Product Portfolio Management at Genentech Case Solution

1. What were the strategic drivers of the portfolio prioritization effort?

The case mentions several key drivers at the heart of the need for the portfolio prioritization effort, including but not limited to rising drug developmental costs, decreasing industry growth and additional cost influences for Genentech. Examining the industry's history, we see that, as with multiple industries, inflation has a key role in influencing input prices and development costs. In an industry such as pharmaceutical, there is a great emphasis on research and development of innovative forms of drugs as the focus is on treating novel viruses/diseases. The case cites that the average development cost for a new drug back in 2000 would be roughly $1.3 Billion, with a probability of less than 0.01% of that project being approved and marketed by the company. In the upcoming years, this cost was projected to increase greatly as the requirements for FDA approvals, in terms of clinical trials, volunteer participants and longevity of the evaluation phase, had increased, on top of already increasing input costs. Similarly, the industry was experiencing a slowdown of growth by witnessing the lowest growth rate of 1.3% per annum, since the 1960s, with projected growth for the upcoming years forecasted at roughly the same rates. 

Consumer-first businesses were expected to take the brunt of this slow growth, which further prompted the current portfolio to be prioritized, keeping in view the changing strategic context of the industry and the world. Furthermore, there were very real and serious cost pressures that could potentially hamper the bottom line for Genentech. Post Genentech's merger and strategic alignment with Roche, there were two distinct cultures and strategic positioning at odds with one another. Roche was a mass producer focusing on the larger market segments for consumer healthcare, whereas Genentech had been able to carve out a niche by focusing on intensive drug development for particular diseases that introduced a pull model for its drug developments. Oncology physicians would refer cancer patients to the required drugs, whereas the mass consumer business would dictate the need for large sales forces that would push the product with physicians recommending those franchises of medicine. Hence, this would entail different cost structures at play because of the different market segments being catered to. The strategic alignment of both companies had quite obviously pushed up costs. At the same time, the merger was expected to realize synergies of $750-850 million, which the stakeholders wished to see. This was impossible without a strategic realignment of Genentech's current product portfolio. 

2. What were the objectives of the prioritization process?

The project's primary objective was to align funding in a responsible way that reorients the company's product portfolio with the long-term strategic objectives of Genentech and Roche while reaching the most patients and physicians who would benefit from their products. The whole notion behind prioritizing the portfolio was to mitigate the negative effects of the current catalysts that had instated the need to prioritize the projects. The company was to be sure of the projects it wanted to continue investing in in the future, the products it considered marketable, and the correct execution plan for achieving sustainable growth while maintaining innovation in research and product development. The pressure to curtail the rise in development costs and overcome the slow industry growth and rise of additional costs could not come at the expense of productivity and product development. If so, it would mean that both companies would be failing in their objective of being industry leaders and, in the current context, surviving in the long term. 

The broader context of the industry had similarly dictated that in light of current economic challenges, simply cutting down on costs would not do, as it would come at the expense of the company's growth and survival, predicated on its pipeline of upcoming projects. As has been constantly reiterated during the case, Genentech's lifeblood is inherently research and development, which allows it to develop niche products that address different segments of the market that aren't otherwise considered. If the prioritizing process is not undertaken, it will become impossible to achieve all these objectives as there are inherent limitations to them in terms of funding and ability. Moreover, another key objective was the farm out the concerned "franchises" that would be the most suitable to achieve these strategic measures in execution, including determining which clinical categories they had to develop and protect and which to side-line. Hence, these objectives of effectively attributing the required funding, ascertaining which projects to pursue, and understanding the spending required to maintain the current revenues all of these are direct objectives of the prioritization efforts. At the same time, these objectives reinforce the main objective of increasing profitability and retaining growth in the long term.

3. What were the principles of the process?

Hanna realized that the reprioritization process could not be successful unless certain principles were enacted to ensure that the plan's execution did not face hindrances. The key principles outlined for this purpose included being objective, analysing with consistency, retaining a data-driven approach and ensuring effective communication and transparency.

From the very inception of Genentech, management had been enlisting the help of franchise heads to oversee and present the case for their projects and brands. Franchise heads had been associated with their respective clinical categories for multiple years, and hence the concept of remaining objective had eroded somewhat as their emotions would possibly be intertwined with the success and continuation of their own projects as opposed to those that made the most strategic and financial sense for Genentech. This is why Hanna wished to adhere to objectivity by ensuring that the presentation to senior management would be given and overlooked by financial analysts who were looking at an array of projects. Similarly, in order to ensure consistency, key metrics were ascertained that could possibly reduce the issue of portfolio selection to simpler terms that could be implemented across the board.