Genentech Essay

Brief Introduction
The case talks about a Biotechnology Company named Genentech and how Roche acquired it. The case discusses the challenges and opportunity Genentech is facing after the acquisition and how it has impacted Genentech.
Q1 Perform a VRIO analysis. What is Genentech’s competitive advantage, if any?
Value
Genentech employs best scientist in the world and it encourages them to pursue projects not only associated to the company’s goal, but also to each scientist personal interest.
The company foster creative and innovative environment that leads to scientific discoveries
Continuous development of high quality drugs, which are supported by tremendous amount of research.
Rarity
The company has a very large Research Center, which
was 275,000 square feet that was opened in 1992 solely for biotechnology research and was tripled over the years to become 785,000 square feet. . The facility provides scientist with a simulating environment in an attractive setting, numerous specialized laboratories and latest equipment.
Genentech develops numerous patents and scientific researches each year.
Up until 2009, the company has held more than 7,400 current patents and had approximately the same amount pending patent applications. Currently they hold 11,300 patents1.
Imitability
The companies has large number of patent that are difficult to imitate and also stay for a long period of time
The company has a competitive advantage due to its large facilities that has the best scientist in the world.
Herbert Boyer, the founder of Genentech holds the first major patent in Biotechnology.
Organization
The company has a value stream that is based on sophisticated and advanced methods that it uses to create its products.
High spending on research and development that enables Genentech to develop its current drugs and produce new ones.
Fostering of an innovative culture and was voted for 16th conservative years by fortune magazine as one of the best 100 company to work for in the US.
The company invests heavily in market research and strives to meet critical medical needs.
Patent protection
VRIO Framework Valuable Rare Difficult to Imitate Exploited by the organization Competitive implication
Best Scientist Yes No No Yes Competitive
Parity
Creative & innovative environment Yes Yes No Yes Competitive Parity
Continues development Yes No Yes Yes Competitive Parity
Product Patents Yes Yes Yes Yes Competitive Advantage
Facilities Yes Yes No Yes Sustained Advantage
Q2 Apply a PESTEL analysis. What impact will changes in health care and bio generics regulation have on Genentech? Why?
Political
Being a biotechnology company, which is concerned with the wellness of the mankind, this makes it subject to high regulations and standards. Associations such as the food and drug administration (FDA) in the USA and the National Institute for Health and Clinical excellence (NICE) in the United Kingdom regulate the pharmaceutical and biotechnology industry.
The Associations mentioned above are very restrictive and regulates the whole business of the industry from the beginning until it is ready to reaches the shelves.
Moreover, the bill of Comparative Effectiveness Research (CER) that was passed in 2009, has given the government more power to interfere in the Biotechnology Industry. The bill aims to assess how various medical products and procedures compared with each other in terms of both effectiveness and cost. This supports of the bill believes that conducting CER could avoid unnecessary treatment and improve the quality of health care while lowering cost.
Furthermore, the US imposes high restrictions on foreign drugs on entering the US drug market.
Economical
The medial industry is one of the major pillars of the economy of the United States. As of 2013, it made up 17.4% of the US GDP. The high cost of research and development in both pharmaceutical industry and biotechnology and high competition has made it necessary for companies to merge and acquire. Moreover, researchers have to partner with private equity in order to commercialize their products into the market.
Furthermore, due to advancement in technology, which automated many activities that was done manually by man, the “value adding” trait is coming more from intellectual property and Know-how.
Sociocultural
The changing life style of people including eating habits, dependability on technology and the consumption of unhealthy processed food has given rise to deadly diseases that were unknown in the past. This phenomenon has given the opportunity for scientist to create drugs that will cure or eradicate such diseases. Technological
The development of Biotechnology was by its self a breakthrough in the medical industry. The technology enabled the creation of new treatment by the use of cellular and bimolecular processes to produce Proteins such as Insulin. The new technology has also allowed Scientist to alter genes and DNA under precise conditions.
Another technology that was developed after the biotechnology was the nanotechnology, which is the engineering of functional system at the molecular level. Nano science engineers visualize microscopic equipment that could be remotely guided through the body, performing surgical repairs with greater precision than current traditional methods.
Finally, the medical industry is one of the highest capitals intensive that focuses mainly on research and development. Therefore, technology is very important to them.
Environmental
Negative environmental impacts, such as water and air pollution are a major cause for diseases including cancer. Without diseases and illness they won’t be a need for medicines in the first place. Companies such as Genentech profit from curing or eradicating diseases that affect human beings.
Legal
Medical industry is subject to many restrictions and regulations by governmental bodies and health associations. Companies therefore should comply with these rules or else they will face litigations. In almost all countries, no medicine can be put in the market without the approval for health bodies that has standards and regulations. Approvals of some medicine is a long process and can take years for a medicine to see the light.
What impact will changes in health care and biogenetics regulation have on Genentech? Why?
Biogenetic is subject to high restriction and regulation by governmental bodies and health associations such FDA and NICE. Any new regulations or changes could either allow for new products to be created or close the market of popular products, if found dangerous. These associations have a strong say in the market. For example the NICE made a recommendation not to cover one of Genentech main cancer drugs called Tarceva, which forced the company to lower the prices of Tarceva significantly.
Q3 Apply a five forces analysis. How would you describe Genentech’s competitive position?
