Case | HBS Case Collection | May 2007 (Revised September 2008)
by Krishna G. Palepu and Ananth Chepuri
Biocon Limited was facing significant pricing pressure in their cash cow business, that primarily consisted of manufacturing Active Pharmaceutical Ingredients (APIs). To combat this commoditization, Biocon's leadership had chosen an innovation-led strategy. This new strategy consisted of licensing and developing proven molecules from strategic partners to leapfrog competition and create large molecule biologics in India. The company understood that its transition from an API to an innovation-led company focused on new biologics would require patience and a risk-taking mindset. Although there was some commonality in the bioprocessing aspects of both approaches, the regulatory approvals, product development paths, and market-access timelines were dramatically different--almost diametrically opposed. Analyzes Biocon's strategic decisions, as well as the risks and challenges associated with migrating from a manufacturing to an innovation-led enterprise. How would they balance short-term pragmatism versus long-term vision? Do they have the appropriate human resources to scale and innovate? Is their India-centric strategy appropriate, since 86% of their end-market demand is in the U.S., Europe, and Japan? Fortunately, early indications with their innovation-led strategy were showing positive signs and demonstrable results--such as their biogenetic insulin and monoclonal antibody launch in India. Their lead oral insulin project, with a planned $100 million budget, was meeting its milestones and deliverables. Many critical business challenges are detailed in this case. Nevertheless, given their fully integrated business model and significant manufacturing base, the odds are in Biocon's favor to overcome these challenges and lead India's biotechnology revolution.
Keywords: Globalized Firms and Management; Innovation and Management; Leading Change; Growth and Development Strategy; Risk Management; Organizational Change and Adaptation; Biotechnology Industry; India;
Oncologists might be skepticaldue to non availability of phasethree results
Monetary, legal and socialimplications in case of unexpectedbehavior of the drug aretremendous.
Biocon has limited salescapabilities and zero experience inselling and marketing oncologydrugs.
Stiff competition from alreadyexisting Erbitux in the marketlaunch a proprietary drug
Product:Biocon should delay the launch for the 3
phase results as it lends more credibility to theproduct. Meanwhile, they should build their own sales capabilities by launching cancer genericstill phase 3 trials are completed. After completion, BIOMAb should be launched independently.Lower price of and better attributes would help gain market share and make up to some extentfor loss of first mover advantage.Price:Biocon should launch product at $2000 per dose . As can be seen from the calculations below,the product would break even in 3.3 years as against 6.75 years with a price of $1000 per dose.Although it would break even sooner with a price of $2500 per dose, keeping in mind the Indianconsumer, a price of $2000 would seem reasonable (lower than that of its competitor) and wouldalso be safe enough so as not to project a low quality image for the product.
Estimated Capital Investment $25,000,000 $25,000,000 $25,000,000Price /Dose $1,000 $2,000 $2,500Cost of Goods Sold/ Dose $250 $500 $625R&D /Dose $150 $300 $375Marketing Expense $275 $550 $688Profit /Dose $325 $650 $813
Break even doses 76,923 38,462 30,769