GENENTECH - Capacity Planning Case Analysis

GENENTECH CAPACITY PLANNING
GMAN 505 FORECASTING AND OPERATIONS MANAGEMENT

AGENDA Introduction and Preliminary Calculations Answers to the 4 Case Questions Final Thoughts Q & A Session and Discussion
Forecasting and Operations Management 08.27.2012

INTRODUCTION
1976 - Robert Swanson and Dr. Herbert Boyer founded Genentech 1980 Genentech IPO 1982 - First recombinant DNA drug marketed: human insulin (licensed to Eli Lilly in 1977) 1985 FDA approved growth hormone for children 1990 Roche Holding Ltd. Invested $2.1 billion in the company 2004 Received FDA approval for 15 new drugs developed through recombinant DNA technology 2004 - Genentech was valued at $52 billion, Roche held approx. 60% of the common stock

INTRODUCTION cont
Genentech Company is facing a lot of problems and difficulties in order to implement and incorporate best technologies for future growth regarding uncertain future of its cancer drugs. The senior vice president of product David Ebersman along with his team is busy outlining the best approach to it.

CENTRAL ISSUE
What measures should Genentech employ or implement in order to increase their production and manufacturing capacity to meet the future anticipated and predicted demands over the next 2 to 3 years for a family of new cancer drugs?

PRELIMINARY CALCULATIONS Part I
kg 9.00 yield 0.65 % non-contamination 0.80 kg/12000 multipler liters 70.20
170.94
9*.65*.80*15(# of batch per year) = 70.20 12000/70.20= 170.94

PRELIMINARY CALCULATIONS Part 2
Location ssf vacaville ccp1 vacaville ccp2 spain outsourced total 2004 561.6 842.4 0 234 2010 561.6 842.4 1170 234 2015 561.6 842.4 1170 234 96000*.00075*x15*.80*.65 = 561.6 kg. 96000/170.94 = 561.6
1638
2808
2808

Case Question 1:
What is your evaluation of Genentechs production capacity requirements given expected demand in 2010 and 2015 for Avastin and Genentechs other products? Does your evaluation change if Genentech wants to cover the 85th percentile level of demand?

CASE QUESTION 1 cont
2010
patients grams kg
lung
27750 249750 249.75
breast
54000 486000 486
kidney
8100 72900 72.9
pancreatic
7200 64800 64.8
other
11500 103500 103.5
total
108550 976950
976.95

2015
patients grams kg
lung
27750 249750 249.75
breast
54000 486000 486
kidney
8100 72900 72.9
pancreatic
7200 64800 64.8
other
22500 202500 202.5
total
119,550 1,075,950
1075.95

Drugs for each condition have a 50% chance of being approved.
Therefore
- 2*2*2*2*2 = 32 combinations - using sum product function, we can calculate the kg for each combination. - Then, use the formula N/32 to get the probability weighted in kg.

expected demand 488.48
expected demand from non-avastin
537.97 537.97 383 920.97
from non-avastin
avastin demand total
488.48
322.00 810.48 kg avastin demand total
2010
2015

Ideal Capacity Needed:
demand (kg)
87.75 300 810.48 920.98 1000 1250 1563
minimum capacity (liters)

15000 51282.05 138542.74 157431.62 170940.17 213675.21 267179.49
capacity ideal capacity cushion

0.5 0.5 0.5 0.5 0.5 0.5 0.5 22500 76923.08 207814.10 236147.44 256410.26 320512.82 400769.23

IDEAL CAPACITY NEEDED:
Demand 2004 (current) Kg 2010 810.5 1,250.00 250 2310.475 Liters 2010 207,814 320,513 64,103 592,429 2015 921.0 1,563.00 400 2883.975
Avastin non-avastin current proteins non-avastin new proteins Total
300 1,000.00 1300 Needed Capacity current (2004) 76,923 256,410 333,333
avastin
2015 236,147
400,769 102,564 739,481
non-avastin current proteins

non-avastin new proteins total

85th percentile of demand - 2010:
1130.65 1161.25 1195.45 1226.05 1234.15 1298.95 808.65 839.25 873.45 904.05 912.15 976.95 0.84375 0.875 0.90625 0.9375 0.96875 1
Demand changes to cover the 85th percentile New demand is 1131 kg and new capacity must be minimum of 193,333 liters.
85th%
1131 kg
193333.33 liters

85th percentile of demand - 2015:
1209.2 1256.45 1321.25 1386.05 1394.15 1458.95 826.2 873.45 938.25 1003.05 1011.15 1075.95 .843 0.875 0.90625 0.9375 0.96875 1
Demand changes to cover the 85th percentile New demand is 1210 kg and new capacity must be minimum of 206,837 liters.
85th%
1210 kg
206837.4 liters

