There are large numbers of strategic collaborations in biotechnology. This is based on several issues touch upon in discussing negotiations as a concept in this case. The first is scale. The cost of developing a product, a biotechnology base product in this case is approximately $100 million dollars.
It is difficult for any one company to be able to raise that amount of funding or to draw upon its own resources for such a costly effort over time.Time is another factor in the formation of alliances. Although the cost mentioned, $100 million, is stretched over a number of years, this cost is difficult to recover and the effort to obtain approval for any product can tax any given company. A second reason behind the numbers of alliances is infrastructure.
Development of a new product requires a great deal of infrastructure. Pharmaceutical companies have spent years developing huge infrastructures to handle projects, both old and new. Biotechnology companies are young, often small, and do not have the required infrastructure to complete a given project.Marketing is another reason for strategic collaborations.
It can be very costly to market a new product. Successful marketing is costly and time consuming. Drug sales representatives are required to personally visit doctor’s offices, hospitals, and drug formulary decision makers in order to sell a product well. The bottom line is that strategic collaborations can save companies involved in the collaboration a great deal of time and expense.Repligen’s future depends upon continued cash flow to develop its products and to become a more effective company. The issues that are driving Repligen’s financial needs include funding of ongoing in-house research, acquiring intellectual property rights, acquisition of infrastructure, and day-to-day company costs. Repligen was founded as a company that would use recombinant DNA technology to a wide variety of applications. A current issue facing the company is the ability to diversify.
The company will only be able to diversify with ongoing funding of its research efforts. The company always needs new equipment to perform its research. Also, new building space is required for expansion. Day-to-day costs, such as salaries and bills, need to be paid. In addition, Repligen is running long-standing budget deficits.According to exhibit 5B of the case study, Repligen should be cash flow positive beginning in 2000. Unfortunately, this is not certain and is a projection based on anticipated sales, and continued demand.
This cash flow change is also uncertain due to the uncertainty of the vaccine’s promise and the competition from other companies. In order to turn it’s business around, Repligen needs to enter into more joint ventures and strategic alliances. Manufacturing rights add value to the value chain at Repligen by increasing the numbers of products to which the company has access. This will increase the bottom line by giving Repligen more investment options and more revenue streams.Diversification is the primary method by which the company will be able to turn itself around.
The goal of the founders of Repligen, Drs. Alexander Rich and Paul Schimmel, was to, “use cutting edge research on recombinant DNA to manufacture a wide assortment of products,” (p.1).
Smith’s goal, in forming this strategic partnership, was the sharing of cost, but in addition to that, the diversification of the company into the production of monoclonal antibodies. Smith had previously chosen to focus on AIDS research based on the spotlight it gave to Repligen:The HIV program brought a considerable attention to Repligen. For instance, in February 1990 Fortune magazine characterized the Merck-Repligen effort as “the No. 1 candidate for preventing AIDS.” A lead article in Science in the same year also served to heighten awareness of the development effort.
(Harvard Business School, Case 9-294-082, p. 3) The purchase of the manufacturing facility may prove to have been a wise move on Smith’s part in any case. The fact that the manufacturing facility exists and is purchased will have the Board of Directors and others in the company attempting to find something for which to use it. Diversification into other product lines will be necessary for Repligen’s survival.Works CitedKane, David, and Lerrier, Joshua.
“Repligen Corporation: January 1992.” Cambridge, MA: Preseident and Fellows of Harvard College, 1994.