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1


GENENTECH:


Industry Analysis and Corporate Strategic
Review



By

Jason Davidson

Bryon Gaskin

Li Chen

Erika Quarles

Andrew Tyler



For


Dr. Naffziger


MBA691


Ball State University


Summer 2004


2

Table of Contents



Introduction………………………………………………………………………………..
3

Company Background

................................
................................
................................

3


Industry Analysis………………………………………………………………………….
3

Macroenvironmental Factors

................................
................................
......................

3

Demographic Environmental Factors

................................
................................
.........

3

Pol
itical Environmental Factors

................................
................................
..................

4

Social and Cultural Environmental Factors

................................
................................

4

Technological Developments Factors

................................
................................
.........

5

Global Environmental Factors

................................
................................
....................

5

Competitive Environment

................................
................................
...........................

5

Considerations Relating to New En
trants

................................
................................
...

6

Considerations Relating to Buyer Power

................................
................................
....

6

Considerations Relating to Supplier Power

................................
................................

7

Considerations Relating to Competitor Rivalry

................................
..........................

8

Considerations Relating to Substitutes

................................
................................
.......

9


Corporate Strategi
c Review
……………………………………………………………….
9

Mission Statement

................................
................................
................................
.......

9

Contemporary Strategies

................................
................................
.............................

9

Evaluating Current Performance

................................
................................
...............

11

Internal Analysis

................................
................................
................................
.......

11

Structure

................................
................................
................................
....................

11

Resources

................................
................................
................................
..................

11

Culture
................................
................................
................................
.......................

12

SWOT Analysis

................................
................................
................................
........

13

Strategy Option Deve
lopment
................................
................................
...................

18

Evaluation of Options and Results

................................
................................
............

19

Strategic Grouping

................................
................................
................................
....

19

Capability Drivers

................................
................................
................................
.....

19

Competitive Advantage

................................
................................
............................

20

Strategic Alliances

................................
................................
................................
....

20

Vertical Integration

................................
................................
................................
...

21


Works Cited
……………………………………………………………………………...
22

3

Introduction


Company Background

Genentech, the first United States biotechnology company,
was founded in 1976 by a
venture capitalist named Robert A. Swanson and a biochemist named Dr. Herbert W. Boyer.
Boyer and a geneticist, Stanley Cohen, led the way in the development of a new scientific field
in the early 1970s called recombinant DNA tech
nology. Swanson, sensing promise in this new
technology, put in a phone call to Boyer and the two arranged a meeting. Through Swanson’s
belief in the commercial viability of the technology, he convinced Boyer to buy into the idea, and
thus the birth of Gen
entech.

Industry Analysis


Macroenvironmental Factors:


Demographic Environmental Factors

The average life span of a human being has increased dramatically in the past century due
to developments in pharmaceuticals, surgical techniques, vaccines, and ele
ctronic medical
monitoring devices. In 1900, one could expect to live to be 50 years old, but that number has
grown to 75 today. This change has brought about a significant shift in the demographic picture
in America. As people are living longer, the po
pulation of older individuals is reaching levels
never seen before. Generally those who are older demand a higher level of medical care than
those who are younger. The effect of the aging population presents the biotechnology industry
with incredible gro
wth potential.

4


Political Environmental Factors

The biotechnology industry is perhaps the most highly regulated industry in the country.
Standards set by the Food and Drug Administration (FDA) regulates nearly all facets of the
business from research to p
roduction to marketing. In the research and approval portion alone,
firms must pass through a stringent three
-
phase process before production can begin. It is very
costly for firms when they dedicate resources towards the development of a new product and

the
product fails in one of the three phases. A phase three failure costs the firm enormously more
than a failure in the first phase. Realizing this, firms allocate more resources in the first phase in
an effort to ensure success throughout the remainin
g phases.


Foreign producers of medical products have a difficult time entering the United States
market because of barriers placed by the government and its regulating agencies. Research,
clinical trials, and production of foreign products are not conduc
ted under FDA guidelines.
Therefore these products are not cleared for release in the United States. Canada has made waves
recently in this battle over the increasing prices of American
-
made medical products. The battle
is nearing a peak as Washington in
sists on keeping the highest standards on all products
distributed domestically and Canadian firms suggest they offer essentially the same products at a
lower cost.


