno Mouses prospects that it drove Abgenixs market capitalization up to $3 billion by 2000.

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Opening case : The XenoMouse

The XenoMouse - Abgenix had plans for two different ways to derive revenues from XenoMouse.

- First, it licensed pharmaceutical or biotechnology companies the rights to use XenoMouse to develop antibodies for a specific disease target the companies had identified. (Average fees before commercialization ranged from $7 million to $10 million, royalties were 5 to 6 percent of sales)
- Second way of deriving revenues was to develop its own drugs through early develop and market the drug the rights to stages of testing and then license to another company. - One of Abgenixs drug development programs, ABX-EGF had eradicated human cancer tumors from every test mouse in which the tumors had been injected. - Abgenix had to make some important decisions about whether, and how, it would use partners to further develop the ABX-EGF antibodies. (handing-off option, joint venture option, solo development option)

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Opening case : The XenoMouse

The Handing-Off Option - A large pharmaceutical company was interested in licensing the worldwide rights to the ABX-EGF technology. - The company seemed like a good potential partner because if had the skills and resources necessary to guide ABX-EGF through the necessary testing and regulatory process, as well as commercially launching and marketing the drug if it were approved. - The pharmaceutical company was willing to pay up-front fees and a royalty rate that was considered high by industry standards.

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Opening case : The XenoMouse

The Joint Venture Option - A biotechnology firm was interested in a 50/50 joint venture with Abgenix.

- Abgenix and the biotech company would split the cost of developing ABX-EGF.

- The two companies would then share the profits if the drug proved successful.

- Recognizing that Abgenix had already done significant work on the program, the biotech firm agreed to make some additional up-front payments to Abgenix.

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Opening case : The XenoMouse

The Solo Development Option
- Abgenix was also considering pursuing further development of ABX-EGF on its own.

- This option meant that Abgenix would need to develop the in-house capabilities to bring the product through the testing and regulatory process.
- By late 2001, management at Abgenix was leaning toward developing the drug in-house and also had plans to build a large manufacturing facility. - Abgenix was burning through its cash quickly, and after the stock market had soured in 2001, cash had gotten harder to come by. - Adding still more urgency to the situation was the fact that heavy hitters such as Genentech and AstraZenca were also developing their own drugs targeting the EGF pathway.

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Overview
Firms frequently face difficult decisions about the scope of activities to perform in-house, and whether to perform them alone as a solo venture or to perform them collaboratively with one or more partners. Collaboration can often enable firms to achieve more, at a faster rate, and with less cost or risk than they can achieve alone.

Collaboration also often entails relinquishing some degree of control over development and some share of the expected rewards of innovation, plus it can expose the firm to risk of malfeasance by its partner(s).

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REASONS FOR GOING SOLO

Availability of Capabilities

- If a firm has all of the necessary capabilities for a project, it may have little need to collaborate with others and may opt to go it alone.
- For example, in the 1970s Monsanto was interested in developing food crop seeds that were genetically modified to survive strong herbicides. (Roundup Roundup Ready soybeans) Protecting Proprietary Technologies - Firms sometimes avoid collaboration for fear of giving up proprietary technologies. - Furthermore, the firm may wish to have exclusive control over any proprietary technologies created during the development project.

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REASONS FOR GOING SOLO

Controlling Technology Development and Use - Sometimes firms choose not to collaborate because they desire to have complete control over their development processes and the use of any resulting new technologies. - Pragmatic reasons : The new technology is expected to yield high margins and the firm does not wish to share rents with collaborators. - Culture reasons : A companys culture may emphasize independence and selfreliance. - EX) HONDA by Honda President Its better for a person to decide about his own life rather than having it decided by others.

