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Dendreon Corporation: Strategies for International Growth

Dendreon Corporation: Strategies for International Growth Amy R. Herl Chadron State College Executive Summary Dendreon Corporation faces tremendous potential with expansion into the Chinese market. The company is positioned for great expansion, just having received it Food and Drug Administration approval for its first drug, Provenge. The drug has wide-spread potential in the Chinese market that promises increasing life expectancy, rapidly growing disposable incomes, improving healthcare infrastructure, and evolving patent protection.

When the possibility of a strategic alliance with the only pharmaceutical company currently based in Asia, Takeda, is considered, the potential for success in the Chinese market is even more promising. The drug market in developing countries, such as China, is growing exponentially when compared to its growth in developed markets and by entering the Chinese market Dendreon will strategically position itself for further penetration of other rapidly growing, under-penetrated international markets.

I hope Dendreon’s senior management will consider the following presentation on why the Chinese market should be a priority in the company’s future expansion. Dendreon Corporation: International Growth Introduction Having just received Food and Drug Administration approval for its first drug, Dendreon faces the promise of great success. Beyond the traditional pharmaceutical markets in the United States and Europe lies the developing world.

The growth in drug demand in these countries is exponentially greater than in developed countries, and if Dendreon carefully selects a well-positioned international market to enter, the sky will be the limit for future success. In the following sections I will present a potential international market, China, and will demonstrate why and how Dendreon can enter this market to ensure long-term growth and success. Company profile Dendreon Corporation is a bio-technology company focused on targeting cancer. The company is headquartered in Seattle, Washington, and has manufacturing facilities in New Jersey.

The company recently received Food and Drug Administration (FDA) approval for its first drug, Provenge, an active cellular immunotherapy (ACI) medication for the treatment of prostate cancer. Active cellular immunotherapy (ACI) uses a patient’s own cells to stimulate an immune response against cancer. The company seeks to develop medications that fight cancer, particularly through the use of antigen identification, engineering, and cell processing to produce active cellular immunotherapy (“Dendreon: about us,” 2010). With the recent FDA approval of Provenge, the company is on the horizon of exponential growth.

Currently, Dendreon is constructing additional production facilities in California and Georgia, and has entered into a marketing authorization application with a German manufacturer to produce Provenge in Europe while the company awaits approval to commence construction of its own production facility in Germany (Taylor, 2011). While these growth strategies may seem bold for just one drug, Dendreon has good reason for expansion in the short-term. Provenge sales were $48 million but are expected to reach $350 to $400 million in 2011.

The company’s New Jersey production facility is expected to reach full capacity by the end of the first quarter of 2011. In addition to the need for increased production capability is the logistical aspect of manufacturing and delivering a drug with limited shelf life. Provenge must be manufactured near the patients that will receive it because it can not be transported over long distances (Feuerstein, 2011). Despite the bright outlook for Provenge in the near term, the company must remain vigilant for new growth opportunities if it hopes to be successful in the long-term.

In order to succeed in the long term, Dendreon must look for additional opportunities for growth and must pursue a more diversified drug portfolio, either through internal research and development or through merger, acquisition, or strategic alliance. In the following sections I will discuss my thoughts for how the company can achieve long-term success by targeting a new international market and by pursuing partnerships with other pharmaceutical companies to ensure that when the Provenge patent expires, the company is positioned for FDA approval of additional patented drugs, as well as continued international presence.

Industry indicators for international expansion While the United States has long been the primary market for prescription drugs, many indicators point toward increasing prescription drug demand in international markets, especially in developing countries. While pharmaceutical sales in developing countries have historically been much lower than they are in the United States and Europe, in recent years they have been growing at much faster rates than in the developed world. For example, sales in China in 2004 grew 26 percent, followed by Thailand at 16 percent, and Egypt at 15 percent (Davidson, & Greblov, 2005).

