Plethora & Rummidgen

The following case is adapted from deRond (2003)1.It explores a 1995-1998 strategic alliance between a large pharmaceutical firm and a start-up engaged in producing combinatorial chemistry libraries. The chronology:

1. February 1995.Plethora, a large pharmaceutical firm, first obtained access to combinatorial chemistry technologies via a fee for services (contract research) with a nearby university. It considered that such technologies ought to permit rapid production of compounds which, if followed by screening, should enable better, faster pharmaceutical lead optimization.

2. Mid-1995.Despite its lack of experience in strategic alliances, Plethora became interested in Rummidgen, a start-up in the combinatorial chemistry space, in keeping with its vision to be a preferred partner via multiple collaborations. Plethora was also interested in internalizing technology Rummidgen had developed and in using it in-house as needed.

For its part, Rummidgen was excited at the opportunity to generate new combinatorial chemistry libraries and to learn about biology. It entered an informal alliance with Plethora in mid-1995 and began to hire personnel without a signed agreement. Working overtime and on weekends, Rummidgen had produced an initial set of compounds to validate its concept. However, Plethora scientists had difficulty keeping up with Rummidgen's level of output.

Ultimately, Plethora's contract with Rummidgen consisted of a $5.5M upfront payment with no equity stake in Rummidgen or its lab taken. Plethora was to receive royalties on sales of technology developed by Rummidgen during the alliance (it got part of Rummidgen revenue stream). Furthermore, Plethora was to pay no royalties on sales of lead compounds developed during alliance. Rummidgen was permitted to use technology developed during the alliance in future collaborations with other third parties.

3. Later in Mid-1995.Richard Lewis, one of original Plethora executives/researchers involved, left. He was replaced by Mark Aris. Aris's internal department competed directly with Rummidgen in that it focused on chemical technologies. His view was that the combinatorial chemistries should be carried out internally. Rummidgen senior executives regarded Mark Amis as arrogant and suggested that he did not champion the alliance internally at Plethora.

4. June 1996.Plethora changed it strategy to emphasize the objective of lead discovery. Included in the change was a shift in philosophy toward emphasizing the production of a large number of compounds. Rummidgen complained that the changes were abrupt and that they were allotted no part in the discussions leading up to them. They described Plethora as arrogant and insensitive, adding that "the weight of whole firm comes down upon you."

In keeping with an emphasis upon producing a large number of compounds, Plethora also suggested a technology change: a shift to discovery via mixtures, not via single compounds. Karl Amis was selected to lead the project at Rummidgen. However, Rummidgen complained that such technology was obsolete and a step backward; also, that it was cheap, nasty, ineffective, difficult to characterize, and contrary to academic and commercial interests. Plethora agreed that there had been a mistake on the mixture philosophy after 6 months, but the lead discovery objective continued.

5. January 1997.Karl Amis, the project leader, left Rummidgen for Plethora. Seeing this as a violation of a gentlemen's agreement between senior executives, Rummidgen expressed shock at not being seen as equals. Suspicious that Plethora was setting up an in-house capability to replace Rummidgen, its senior executives could not understand why someone couldn't have communicated the prospective move in advance. They called Plethora "unapologetic" and claimed that headhunters continued to approach their key individuals. Plethora explained that Karl had other offers, and it would've been unethical for them to disclose this to Rummidgen. Nevertheless, they pledged to refrain from hiring others at Rummidgen.

6. May 1997.At the two-year anniversary of the alliance it was extended for one more year.Plethora executives believed that the contract had given way to a collaborative relationship. They believed that they had been flexible in allowing certain targets to be renegotiated (in the early months), understanding and patient when targets were not met (due to a serendipitous discovery process), and tolerant in allowing Rummidgen to pursue spin-off projects. However, after granting Rummidgen the 20% increase in funding it sought, Plethora executives allowed that it felt somewhat akin to the "child slapping the parent."

7. June 1997.Shortly after renewing the contract, senior California scientists at Plethora became dismayed and shocked to learn that Rummidgen scientists had published a CD-ROM catalogue containing structures of prostaglandin molecules which were similar to their own work. They insisted they had intended to patent similar structures.

The Rummidgen scientists claimed to have asked permission beforehand and to have had a verbal agreement from a senior scientist in California. They also claimed a contractual right to do so. They suggested that those in California had failed to understand agreement and blamed this, in part, on the resignation in late 1994 of Plethora's head negotiator for the agreement in Europe.