Social and Cultural Environmental Factors


The American culture has always been moving
in a direction to improve quality of life.
Recently, this has created lazier, less active people whose diets and inactive lifestyles are poorer
than ever. Some Americans have accepted this new direction and are willing to buy a pill to cure
the results o
f their bad decisions. As sad as this situation is for our country, it provides
substantial revenue for the biotechnology industry.

5


Technological Developments Factors


The latest craze in nearly all emerging technologies, biotechnology included, is
nanot
echnology. Nanotechnology focuses on the molecular level. As a result, it has the
potential to significantly alter the industry. Nanoscience engineers envision microscopic
equipment that could be remotely guided through the body, performing surgical rep
airs with
greater precision than current methods. Nanotechnology could also give rise to products
customized to the consumer’s preference. Because this technology is still in early development
stages, it could be years before these and other benefits are

seen.


Global Environmental Factors

The industry has been experiencing rapid growth overseas, especially in Asia where new
firms are entering the market at a record pace. The impact this has on the industry will be
positive as greater innovations and pro
ducts are created by the ever
-
increasing number of firms.
Profitable technologies will spread from a few firms to the entire industry. The impact this will
have on individual firms can either be positive or negative. The market can only support so
much.

Some firms will be squeezed out or bought out by the giants, while those remaining will
continue to enjoy the revenues in this growing industry.


General Environmental Factors:


Competitive Environment (Porter’s Five Forces Model)


Genentech competes in
a market where the kings are enormous drug companies who pull
in billions upon billions of dollars in annual sales. Their large size has its disadvantages. Large
firms lack agility and the ability to react quickly to changing situations, either in their in
ternal or
external business environments. The next (5) subsections deal with Michael Porter’s Five Forces
Model and how these forces specifically relate to Genentech.

6


Considerations Relating to New Entrants

The biotechnology and drugs industry is a very
competitive industry and is tough for new
companies to enter into. Specifically, there are many barriers to entry in this industry. Capital
requirements are one such barrier because the amount of capital that is needed to effectively
compete in this indu
stry is very high. In order to compete with the established companies in the
industry, it takes a great deal of money to start up a new company and then invest the required
amount of money in research and development that is needed to gain a competitive a
dvantage.
Additionally, other barriers to entry include: economies of scale, product differentiation, and
brand identity.

Companies that are established in the drug industry have become more efficient in the
production of their products over the years an
d can effectively save money by producing mass
quantities of their drugs more efficiently. In order for a new company to enter into this industry
it is essential for them to differentiate their product from their competitors. Differentiation is
difficult

to accomplish in the drug industry because many of the goods are commodities.
Genentech differentiates themselves from their competitors by offering drugs for serious medical
conditions such as cancer and heart attacks (which is discussed in more detail
later). Brand
identity is another important concept in the drug industry. Consumers want to buy medical
products (specifically drugs) from companies with recognizable names. Essentially, people want
to use drugs that are well
-
known and widely accepted b
y the general public.


Considerations Relating to Buyer Power

Generally in the biotechnology and drug industry the bargaining power of buyers is not
very significant, with a few exceptions. When speaking about the buying power of the general
public the fo
llowing is true: consumers are not well educated on how much money and time it
7

takes to develop a useful drug. Consumers do not know what all ingredients are in a specific
drug. Consumers do not know how drugs work together with other drugs. Consumers in
general
do not know enough about drugs to exert any kind of bargaining power in order to lower the
price of drugs. Essentially, the buying power of the general public is virtually non
-
existent and
barely affects the prices of drugs sold today. The main s
ource of bargaining power forced upon
drug suppliers is done by other companies within the healthcare sector who are knowledgeable as
it relates to drugs. These knowledgeable buyers include doctor offices, hospitals, and other
medical facilities. By buyi
ng the drugs in very large quantities, these buyers can effectively
exert their buyer power and drive the price of drugs down.


