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GeneGene--alyzingalyzing GENENTECHGENENTECH
Strategic ManagementStrategic Management
for Executivesfor Executivesfor Executivesfor Executives
GROUP 8 GROUP 8 –– HCEMBA’09HCEMBA’09Primary Contributor: Manas KanungoPrimary Contributor: Manas Kanungo
Technological Innovation: Genetic EngineeringIdentify absent, defective, excess protein;Engineer protein or molecule for therapy;Splice Genes in Fast Growing Bacteriato Produce Therapeutic Proteins
1st Cloning: Human Protein in E.ColiLicensed to Eli Lilly: Human Insulin, Growth Hormone
�� Rev from Alliances / AcquisitionsRev from Alliances / Acquisitions $500M$500M $300M$300M
�� Net Income as % of Op. RevenueNet Income as % of Op. Revenue 25%25% 21%21%�� (Rituxan w/Several Indications, need to share with other partners)(Rituxan w/Several Indications, need to share with other partners)
2010 Vision & Goals2010 Vision & Goals2010 Vision & Goals2010 Vision & GoalsLeader in revolutionizing treatment of patients w/cancer, immunological Leader in revolutionizing treatment of patients w/cancer, immunological
diseases, and angiogenic disorders, utilizing science and biotechnologydiseases, and angiogenic disorders, utilizing science and biotechnology
� Approved Products /Indications 15� New Molecules to Clinical Development 20� US Oncology Market Position 1� Avg EPS/yr Growth 25%� Cumulative Free Cash Flow $12B
Decisions Red Ocean - Sharks Blue Ocean - Dolphins
Market –Therapeutic Products
Compete in Existing Space (Mass Pts, Small Molecules)
Create New Space (Personalized Meds, Large Molecules)
(Pharma) Competition
Try to Beat, Eat, or Look Out Ignore – Make Them Irrelevant
Patients / Demand
Exploit / Steal Existing Patients Create & Capture New PatientsDemand
Value OfferingMake Trade-offs: Brand or Generic Aspirin?
Willing to Pay More: For Unmet, Life Saving Cancer Solutions
Internal Alignment
Systems & Activities to ChoseLow Cost or Differentiation: Make/Buy, Other Compromises
Systems & Activities for BOTHLow Cost & Differentiation: : Own Biotech Mfg:Low Cost, High Profits
Although Kim & Mauborgne did not propose their Blue Ocean Strategy in HBR tillOct 2004, Genentech’s inherently innovative culture extended beyond their R&DStaff to develop a business strategy with a path of least resistance and executewith precision for superb results. Copyright: Manas Kanungo 2009Copyright: Manas Kanungo 2009
Strategy Skills
Shared
Style
Genentech’s Value Based Management StrategyGenentech’s Value Based Management StrategyMcKinsey’s 7 – S Framework Model
Biotherapeutic Industry FutureBiotherapeutic Industry Future
�� Biotech industry somewhat shielded from economic recession:Biotech industry somewhat shielded from economic recession:•• Globalization with Increasing ExportsGlobalization with Increasing Exports•• Current Unmet Diseases, with Aging Human Market SegmentsCurrent Unmet Diseases, with Aging Human Market Segments•• Growth in Agricultural, Animal, Aquatic, and Environmental SegmentsGrowth in Agricultural, Animal, Aquatic, and Environmental Segments
�� Therapeutic Industry Revenue will Grow $86BTherapeutic Industry Revenue will Grow $86B�� $147B from ‘08 $147B from ‘08 ––’13’13
�� Growth of 11.4%, or 5 x Avg. US GDP over the same periodGrowth of 11.4%, or 5 x Avg. US GDP over the same period
�� Market Driven by High ROIs, Dual Patent Protections, Personalized MedsMarket Driven by High ROIs, Dual Patent Protections, Personalized Meds
CHALLENGESCHALLENGES
�� New Entrants, Pharma Companies Refocusing (Pfizer), BioNew Entrants, Pharma Companies Refocusing (Pfizer), Bio--Generics, Generics, Market Plateau in Existing Areas, Margin Threats from Cost Controls from Market Plateau in Existing Areas, Margin Threats from Cost Controls from Medicare, Govt , InsuranceMedicare, Govt , Insurance
�� Nucleotides (DNA/RNAs) may Substitute BioNucleotides (DNA/RNAs) may Substitute Bio--TherapeuticsTherapeutics
Future for Genentech Future for Genentech -- ProsPros
�� Unmet Demands for New Indications and Therapies will continue Unmet Demands for New Indications and Therapies will continue to ensure Market and Industry Attractivenessto ensure Market and Industry Attractiveness
