Arbena Operations Plan

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Arbena

C Capacity Planning

Antonio Aguiar, Andrew Chappell, Jacqueline Neville, Sara Richardson | April 24, 2012

MGT 279: Operations Strategy

Antonio J. Aguiar, Andrew Chappell, Jacqueline Neville, Sara Richardson

Executive Summary
With Glomogen’s recent success, Arbena needs to reassess its forecasted demand and capacity. Our analysis predicts a mean demand requiring a production capacity of XXL in 2010 and XXXL in 2015. Since these numbers are uncertain, the drugs are high‐margin, and Arbena prefers to err on the side of helping more patients, they should plan capacity to meet a higher percentile of demand. Thus, Arbena will want to meet demand at the 85th percentile, equal to XXXXL in 2010 and XXXXXL in 2015. To achieve this, we recommend that Arbena start xpansion 3 as soon as possible, build it with the yyL tanks, and locate it in Southern California – resulting in YYL of capacity.

Memo
Arbena Strategy
Arbena’s mission is to “be the leading biotechnology company… to discover, develop, manufacture and commercialize biotherapeutics that address significant unmet medical needs.” Arbena strives to be a leader in scientific innovation, excellence and integrity. Arbena dedicates more than 20% of operating revenues to R&D to in order to build sustainable, long‐term growth. Because Arbena is has unique technology, they are less competition‐driven (Porter’s) and more focused on commercializing new products and increasing shareholder value. Arbena’s efforts are focused on managing resources and associated risks/tradeoffs. Each employee shares the values of commitment to patients and passion for scientific innovation. Arbena manages its high standards by carefully selected leaders and collaboration between departments. It is crucial for the company’s future growth that performance is maintained and above all, the patient is kept a top priority.

Demand
Please note: we provided all data in terms of the liters of capacity required using the conversion factor of 5.85 grams of protein per liter of production capacity. Calculation is shown in Exhibit 1.
Demand Forecast
In order to determine Arbena’s capacity needs, we forecasted the demand for all products. The model was built from analyst predictions, resulting in a mean demand requiring a production capacity of XXL in 2010 and XXXL in 2015. This is depicted in Exhibit 2 with calculations in
Exhibit 3.
Uncertainty
The forecast is sensitive to several sources of uncertainty:

 First, competition from other angiogenesis‐inhibiting drugs could severely affect demand for Glomogen (which makes up a large percentage of the demand). Other drugs may also experience demand different than forecasted due to competition or going off patent.

 Second, the analyst predictions depend greatly upon the dosage amount, treatment length, cancer rates and penetration rate. Even small changes to these assumptions can result in vastly different numbers. Pending Glomogen approval for its next stage, the plant will be able to handle up to 25% extra demand. See Exhibit 10 for sensitivity analysis results at ±10‐25%.

MGT 279: Operations Strategy

Antonio J. Aguiar, Andrew Chappell, Jacqueline Neville, Sara Richardson

 Third, the demand depends greatly upon which indications (different cancers and treatment stages) the drugs are approved for. In this sense, some of the demand is binomial (either you have demand because it was approved or you don’t) in addition the ranges described above. Dealing with Uncertainty
One way to deal with the uncertainty of is to look at the probabilities of having different demands, and choosing to have enough capacity to fulfill 85% of those possible demands. This idea is depicted in Exhibit 4 with a mean demand of XXXL and standard deviation of YYYL for 2015
(one standard deviation equals 25% of demand). Thus, assuming a normal
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