Considerations Relating to Supplier Power

Suppliers of drugs and other medical products in the biotechnology and drug industry

can
definitely exercise some serious power in the selling of their products to their customers.
Suppliers in this industry can exert their power over the buyers in this industry mainly because
their products are crucial to the buyers. There is always go
ing to be the need to obtain good,
useful drugs to aid in the recovery of an illness. Drugs, other medical products, and
advancements in medical technologies are something that our society will continue to use. Our
society will constantly be looking for
easier ways to fight illnesses we thought were once
unbeatable. Essentially, the demand for drugs will never become obsolete. Supplier power, on
the other hand, is directly related to the prices of its competitors. This subject is discussed more
thoro
ughly in the following section.

8


Considerations Relating to Competitor Rivalry

The biotechnology and drug industry (and the entire healthcare sector) is very
competitive in nature and companies must be continuously looking for ways to better themselves
in
order to keep their competitive advantage. The drugs industry, while it appears to be an
attractive industry because of the ever
-
present demand for drugs, is dominated by intense rivalry
and the latest technologies. It is imperative for companies in the
industry to find a distinctive
competence and master it so that no other competitor in the industry does it as well. This is a
difficult task to accomplish due to the number of large firms (i.e. big pharma) in the industry that
have a great deal of capita
l to invest in R&D and other resources. As mentioned before,
Genentech competes with other big pharma companies by serving a market niche that most of
the companies in the drug industry do not target, and that is severe medical conditions such as
cancer.

By targeting this niche and serving the demands required by the niche, Genentech is able
to keep their competitive advantage in the industry.

Another key idea under the concept of industry competitiveness is the idea of research
and development (R&D) an
d the marketing of new drugs to the general public. The companies
whom stay competitive in the drugs industry (at least as it relates to new drugs) have to spend a
great deal of money in R&D. By doing so, those companies could possibly develop a new drug

that serves an existing or new purpose and effectively serve their consumers in that manner.
Some companies can and do however serve the generic drugs market and are profitable. In order
to be a part of the big pharma companies most likely the company i
n question needs to spend a
significant portion of their sales on R&D.

9


Considerations Relating to Substitutes

There is always the threat of substitutes in this industry and there always will be due to
the competitive nature of the industry. The big pharm
a category consists of more than forty
firms. In addition, there are plenty of other smaller firms in the industry. Therefore it is
imperative for companies in the industry to always be aware of the threat of competitors taking
over their business. It i
s essential for companies to develop their distinctive competencies and
continuously try to improve upon them because competitors in the industry are always trying to
better themselves. The main thing to keep in mind if you are a supplier in the drug indu
stry is
that between the new firms are probably going to keep entering the industry and the existing ones
already competing, it is imperative for a firm to continue to invest in R&D and develop new
technologies so that the firm will be around in the future
.

Corporate Strategic Review


Mission Statement

Genentech’s mission is to be the leading biotechnology company, using human genetic
information to discover, develop, manufacture, and commercialize biotherapeutics that address
significant unmet medical need
s. Genentech commits themselves to high standards of integrity
in contributing to the best interests of patients, the medical profession, their employees and their
communities, and to seeking significant returns to their stockholders, based on the continu
al
pursuit of scientific and operational excellence.

Contemporary Strategies

Genentech was the first biotech company in the United States; therefore it enjoys some of
the “first mover” advantages in the industry. One of the key business strategies that s
et
10

Genentech apart from most other pharmaceutical companies is that it relies more on its research
than its marketing and advertising for success. So far this strategy has worked to Genentech’s
advantage, but the company did give up something in return fo
r this, namely a deal it made with
Roche, which will be discussed later in more detail.

Genentech focuses on developing innovative therapies that aim to respond to the unmet
medical needs of its customers and to have a positive “impact on the world of huma
n health.”
The company is involved in the manufacturing and commercialization of thirteen products in the
United States. These products cover a myriad of medical conditions including strokes, growth
hormone deficiencies, heart attacks, cancer, allergic a
sthma, cystic fibrosis, plaque, and psoriasis.

Genentech follows a targeted niche or focus approach. The company’s management decided to
focus on three therapeutic areas: oncology, endocrinology, and cardiology.