In 2006, emerging markets continued to present this trend, growing at 81 percent over the previous year. As demonstrated in figure 1, the global pharmaceutical market is forecasted to grow to $929 billion in 2012, representing an equivalent compound annual growth rate of 5. 5 percent over each of the five years preceding 2012 (“Indian pharmaceutical industry,”). Figure 1: Growth of global pharmaceutical market from 2007-2012. [pic] Dendreon’s international growth strategy. Opportunities exist in many international markets, but Dendreon must realize its size and capabilities and focus its efforts in one area regarding international expansion.

As previously indicated, growth in developing markets is significant, but Dendreon must be strategic in selecting emerging markets to enter. The company is young, and with only one FDA-approved drug to market, the company will have to focus on one international market for expansion. I propose that Dendreon focus its international growth strategy on China, with the help of a strategic alliance in Asia. Why China? China recently surpassed Japan as the world’s second largest economy, and its economic growth is impacting the country’s 1. 3 billion citizens. In 2010 China experienced 10. percent economic growth, resulting in growth rates in the nation’s rural and urban incomes that have not been seen in over a quarter century. Rural incomes grew 10. 9 percent in 2010 while urban incomes grew at 7. 8 percent (Bloomberg News, 2011). Figure 2 shows China’s real gross domestic product (GDP) growth from 2000-2009. Figure 2 shows China’s GDP growth rate from 2000 to 2009. [pic]Table Source: http://www. indexmundi. com/g/g. aspx? c=ch&v=66 To put China’s real GDP growth rate in perspective, compare it to the real growth of GDP in the U. S. over the same period. Figure 3 demonstrates that the growth of U.

S GDP has been far less impressive than China’s and further supports China’s potential as an exciting new market. Figure 3 shows the United State’s GDP growth from 2000 to 2009. [pic]Table source: http://www. indexmundi. com/g/g. aspx? v=66&c=us&l=en Growth in income throughout China in 2010 resulted in growth in nearly every economic sector. Auto and retail sales experienced strong gains, growing 32 percent and 19 percent, respectively. China’s economy has been growing at a stunning pace for nearly 30 years, and this growth has resulted in lifting millions of citizens out of poverty.

Despite the economic gains, China’s economic growth and rising disposable incomes have not had a positive correlation with life expectancy; in fact, growth of Chinese life expectancy was the lowest in the developing world between 1990 and 2008. Improved healthcare has stagnated and cancer is now the leading cause of death in China. While life expectancy might not be rising as fast as in other developing countries, China’s population is aging; more than 200 million Chinese will be over 65 by 2020. Figure 4 shows life expectancy growth in China from 2000 to 2009.

The country’s leading cause of death, aging population, and rising life expectancy indicate that the demand for health care will continue to increase. Also, as the middle class booms, unhealthy western-style diets become more popular and this leads to more diseases like diabetes (Lichtenfeld, 2011). Figure 4 shows growing life expectancy for Chinese residents. [pic] Table Source: http://www. indexmundi. com/g/g. aspx? v=30&c=ch&l=en Developing countries like China could see overall drug revenue growth rates in the next year that far exceed those expected in developed markets such as the United States and Europe.

Some estimates are that prescription drug revenue growth rates in China could reach 15 percent, compared to one percent and three percent in the U. S. and Europe, respectively (Lichtenfeld, 2011). Figure 5 shows the estimated drug revenue growth rates for the U. S. , Europe, and China. [pic] Dendreon’s focus on the treatment of cancer, the size of the Chinese population, and the growth of a middle class, presents potential for Dendreon to successfully penetrate the Chinese healthcare market.

The company will certainly face challenges in bringing Provenge and other cancer drugs to market in China given the country’s historically lacking healthcare infrastructure; however, that too is improving. In early 2009 the Chinese government began expanding health insurance coverage with a goal of making it universal by 2020. Early signs indicate that the new approach is helping; CIA data suggests that in the two years since the program’s implementation, life expectancy has risen (Leonhardt, 2010). Overcoming legal challenges.