Case Question 2:
Assuming Genentech decides to proceed with CCP3, what size production lines (tank sizes) would you recommend? Why?
GENENTECH CAPACITY PLANNING 25000 liter tank:

Pros Capital investment is not substantially higher than 12000 liter tank. Double capacity to anticipate growth in demand Planning a head Design, construction, testing and FDA filing takes up to 5 years. New technology with appealing cost structure and higher profit margins over the long term. Cons change over lead to downtime - may need to change the protein produced by the factory often/other products may not have as much demand, therefore if one product has already been produced, there may be significant downtime. If you produce everything for avastin (for example), you have all this left over space for other products that's not being produced. Note: it takes 7-14 days fermentation process for 9kg production. Forecasting and Operations Management 08.27.2012

Case Question 3:
What criteria should Ebersman use in selecting a location? Why? Several Criteria
Ebersman should look at the current. Locations and consider the most cost effective means available. What expertise, facilities, cost of workforce the locations are available.

Case Question 3: Expertise Workforce Cost Demand Empower the Employees

Case Question 3: Expertise
Having the knowledge and experience is critical in the field of medical technologies. Developing a product in an established locale such as Vacaville keeps you close to your critical assetsyour knowledge.

Case Question 3: Demand
Infrastructure / facilities: Having a facility capable of the increased production, and or the space to build on the existing work space. Who and where are they buying, being close to consumers reduces transport costs. What kind of international demand is there, and having an overseas location, and the possible effect and or additional business it may bring with international exposure.

Case Question 3 cont
Shall we give the employees a choice?

Questions to ask-- In selecting location, etc., should it be part of company policy to make employee satisfaction a priority.
Perhaps asking employees to take a survey, considering three options 1. build another in Vacaville? 2. build other location in the US 3. or build in a foreign country.
To ask employees: Are you happy? Do we need another plant? Would you be willing to relocate if the plant were located outside of the USA?

Case Question 4:
Should Ebersman move forward with CCP3 now? If not, when?
Two pronged approach in dealing with his capacity planning.

Case Question 4 cont
- have his process development team focus on increasing the yield amounts in their current manufacturing process. However this being an unknown quantity I would still move forward with increasing capacity and build out the Vacaville site CCP3. - it would be a greater risk not to increase capacity at this time. A delay in getting new product to the market would result in a much high loss in revenue then having excess capacity.

Final Thoughts
- They should try to further improve the current process by boosting throughput. - Try to build relationships with other manufacturers and additional companies to meet the Excess demands by negotiating contracts and agreements. - Start searching for economical and strategic locations for building up of new manufacturing plant. Its important to keep looking for space and be ready with a blue print of an additional facility. - Try to stay away from messing up with FDA regulations by avoiding long period revalidation.
- Focus should be laid on fully completing the CCP2 at Vacaville.

Thank you.

Additional Material:
Assumption: 85 percentile demand is assumed to be 1.25 times the expected demand
Production Capacity Gap Analysis Genentech Demand 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Avastin Other Drugs Omnitarg 303 495 50 687 100 879 150 1071 1263 1289 1314 1340 1365 1391 200 250 300 350 400 450 500 1000 1050 1100 1150 1200 1250 1313 1375 1438 1500 1563
Total Expected Demand
1303 1595 1887 2179 2471 2763 2901 3039 3177 3315 3454
85 Percentile Demand 1629 1994 2359 2724 3089 3454 3626 3799 3972 4144 4317 0.85083

Genentech Capacity 2005 SSF CCP1 CCP2 CCP3 Porrino Rituxan Outsource 234 117 234 117 234 117 234 117 234 117 234 234 234 234 234 234 562 842 2006 562 842 2007 562 842 2008 562 842 2009 562 842 1170 2010 562 842 1170 2011 562 842 1170 2012 562 842 1170 2013 562 842 1170 2014 562 842 1170 2015 562 842 1170
Herceptin Outsource
Genentech Cap. Outsource Cap. Total Cap. 1638 117 1755
117
1638 234 1872
117
1638 234 1872
117
1638 234 1872
117
2808 234 3042 2808 0 2808 2808 0 2808 2808 0 2808 2808 0 2808 2808 0 2808 2808 0 2808
Assumption: Two Contract Manufacturers will each have two 10,000 liter tank lines
Genentech Capacity Need
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Excess Capacity Mean Excess Capacity 85%
452
277
-15
-307
571
45
-93
-231
-369
-507
-646
126
-122
-487
-852
-47
-646
-818
-991 -1164 -1336 -1509

GENENTECH - Capacity Planning Case Analysis

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GENENTECH CAPACITY PLANNING

GMAN 505 FORECASTING AND OPERATIONS MANAGEMENT