8. After June 1997. After this revelation, the California office became more involved in the alliance. Fearing too much sensitive disease target-related info had been shared, they shifted the focus of alliance shifted away from lead discovery to technology transfer only. No info on disease targets was shared, nor were there any joint initiatives. Plethora increased its efforts to develop an in-house group and formalized tech. transfer procedures where they had been informal before.

Rummidgen complained that the deliverables were now different and of a much slower pace. They also cited Plethora's decision to man their in-house capability with a "tech developer" as a mistake since the producing libraries had required the production of many compounds quickly. They suggested that "Plethora had an irrational fear of loss of confidential information," that they were now stipulating unrealistic targets, and that they now required 100% control of all IP, an unrealistic goal.

9. March 1998.Rummidgen raised capital through an IPO and had been successful in partnering with other firms. Plethora complained that the public investment was seed capital and that Rummidgen was no longer dedicated purely to collaboration. With the end of the alliance in sight, Plethora complained that its expectations had not been met. They instead observed that Plethora's share of Rummidgen's business was going down due to Rummidgen's success and that they were not getting the attention that they had gotten before.

Rummidgen responded that Plethora was jealous of their success, especially of their senior managers making large $ on the IPO. Similarly, they pointed out that Plethora had also become more arrogant due to their new drug's (Pipfler's) success. Complaining that their expectations had also not been met, they also cited not get feedback on 6-week technical reports despite having sent the compounds.

10. May 1998.The alliance ends.

1deRond M 2003 Strategic alliances as social facts: business, biotechnology, and intellectual history. Cambridge: Cambridge University press.

Question 1

Combinatorial chemistry was a relatively new platform technology at the time this alliance occurred. It held the potential to produce new chemical compounds more rapidly than its predecessors. Explain how the strategic alliance represented an opportunity for both firms to realize economies of scope by sharing this technology.

Group of answer choices

Plethora gets new products (new drug compounds) while Rummidgen gets a new market (biology) for its platform process.

Service: Plethora gets a large new investment in its in-house capabilities while Rummidgen's novel platform provides superior service to its partner's customers.

Plethora builds an effective learning organization while Rummidgen outfits pharmacies with their new technology.

Plethora and Rummidgen share manufacturing capabilities.

All of the above

Question 2

The strategic alliance lasted for three years. Were there indicators which surfaced during the alliance that suggested that the alliance might not produce the desired results?

Group of answer choices

No, the parties reached an amicable agreement after year 2 to extend the alliance

No, the parties had created several new prostaglandin molecules

Yes, increasing conflict and lack of trust was apparent on both sides

Yes, Rummidgen was not excited about creating a new market for its combinatorial chemistry platform.

None of the above

Question 3

If we consider the strategic alliance the unit of analysis, suggest a plausible cause for the termination of the alliance.

Group of answer choices

The firms' rapidly changing environment forced an abrupt end to the partnership

Increasingly rivalrous actions by industry competitors forced the alliance into bankruptcy

A socially responsible mission removed the reason for this alliance's existence.

A lack of leadership did not allow adequate conflict resolution during the alliance.

None of the above

Question 4

Was the leadership of the alliance effective in creating a learning organization in which thedevelopment of new intangible resources (experience, creativity, relationships) paralleled new applications in product/markets?

Group of answer choices

Yes, widespread sharing of information, a hallmark of the learning organization, was prominent throughout.

Yes, both partners agreed that collaborative decision-making had been primarily responsible for the discovery of novel drug compounds

No, the original Plethora executive responsible for the agreement left and was replaced by an executive wanting to set up an in-house competitor

No, the inspiring mission under which the alliance operated fostered the growth of an effective learning organization.

None of the above

Question 5

Your book also stresses that effective leadership sometimes requires overcoming significant barriers to change. Which other barriers to change present in this case might have prevented an otherwise effective leader from achieving success in this alliance?

Group of answer choices

The large size of the pharmaceutical firm led it to expect exclusive collaboration from Rummidgen ("power relationships").

The contract was rather one-sided, including Plethora receiving a share of Rummidgen's revenues and making no equity investment in the smaller firm ("power relationships").

Neither firm had significant experience with strategic alliances.

Systemic barriers such as a lack of structure within the strategic alliance may have also impeded effective management of the alliance.

All of the above

Question 6

Finally, the strategy of seeking out multiple strategic alliance partners can be

Group of answer choices

Productive, since it permits a firm to gain experience and legitimacy

Counterproductive, since partners may experience a decrease in exclusivity and, hence, perceive a lack of commitment in its partner

Productive, since it permits small firms with platform technologies an opportunity to reduce dependence on larger partners

a & c only

All of the above