One of the most challenging aspects of international expansion for any company, especially one that relies on the protection of its intellectual property through the use of patents, are the legal aspects involved. With its prior experience in obtaining European Union (EU) approval for Provenge, Dendreon has established key competencies that will help it legally expand into China. Despite Dendreon’s previous experience expanding into the European market, one of the greatest challenges for new international expansion is the protection of intellectual property rights in new markets.

Fortunately, the Chinese government is taking action to improve intellectual property protections, and this action makes expansion into the Chinese market less risky for Dendreon. According to the 2010 “Pharmaceutical Industry Profile” published by the Pharmaceutical Research and Manufacturers of America (PhRMA), the Chinese government has earmarked $9. 2 billion for new technology related to drug innovation, and has shown new commitment to promotion of drug innovation in China. The bio-technology sector was identified as one of five sectors as key to China’s economic growth by the Chinese government.

The Chinese government’s increased commitment to the protection of intellectual property rights, especially related to pharmaceutical research and development, has been further demonstrated by the following actions: ? Patent laws amended to include pharmaceutical substance patents (1993- prior to 1993, patent protection was only available for pharmaceutical processes) ? Patents for invention were extended from 15 years to 20 years (1993) ? China joined the Patent Cooperation Treaty, which allows for multi-jurisdictional filing (1993). ? Chinese patent law adopted data exclusivity for a 6-year term (2002) Added provisions for patent linkage (2002). Despite positive gains in patent protection, Chinese patent protection is not fully transparent. Companies wishing to use a patented process or re-create a patented substance must file a patent search prior to commencing action; however, if a generic company commences production, and the patent holder files suit against the generic company, the original holder can not access the patent search records to ensure that a proper patent search was carried out prior to the generic company taking action.

This lack of transparency can result in the Chinese government issuing grants for manufacture and marketing approvals to generic companies without the patent-protected company’s knowledge and can lead to difficulties for the patent protected company in bringing suit against a suspected patent infringer (“What is the,”) Dendreon will certainly enjoy less stringent patent protection in the Chinese market, but some positive indicators for improved patent protection and the government’s recent commitment to new technology related to drug innovation are positive indicators that these challenges can be overcome.

Building strategic alliances. Dendreon, as with all pharmaceutical companies faces a great challenge when patent expiration for Provenge, and future drugs, occurs. The company must vigilantly manage the drug pipeline to ensure that as existing patents expire new patents are being acquired. One of the best methods to ensure long-term success in general, and especially in the Chinese market, will be to form strategic alliances.

Strategic alliances with other drug companies offer many advantages, and if they are built with companies that have already successfully penetrated the Chinese market, will further enhance the company’s chances for international success. One viable option for strategic alliance in the Chinese Market is Takeda, a successful Japanese pharmaceutical firm. Takeda is a company with experience in the Asian market and is currently the only major pharmaceutical company with headquarters in Asia.

Takeda could offer important insight into how to successfully penetrate Asian markets like China. Additionally, since Takeda is located in near-by Japan it is possible that in the early stages of Chinese market penetration, Dendreon could enter into a marketing authorization application (MAA) with Takeda acting as a contract manufacturing organization (CMO). An MAA allows a drug company to outsource international production of its drugs to a CMO, an existing pharmaceutical company with appropriate production facilities located in the geographic area of production.

Since Provenge has a short-shelf life, Dendreon has already created an MAA with a CMO in Germany until construction of its own European production facilities is complete (Peaple, 2010). This sort of arrangement with Takeda would allow Dendreon to enter the Chinese market more quickly and cautiously, with less initial capital investment, than if the company attempts to construct its own production facilities. In addition to the advantages of early penetration and market familiarity that will be gained by a potential strategic alliance with Takeda, Dendreon will achieve other benefits that can not be achieved on a stand-alone basis.