Genentech used to resemble the big pharma
companies in that it made its “daily bread”
by gambling on blockbuster drugs, but this has recently changed. Compared to the standards of
other big pharma companies, Genentech is a relatively small. Though Genentech has a market
cap of almost $2.7 billio
n dollars, which represents a 24% increase from 2000 to 2001, it is still
not in the same ballpark that many of the big pharma companies are in. This is not to say that the
company does not have any billion dollar drugs in its product mix, because it does;

however,
unlike other pharmaceutical companies it does not live or die by the sale of blockbuster drugs.

Genentech puts most of its emphasis in targeting truly novel products, especially in areas
which there is no known viable treatment regiment. Because
Genentech’s drugs in these target
groups have no direct competition, the company can charge a premium price and it does not
require a large sales force to promote it. For example, a year’s regimen of Avastin costs over
$40,000 annually. (Warner)

11


Evaluati
ng Current Performance:


Internal Analysis


Structure

Genentech has developed an internal structure that best fits its niche
-
type strategy.
Recently they set up a series of short
-
term goals called “5X5 goals” that accurately portray the
structure of their

company at this point in time and where they want to be in 2005.



Goal #1

-

25% average annual non
-
GAAP EPS growth: It seems that this goal will not be
difficult to achieve since the average
annual non
-
GAAP EPS growth for 1999 through
2003 was 28%.




Goal #
2

-

25% non
-
GAAP net income as percentage of operating revenues: Currently
non
-
GAAP net income as a percentage of operating revenue is 19.2%.




Goal #3

-

5 new products/indications approved: Since 1999 Xolair Raptiva and Avastin
have been approved.




Goal #4

-

5 significant products in late
-
stage clinical trials: Currently the development
pipeline includes includes over 20 projects.




Goal #5

-

$500 million in new revenues from strategic alliances: Genentech has entered
into more than 40 significant agreements

in end licensing arrangements since 1999.


Resources

Genentech uses many different resources in order to make them competitive in their
industry. As of June 2004 Genentech had 6,226 employees. Genentech was named the “Top
Employer” by
Science Magazine

f
or the second consecutive year in October of 2003, so it is
obviously a good place to work. Genentech employs individuals whom are experts in all of the
following fields: antibody engineering, pathology, assay and automation technology, physiology,
bioinf
ormatics, protein chemistry, immunology, medicinal chemistry, protein engineering,
molecular biology, molecular oncology, and more (Researcher Profiles). Obviously research is
at the core of what Genentech focuses on, which is how they are able to develop

drugs to meet
12

unmet needs. In October of 1992, Genentech opened the Founder’s Research Center as a place
for its employees perform research for the company. Its 275,000 square foot facility houses more
than 600 scientists. In late 2003, the company bega
n adding 500,000 square feet to its existing
facility. Genentech also has the world’s largest biotechnology manufacturing facility, which was
just recently completed in 1999. The manufacturing facility is located in California and has
approximately 420,0
0 square feet of space (Medicine Development at Genentech). Obviously
Genentech invests a great deal of money into their high quality resources, which influences their
culture in a positive manner.


Culture

Genentech’s culture is considered to be open and

creative. Formal procedures and
guidelines are held to a minimum in an effort to give employees a wide
-
ranging latitude in
performing their job functions. This allows employees to have a “jump right in attitude,” to
better apply their knowledge and skill
s in getting the tasks at hand completed. Genentech
emphasizes hard work, collaboration amongst its employees, and the sharing of rewards.
Genentech’s environment is very demanding but can also be very rewarding. Employees are
eligible for employee stock

purchase plans, paid sabbatical programs, and a corporate sponsored
day
-
care center. Science, specifically biology, the science of life, is the passion that drives the
environment at Genentech. This is evident in its highly educated work force; 80% of i
ts
employees have college degrees and 20% have advanced degrees. (Culture)

Indeed the culture at Genentech seems to be at the heart of its success. It has 600
scientists who are encouraged to spend time working on their own research so that they have
freed
om to purse their own ideas. Genentech is fine with the fact that some of their ideas may
not work, but the company knows that some just might. (Warner)

13

SWOT Analysis

Genentech is a leading biotechnology company that discovers, develops, manufactures,
and

commercializes biotherapeutics for significant unmet medical needs. A SWOT Analysis will
help to further understand the company and its strategic management. The following graphic
depicts the SWOT analysis for Genentech:

Strength

Weakness

Performance of

financial ratios


Sufficient capital to fund research and
development.