1- Rivalry competition
Measures Degree Industry
Industry Growth High High
Fixed Cost High High
Buyer demand High High
Buyers cost to switch brands Low High
Product differentiation High High
Customer loyalty Low High
Size of competitors (Number) High Low
Diversity of competitors High High
Patent protection High High
Exit Barriers High High
High Rivalry competition
2- Barriers of New Entry
Measures Degree Industry
Entry Barrier High High
Cost of Entry:
Fixed cost
Input cost
Technology High
High
High High
High
High
Capital Requirements High High
Brand loyalty High High
Access to Distribution channels High High
Restrictive Government Policies Moderate High
Industry members willing to contest new entrants Low High
Industry Risk and Uncertainty High High
Knowledge and Specialization High High
High barriers of entry
3- Threat of Substitute
Measures Degree Industry
Availability of substitutes Moderate Low
Price of substitutes Low Moderate
Substitutes have comparable or better performance Low Low
Switching cost High Low
Low threat of substitute
4- Buyer bargaining power Measure Degree Industry
Buyers demand High Low
Buyer volume High Low
Buyer switching cost High Low
Differentiation of products High Low
Size of buyers and buyers purchasing power
Hospitals / Governments
Doctors / Pharmacies
Patients Moderate Low
Buyers knowledge of product characteristics
Hospitals / Governments
Doctors / Pharmacies
Patients High
High
Moderate to High Moderate
Buyers sensitivity to price
Patients as end consumer Low Low
Importance of the products to the buyers High Low
Low buyer bargaining power
5- Suppliers bargaining power
Measure Degree Industry
Availability of suppliers
Equipment
Packaging High
High Low
Low
Size of suppliers
Equipment
Packaging High
High Low
Low
Suppliers differentiation Low Low
Uniqueness of service Moderate Moderate
Switching cost for industry members Moderate Moderate
Supplier dependency on industry members for revenues Moderate Moderate
Number of Company’s Dominating the Supplier Industry High Low
Low supplier bargaining power
Q4 Perform a SWOT analysis, how do we usually link the SOWT analysis parts to serve Roche business strategy?
Strength
Genentech has great experiment in biotechnology manufacturing and its delivery to the market.
Availability of funds for research and development.
A big pipeline in a therapeutic area that has a huge demand, reflected by the number of molecules under development (phases 1,2,3) in a niche market.
Weaknesses:
A lot of factors that contribute to the success of delivering a new product are not controllable such as clinical trials results; which is reflected on drug registration and accordingly availability to the market, these carries huge risk and cost.
Opportunities
The success of the pipeline in delivering new effective therapies which will provide a huge profit and revenues in a niche market were not a lot of companies have the know- how to work in.
The market is growing in this type of drugs and is a way to sustainable business especially with potencies.
Threats
The development of a new product is very costly especially if the product fails in one of the three phases.
(FDA) firm regulatory and approval procedure specially for biotechnology products takes a lot of time and effort
The Drug industry and biotechnology is very competitive in terms of the industry itself or the new products delivered.
Q5 What impact wills the Roche buyout have on Genentech? Will it be possible for Roche to own Genentech without destroying its ability to innovate?
Roche will have both positive and negative impacts on Genentech. It will create greater market expansion for Genentech products, provision of fund for research and development. However, Roche is highly commercialized and this will put pressure on Genentech to keep on producing products that will sell. Another issue that is likely to cause conflict is the differences of cultures between Roche and Genentech. While the latter culture is informal and innovative, Roche culture is formal and strict.
Unless Roche top management respected and nurtured Genentech innovative culture, this might cause some conflicts. For example, Genentech was voted for 16th consecutive years as one of the best company to work with. This is because Genentech provides generous employees perks such as day care for children and lavish employee gatherings. After the merge, Roche will start interfering with the way business is done which may raise a lot of conflicts and accordingly let some good employees, who are considered to be valuable assets, leave the company. The best way to succeed in this is to give the room for Genentech to keep the pace it was going with and support it in the international markets, marketing their products, logistics, finances and making sure that the employees don’t leave the company at least at an early stage in order not to delay or affect any on going project or research.
For Genentech to keep its success after the acquisition, Roche most make sure not to destroy the innovative culture that was the main reason for its valuable intellectual property.
Q6 What is the major dilemma that Mr. Scheller faces in the case? What should he do?
The first major dilemma that Scheller is facing is finding the optimal strategic balance between generating novel therapies and pursuing further commercial applications of the present drugs. While Roche is focusing on generating revenues from products in Phase three, Scheller believes that the early drug research is the key to keeping the company’s future product pipeline stocked and he feared the long-term implication of neglecting this core capability to pursue more immediate returns.
For example, the companies main product such as Avastin one of Genentech flagship product, has failed in providing significant benefit in survival after two large phases, furthermore, U.S advisory panel voted to revoke Avastin’s approval for the treatment of advanced breast cancer.
Another major problem biotech is facing is the danger of competing with itself, for example Lucentis , a drug that was developed to treat an eye disease that causes blindness in the elderly, were threatened by off label use of Avastin. Some doctors believe that Avastin is as effective as Lucentis but with less than one tenth of the price of Lucentis.
The new bill comparative effective research that was passed by the U.S congress in 2009 makes the government more involved in the Biotech industry, thereby affecting Genentech.
Genentech is facing the pressure of developing new products at the same time find new applications for their old ones.
In order for Scheller to face the dilemma he should do the following:
Enhance the relation with Roche in order to keep the innovation while making commercial profit.
Accelerate approvals by the health committee for their innovations.
Diversifying the product portfolio by targeting markets other than the oncology market while maintaining their portion in cancer therapy.
Keep investing in phase 3 in order guarantee the effectiveness of the drugs.