Genentech Case Suggestion

The problem before David Ebersman, VP of product operations at Genentech, is fairly basic. The demand for the company’s drugs is expected to grow substantially over the next decade, and current production capacity is unable to keep up with that projected demand. The VP is, therefore, considering the details on building a new plant for cell culture production. There is a lot of uncertainty on the success of clinical trials for new applications of Avastin, Genentech’s potential blockbuster drug, and Ebersman needs to make a decision fairly soon. 1. After going through all the various scenarios for Genentech, the best recommendation for Ebersman in Our mind is to wait another year before committing to the new expansion. There are simply far too many unknown variables to make a good projection of future demand for the next decade based on the information available in November of 2014. The success of clinical trials for either lung or breast cancer indications will greatly impact the demand for Avastin.

If both of them fail, then current production facilities would be enough for expected demand. However, if both or one of them succeed, it would then be imperative for the company to build new production capacity as soon as possible. The scientists in charge of process improvement also stated that they were confident of significant progress if they were given another year to test. If they could improve the process for a 10% gain in efficiency, then it could potentially eliminate the need for building a new facility. The worst scenario in this case is the scientists are not able to improve production efficiency, and new data implies that both of the indications for lung and breast cancer will be approved. In that possibility, the company can then decide to build a new plan in late 2005 or early 2006, and have it online by 2011. The expected demand is not projected to rise above capacity until 2015, so they still should be able to catch up. 2. The second recommendation we would make is to keep the production facility inside the United States, preferably inside California.

Since Genentech is concerned about building a third expansion in Vacaville, thus leaving their eggs in one basket, perhaps they can build the facility in South San Francisco, next to their original production facility. The primary reason for this recommendation is the need for the FDA to certify the production plant. Biological production facilities need to be kept meticulously clean, and there are very exacting standards that the FDA applies to these plants for certification. Genentech’s production process is also very labor intensive, requiring a high number of specially trained personnel – mostly scientists. These plants also require specialized maintenance – as in parts that very few companies in the world are capable of producing.

It is very difficult to have access to both these two resources in sufficient quantities for the FDA to sign off on a new plant outside the USA. If they build the plant in South San Francisco, then Genentech can draw on the expertise of management at the SSF site. The new facility would also not expand the company workforce to the point where employees no longer feel they are part of the core team. Another benefit of the location is that Vacaville is only about an hour and half away by car, so management and repair crews can be on site fairly quickly if something should happen. Our two recommendations for Genentech in this case are to wait another year until deciding whether to build a new plant, and to build it in South San Francisco if the company needs to construct the facility.