Hester Pharmaceuticals (B): Securing Supply

Supplements the (A) case. In late 2020, demand for Hester Pharmaceutical’s (Hester’s) breakthrough oncology drug Akrozumab was outstripping the company’s most optimistic projections. In order to increase manufacturing capacity and meet the demand, Hester was considering three options: enlarging its active ingredient manufacturing facility in Germany, building a new one in Boston, or hiring a contract manufacturing organization (CMO) in China to produce the drug. Expanding the facility in Germany was the least expensive option in the short-term. Building in the U.S. would create capacity for the future while ingratiating the company with U.S. policymakers. Taking a “buy, don’t build” approach in China would allow Hester the most flexibility. With the global environment for drug manufacturing shifting rapidly, and only six to seven years of market leadership before a competing drug was due to launch, how should Hester proceed?