In recent years the pharmaceutical industry has undergone a period of significant transformation. The majority of major industry players have experienced high returns and thus have been flush with excess cash. Often these companies have sought rapid growth, and in many cases this has occurred through mergers and acquisitions, joint ventures, and strategic alliances. While Dendreon is not seeking to be merged with or acquired by another company, it should be aware of the benefits that can occur from joint ventures or strategic alliances with firms such as Takeda.

These relationships provide companies with economies of scale in manufacturing, clinical trials, and marketing. Such economies of scale can free up cash for investments in research and development of future drugs, making them more stable in the long-term. Drug portfolio management is one of the most important determinants of long-term prosperity of research-oriented pharmaceutical companies, and by forming strategic alliances in new markets, Dendreon can increase its ability to develop new drugs and maintain long-term success (Davidson, & Greblov, 2005).

Perhaps one of the most significant advantages to building a strategic alliance with Takeda is the knowledge and synergy that will be achieved by building a relationship with a company that has already succeeded in the new market. Takeda is uniquely positioned in the Asian market and if Dendreon can achieve a strategic alliance with Takeda they will be able to capitalize on this rare expertise and gain a unique advantage in the Chinese market. Summary Dendreon is well-positioned for global expansion into China for several reasons.

The company has already successfully entered international markets with its recent expansion into Europe. The company has successfully accomplished several steps toward penetration of western European markets, and will be able to employ this expertise in international expansion in other global markets as well. The Chinese market is primed for the entrance of a pharmaceutical company like Dendreon, with its increasing disposable income, improving healthcare infrastructure and patent protection, and growth of life expectancies, and therefore, health problems.

If Dendreon expands into the Chinese market through a strategic alliance with Takeda the company will gain a competitive advantage over other new market entrants and will realize the potential for further international expansion into other rapidly growing markets. With the expansion strategy presented, Dendreon can expect to be a leader in penetrating the Chinese pharmaceutical market and securing a profitable future abroad. References Bloomberg News, Initials. (2011, January 20). China rural incomes rising most since ’84 show lure for job-seeking obama.

Bloomberg, Retrieved from http://www. bloomberg. com/news/2011-01-20/china-rural-incomes-rising-most-since-84-show-lure-for-job-seeking-obama. html Davidson, L, & Greblov, G. (2005). The pharmaceutical industry in the global economy. 1-34. Dendreon: About us. (2010). Retrieved from http://www. dendreon. com/about/ Feuerstein, A. (2011, January 7). Dendreon bringing provenge to europe. The Street, Retrieved from http://www. thestreet. com/story/10966401/dendreon-bringing-provenge-to-europe. html# Indian pharmaceutical industry. (n. d. ). Retrieved from http://www. scribd. om/doc/20542686/Pharmaceutical-Industry-Profile Leonhardt, D. (2010, November 23). Life expectancy in china rising slowly, despite economic surge. New York Times, Retrieved from http://www. nytimes. com/2010/11/24/business/global/24leonhardt. html? _r=1 Lichtenfeld, M. (2011, January 27). The emerging market healthcare trend that nobody is talking about . Investment U, Retrieved from http://seekingalpha. com/article/249076-the-emerging-market-healthcare-trend-that-nobody-is-talking-about? source=yahoo Peaple, A. (2010, August 11). Et shades of gray in china’s income levels .

The Wall Street Journal , Retrieved from http://online. wsj. com/article/SB10001424052748704901104575422841352859712. html PHARMA (2010). Pharmaceutical industry profile. Retrieved from http://www. phrma. org/sites/default/files/159/profile_2010_final. pdf Taylor, N. (2011, January 11). Dendreon building germany plant to support eu entry. In-Pharma Technologist. com, Retrieved from http://www. in-pharmatechnologist. com/Materials-Formulation/Dendreon-building-Germany-plant-to-support-EU-entry What is the patent linkage in pharmaceuticals. (n. d. ). Lehman, Lee, & Xu,