Building and Renewing Capabilities

- Firms may also choose to engage in solo development even when partnering could save time or money because they believe that development efforts are key to building and renewing their capabilities. EX) Sonic Cruiser

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ADVANTAGES OF COLLABORATING
Collaborating can enable a firm to obtain necessary skills or resources more quickly than developing them in-house. Given time, the company can develop such complementary assets internally. Obtaining some of the necessary capabilities or resources from a partner rather than building them in-house can help a firm reduce its asset commitment and enhance its flexibility. (Product life cycles shorten, High speed technological change) Collaboration with partners can be an important source of learning for the firm. One primary reason firms collaborate on a development project is to share the costs and risks of the project. Firms may also collaborate on a development project when such collaboration would facilitate the creation of a shared standard. EX) WAP stands for Wireless Application Protocol

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ADVANTAGES OF COLLABORATING
The National Cooperative Research Act (NCRA) of 1984, collaborative research between firms had been restricted by antitrust regulation - From 1985 to 2003, more than 900 research joint ventures were registered in the NCRA database (see Figure 8.1)

- Worldwide, use of technology or research alliances has more than doubled since 1980 (see Figure 8.2)
- As firms forge collaborative relationships, they weave a network of paths between them that can act as conduits for information and other resources. engine of innovation

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TYPES OF COLLABORATIVE ARRANGEMENTS

Strategic Alliances
- Firms may use strategic alliances to access a critical capability that is not possessed in-house or to more fully exploit their own capabilities by leveraging them in another firms development efforts.

- Even firms that have similar capabilities may collaborate in their development activities in order to share the risk of a venture or to speed up market development and penetration. - Alliances can enhance a firms overall level of flexibility.

- Alliance relationships often lack the shared language, routines, and coordination that facilitate the transfer of knowledge.

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TYPES OF COLLABORATIVE ARRANGEMENTS

Strategic Alliances (contd) - Yves Doz and Gray Hamel argue that it is useful to categorize a firms alliance strategy along two dimensions. Individual Alliance 2n Network of Alliances 1 p( Ri ) GE-SNECMA Corning Glass
i 1

Capability
Capability Transfer

Complementation

Thomson-JVC

Aspla

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TYPES OF COLLABORATIVE ARRANGEMENTS

Joint Venture

- Joint ventures are a particular type of strategic alliance that entails significant structure and commitment.
- The capital and other resources to be committed by each partner are usually specified in carefully constructed contractual arrangements, as is the division of any profits earned by the venture. Licensing - Licensing is a contractual arrangement whereby one organization or individual obtain the rights to use the proprietary technology of another organization or individual. - Sometimes firms license their technologies to preempt their competitors from developing their own competing technologies. To imitate

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TYPES OF COLLABORATIVE ARRANGEMENTS

Outsourcing

- Firms might outsource activities to other firms. By 2003, worldwide spending on outsourcing services had exceeded $100 billion.
- Contract manufacturing allows firms to meet the scale of market demand without committing to long-term capital investments or an increase in the labor force thus giving the firm greater flexibility. Collective Research Organizations - In some industries, multiple organizations have established cooperative research and development organizations such as the Semiconductor Research Corporation or the American Iron and Steel Institute. - Many of these organizations are formed through government or industry association initiatives. Its purpose was to promote collaboration among industry, government, and academic organizations.

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CHOOSING A MODE OF COLLABORATION

Speed Cost Control Potential for Leveraging Existing Competences Yes Yes Yes Sometimes Yes Sometimes Potential for Developing New Competencies Yes Yes Yes Sometimes No NO Potential for Accessing Other Firms Competencies No Sometimes Yes Sometimes Sometimes Yes

Solo Internal Development Strategic Alliances Joint Venture Licensing In Licensing Out Outsourcing Collective Research Organizations

Low Varies Low High High Medium/ high Low

High Varies Shared Medium Low Medium

High Low Shared Low Medium Medium

Varies

Varies

Yes

Yes

Yes

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CHOOSING AND MONITORING PARTNERS

Gaining access to another firms skills or resources through collaboration is not without risk. It may be difficult to determine if the resources provided by the partner are a good fit, particularly when the resource gained through the collaboration is something as difficult to assess as experience or knowledge. Managers can monitor and effectively manage only a limited number of collaborations, the firms effectiveness at managing its collaborations will decline with the number of collaborations to which it is committed.

Partner selection
- Resource fit refers to the degree to which potential partners have resources that can be effectively integrated into a strategy that creates value. - Strategic fit refers to the degree to which partners have compatible objective and styles. Partner Monitoring and Governance

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