Strong IPR (intellectual property rights),
especially relatively young patents.


Efficient way to develop and bring drugs to
market.

Uncertain success of development of
biotherapeutic
s


Genentech lacks the ability to market globally.


Cardiovascular and endocrine areas have
surpassed the maturity stage of the product life
cycle

Opportunities

Threats

Industry development


Collaboration Arrangements


Expansion of market


Support of sto
ck market





Fierce Competition


Patent expiration


Difficult and every changing FDA approval
process for biogenetics.


Patent infringement lawsuits against other
companies


Reliance on bovine source raw materials in the
research, development and produc
tion




Strengths:

Genentech’s performance on its’ financial ratios was ideal last year; for example,
operating revenues for 2003 increased 28% to more than $3 billion. Diluted earnings per share
for 2003 increased to $1.06 per share compared to 12 cents
per share for 2002. Net income for
2003 increased to $562.5 million compared to $63.8 million for 2002. Its strong financial
14

position can also be reflected by the approximately $2.9 billion in unrestricted cash and
marketable securities.

Following chart c
ompares the performance of Genentech with that of the NASDAQ and S&P
indices:


(DNA refers to Genentech, IXIC refers to NASDAQ index and GSPC refers to S$P index)


Genentech has a sufficient amount of capital to fund research and development.
Investments

by Genentech’s primary shareholder Roche, enables the company to spend nearly
50% of its revenues on research and development.

Strong IPR (intellectual property rights) is another distinctive advantage of Genentech.
This is partly because the company is
always
willing to pay a premium for its products and
services and
has excelled at transforming scientific discoveries into breakthrough therapies for
patients. Genentech currently holds more than 4,600
relatively young
patents worldwide and has
close to 5,
000 patent applications pending.
It has ten drugs currently marketed and twenty in the
development pipeline.

15

Genentech has relatively lower overhead compared to other companies in its industry. It
spends virtually nothing on “pomp and circumstance,” allow
ing for more money to be put into
activities that add value. Genentech is also much more efficient in developing and introducing
drugs to market. For example, Genentech employs only eight sales people to handle its cystic
fibrosis drug Pulmozyme, which bro
ught in $138 million dollars. Two drugs, Herceptin and
Rituxan, are already extremely successful in the market today. Currently, these drugs are
undergoing clinical testing for additional applications and if the trials are successful, both drugs
have the p
otential to become blockbuster drugs.


Weaknesses:

Although a giant in the biotech industry, Genentech shares the common weakness of
others in this industry, which is uncertainty. The s
uccessful development of biotherapeutics is
dependent on numerous fact
ors, many of which are beyond our control. These factors include
less effective trial results, failure to receive necessary regulatory approvals, high manufacturing
costs and other businesses’ proprietary rights.

Another weakness comes from the relationsh
ip between Genentech and Roche. Roche’s
decisions have strong influence on Genentech’s business operations. For example, Genentech’s
“Royalty and Contract Revenues” is related to whether or not Roche exercises its option to sell
Genentech’s future products

in non
-
U.S. markets. Genentech’s expansion into overseas markets
is also under the control of Roche via an option agreement. If Roche, who now owns 60% of
Genentech, exercises this option it can market Genentech’s products overseas. In exchange for
Roche
’s funding, Genentech gave up what is known as “ex
-
U.S. rights.”

Such influences will be
obvious and may prove to be critical in Genentech’s business when there are po
tential conflicts
of interest between Roche and Genentech.

Cardiovascular and endocrine
areas have surpassed
16

the maturity stage of the product life cycle which in the future may weaken the overall strength
of the company.


Opportunities:

Genentech is one of the leading companies in the industry of biotechnology, which is a
continually develo
ping industry. Along with the recovery of the economic market and
development of the global market, there will be more opportunities in this industry, including
Genentech.

Genentech creates opportunities by collaborative relationships. For example,
Genente
ch
entered into a non
-
exclusive long
-
term manufacturing agreement
i
n December 2003 with Lonza
Biologics, a subsidiary of Lonza Group Ltd. Under this agreement Lonza will manufacture
commercial quantities of Rituxan for Genentech at Lonza’s production faci
lity in Portsmouth,
New Hampshire.

