Genentech Case Study

22/02/2016

Executive Case Summary: Genentech

        Robert A. Swanson and biochemist Dr. Herbert W. Boyer founded Genentech in 1976. Company has pioneered a new scientific area called recombinant DNA technology and had received approval from FDA for 15 different products that have been developed through recombinant DNA technology. The technology enabled scientist to engineer cells for producing proteins that could be used for medical purposes. In 1991, Roche Holding ltd, acquired the controlling shares of Genentech. In 2003, Genentech’s revenue was $3.3 billion and had a net income of $563 million. Genentech produced a new type of cancer drug and got the approval from FDA. The drug was prescribed over 50% of the colorectal cancer patients in the United States. The name of the drug is Avastin and the drug is being tested on other kind of cancer types which directly effecting more than 300,000 Americans each year. On the other hand there is no guaranty that Avastin would work with cancer types that are currently being tested.  This executive summary analyzes the dilemma of building a new plant for uncertain but enormous demand that Avastin could create.

        Genentech has three main facilities and in these facilities main production consists of proteins that would perform a specific function when injected in to human body. The manufacturing process starts with placing preferred DNA structure in to a keeper cell afterwards these cells reproduce in vessels. In the industry firms generally use 12,000-liter vessels. Genentech has twenty 12,000 –liter vessels and four 10,000-liter vessels summing up to 280,000 liters, after the approval of Avastin Genentech planned to build a new cell culture production facility in order to supply the forecasted demand. In the new facility, which will be completed by 2009, 25,000-liter vessels will be used in order to reach economies of scale. As in another important point against any abrupt production problems or natural disasters biotech companies keeps one year of inventory in -20 Celsius freezers after this process only 65% of the proteins could be recovered. As another major problem there is the contamination issue, according to industry data 20% of the batches that are produced in vessels were not usable. Producing one batch contains 15 steps and some of the steps are common for every vessel. Facilities can produce only one type of product in one production cycle. Another problem is changing or/and improving the production process because when companies seeks approval from FDA for a certain product they also get the approval for the production process so even if they wanted to change any step for improving production or reducing cost, they need to apply for approval again for the new process which can take up to years also when they change an equipment for one drug it directly effects other drugs production so approval should be sought for all types of drugs that are produced in the same facility. The new facility would be ready in 2009, in order to supply forecasted drug demand Genentech signed new contracts to outsource their manufacturing until 2009 but there are uncertainties about Avastin demand and firm was not sure whether the new facility would be enough or not.