�� Positive Paradigm Shift to Positive Paradigm Shift to Curative Solutions for Severe Curative Solutions for Severe ConditionsConditions that People are Willing to Pay (Blue Ocean) vs. only that People are Willing to Pay (Blue Ocean) vs. only alleviating conditions with threat of regressionalleviating conditions with threat of regression
�� Strong R&D with Over 100 New Products in Pipeline, mostly in Strong R&D with Over 100 New Products in Pipeline, mostly in �� Strong R&D with Over 100 New Products in Pipeline, mostly in Strong R&D with Over 100 New Products in Pipeline, mostly in New or Expanded Areas, will ensure Increasing Market Shares New or Expanded Areas, will ensure Increasing Market Shares and Revenuesand Revenues
�� Expertise in Innovative Biotech Processes & Large Scale Expertise in Innovative Biotech Processes & Large Scale Manufacturing will Generate Low Cost Products with High Profits Manufacturing will Generate Low Cost Products with High Profits & Price Flexibility& Price Flexibility
�� High Barriers to Entry … Strong Technology & Process IPs High Barriers to Entry … Strong Technology & Process IPs w/New & Expanded Extensions, Capital Intensive Mfg will limit w/New & Expanded Extensions, Capital Intensive Mfg will limit Competition to a Few SubstitutesCompetition to a Few Substitutes
Future for Genentech Future for Genentech –– Pros .. Pros .. ContdContd
�� Foundation and Strength in Basic Biotech Research also gives Foundation and Strength in Basic Biotech Research also gives Genentech significant lead in next generation Nucleotides Era.Genentech significant lead in next generation Nucleotides Era.
�� Excellent Financial Position (Cash, Earnings, Valuations, Stock) :Excellent Financial Position (Cash, Earnings, Valuations, Stock) :
�� Invest to Grow Core Competencies Invest to Grow Core Competencies –– Research & Development?Research & Development?�� Explore Further Economies of Scale in Manufacturing?Explore Further Economies of Scale in Manufacturing?�� Explore Further Economies of Scale in Manufacturing?Explore Further Economies of Scale in Manufacturing?�� Share Growth through OutShare Growth through Out--Licensing, InLicensing, In--Licensing, New Diseases?Licensing, New Diseases?�� Expand Biotech Moat Expand Biotech Moat –– Agriculture, Marine, EnvironmentalAgriculture, Marine, Environmental�� Invest in the Future Invest in the Future –– Nucleotides? Theranostics? Disease Management?Nucleotides? Theranostics? Disease Management?
�� Wait for anticipated blockbusters, and buy Roche???Wait for anticipated blockbusters, and buy Roche???
�� Roche One of few w/+ve Outcomes from Mergers: BMC, VentanaRoche One of few w/+ve Outcomes from Mergers: BMC, Ventana
Future for Genentech Future for Genentech -- ConCon
�� End of Pricing Honeymoon Around the CornerEnd of Pricing Honeymoon Around the Corner-- Increasing Cost Control Pressures from Govt and Private PayersIncreasing Cost Control Pressures from Govt and Private Payers
�� The Vultures are Waiting (Generics & The Vultures are Waiting (Generics & EstrangerosEstrangeros))-- Large Pharmas waiting to buy upLarge Pharmas waiting to buy up-- Teva Already a Major Biotech ContenderTeva Already a Major Biotech Contender-- Strong Lobby to Allow BioStrong Lobby to Allow Bio--GenericsGenerics-- Therapies with Oldest IPs at RiskTherapies with Oldest IPs at Risk-- UK, Germany, France, Singapore, South KoreaUK, Germany, France, Singapore, South Korea-- UK, Germany, France, Singapore, South KoreaUK, Germany, France, Singapore, South KoreaGovernment Backed ProgramsGovernment Backed Programs
�� Forced into a Bad Marriage?Forced into a Bad Marriage? (Roche(Roche)…..who benefits?)…..who benefits?-- $$4B Cash Dowry 4B Cash Dowry too tempting for Roche not to cover debtstoo tempting for Roche not to cover debts-- No longer w/family, friends I grew up with….No longer w/family, friends I grew up with….-- Oncology, Core Area, Relocating to Nutley..Oncology, Core Area, Relocating to Nutley..-- Career Path IssuesCareer Path Issues-- MBO vs. Innovative Incentives, OptionsMBO vs. Innovative Incentives, Options-- New Decision Making ProcessNew Decision Making Process