Market expansion is also an opportunity for Genentech. Its drug candidate for treating
allergic asthma and allergic rhinitis (
Xolair
) could help the company enter into a new market: the
primary care market beyond the mark
et of cancer, endocrinology and cardiovascular products.
Finally, Genentech's stock market value has doubled in one year, making

i
ts stock more valuable
than some major pharmaceutical firms, including Wyeth, Schering
-
Plough, and Bristol
-
Myers
Squibb. Such
increases make the company more attractive to investors and will help the
company to raise funds in the future.


Threats:

The biotechnology and pharmaceutical industries can be cut throat businesses. Genentech
faces competition from pharmaceutical companie
s, pharmaceutical divisions of chemical
17

companies, and biotechnology companies of various sizes, many of which have great research
and development and marketing abilities and experiences.

One peril that drug companies in general face is government regulat
ions that limit a
company’s pricing power. An example of such regulation is the recent Supreme Court decision
that allowed the state of Maine to extract discounts from the pharmaceutical industry for the
state’s uninsured residents. Patents are not only
the core of successful pharmaceutical
companies, including Genentech, but also present companies with their biggest threats.
Protecting proprietary rights is difficult and costly.
Patent expiration is the biggest killer of drug
companies today. Genentech
needs to plan for the cost spent on protection cost of and return
from patent, although most of its patents are still young.

Another threat Genentech faces is the risk of regulation. There is the possibility
Genentech cannot obtain or maintain regulatory
approvals for products. The biotechnology
industry is subject to stringent regulation with respect to product safety. The regulations,
especially those from the U.
S. Food and Drug Administration (
FDA
), are
difficult to satisfy.
Additionally, changes and o
r new regulations may occur at any stage during the development or
marketing of a product. Also, the
risk of BSE (bovine spongiform encephalopathy)
contamination in bovine source raw materials may also prevent Genentech from manufacturing
certain products.

Genentech also has to face the threat of patent infringement lawsuits against other
companies (Genentech as plaintiff) and litigation (patent infringement) lawsuits against
Genentech that it might lose. The outcome of, and costs related to these lawsuits

are uncertain,
which may be a potential threat in the future. Finally,
insurance for business, property and its’
18

products; first
-

and third
-
party insurance is increasingly more costly and narrower in scope,
which may be another risk in the future.

Strate
gy Option Development

Basically, Genentech has adopted a focus strategy, which targets a niche market of
serious or life
-
threatening medical conditions, especially cancer.

This strategy can help the
company to achieve competitive advantage in this certain
market niche, which is also quite
stable. Essentially, the company does not need to worry about the shift or decay of the market.


A focus strategy maybe the ideal choice for companies to survive in the biotechnology
industry, in which companies need to h
andle problems like expiring patents, skyrocketing costs
and massive lawsuits.


E
-
Business


Genentech cannot copy the model of the successful e
-
commerce company Amazon.com,
even if they wanted to. Unlike books, biotechnology products are not ideal goods f
or online sale.
However, Genentech can still make use of E
-
Commerce. A B2B model might be a good choice
for Genentech to lower its’ transaction costs. Genentech can also use its website to provide
information about the company and its’ products, advertise

their products, and attract talented,
smart individuals for employment.

Globalization


Genentech’s globalization strategy is in a large degree decided by Roche rather than
itself. However, globalization, if possible, will bring many benefits and opportuni
ties to
Genentech. The company will have easier access to a wider overseas market and be able to
attract talented people in foreign countries to work for them. Considering the issue of intellectual
19

property protection, a completely owned business, whether
for R&D use or production, is the
best choice.

Evaluation of Options and Results

For every strategy taken, there should be some kind of measurement to decide whether it
is successful or not. As for Genentech, the 5x5 goals (mentioned in the
Structure

secti
on) can be
used as short
-
term measurements. They are the goals set by the company itself and are easy to
measure. However, long
-
term evaluations should be based on whether Genentech keeps their
dominant position in the biotechnology industry and the contri
butions the company makes to the
industry.


Strategic Grouping

Capability Drivers

Since Genentech was the first U.S. biotechnology company, it enjoys some of the
benefits of “First
-
Mover” status. In the pharmaceutical business, the name of the game is
pat
ents. Many of Genentech’s patents are considered young by industry standards. In the
pharmaceutical business, this often is a major source of competitive advantage.

To some extent, Genentech also receives the benefit of reputation for the drugs it
produce
s. It is well known in the industry and some of its products are very well respected.
Oftentimes consumers will buy from Genentech simply because they recognize their name.

Genentech also possesses economies of experience as it relates to the types of dr
ugs it
manufactures. This is not to say Genentech has the most experience in the pharmaceutical
industry, but rather in the narrow markets it serves. Clearly, larger pharmaceutical companies
20

like GlaxoSmithKline and Schering
-
Plough have more overall experi
ence in the pharmaceutical
business, but just not in the majority of the areas that Genentech excels in.

Competitive Advantage


Genentech finds its biggest advantages in the revolutionary way it goes about developing
and marketing drugs. Most pharmaceutic
al companies strive to go fishing with a commercial
fishing net, looking for blockbuster drugs like Pfizer’s Lipitor or Merck’s Zocor, both of which
are used in lowering cholesterol and pull in billions of dollars for their respective companies.
Genentech
’s strategy is to go after “targeted therapies,” which are drugs that are geared towards
a smaller subset of patients. The idea behind this approach is that drugs work by fixing known
bugs or glitches in a disease like cancer. These bugs or glitches are
a very narrowly defined
form of disease, thus this approach limits the size of the market. Genentech realizes this and
does what it has to do to be competitive in their industry. Patients with the diseases these drugs
target often experience dramatic ben
efits similar to what doctors observe when they are able to
identify the underlying bacteria causing an infection and administer the correct antibiotic.

Strategic Alliances

Genentech sees how it develops alliances as one of it key strategies for success.

Genentech credits many of its marketed products with collaborations that it has ventured into in
the past. In the pharmaceutical field the product has made it all the way through FDA testing
and is available for purchases. Genentech looks for a good stra
tegic fit, in the collaborations it
enters into; these collaborations need to be based on excellent science.
Some of Genentech’s
major alliances are with Roche, Novartis Opthalmics, Raptiva, XOMA, and Immunex who all fit
the specified profile.
Genentech

sells itself to potential collaborators as a company with a vast
21

amount of resources that include: some of the best research in the world, it is a company that has
flexibility in the type of structures they work in collaboration with, and that it has kept

the
tenaciousness of a small company that continues to grow. The alliance strategy of Genentech
essentially focuses on novel therapeutics that coincide with Genentech’s core strengths at all
stages of research or development.

Genentech also seeks to inve
st in the latest and greatest technologies that augment the
company’s ability to conduct research, development, manufacturing, delivery of drugs, or
diagnostics. (Our)


Vertical Integration

Vertical integration is not an ideal choice for Genentech. First,

Genentech is a company
which puts R&D first and spends 50% of its revenues on it. Conflicts and problems will arise
since there are not enough resources for both R&D and vertical integration. Besides, there are
not many steps in Genentech’s value
-
chain. S
ince Genentech has good relationships with its
suppliers and buyers, vertical integration is not a priority. Currently, Genentech has adopted
policies to minimize raw material supply risks, including the maintenance of greater levels of
raw materials inven
tory and coordination with its’ collaborators to implement raw materials
sourcing strategies.
22

Works Cited


Warner, Sue. “Genentech Builds Blockbuster
-
free Road to Billions.” The Scientists. Vol 18.
Issue 11. Jun 7, 2004.


“We Let our Science Lead Us: 2003
Genentech 2003 Annual Report.” Genentech.com
http://www.gene.com/gene/ir/financials/annual
-
reports/2003/2003annualreport.pdf


“Culture.” Genentech.com Jun 29,
2004.
http://www.gene.com/gene/careers/culture/


“Genentech: Advantaged In the Middle.” Business and Medicine Report. Windhover.com Jan
200. p23


“Medicine Development at Genentech”


http://www.gene.com/gene/about/medicine/index.jsp#research


“Our Alliance Strategy.” Genentech.com Jun 27, 2004.
http://www.gene.c
om/gene/about/collaborations/


“Researcher Profiles”

http://www.gene.com/gene/research/sci
-
profiles/