Fin 463 - Genzyme and Relational Investors: Science and Business Collide

Jiayang Jiang

Prof. Wrolstad

Fin 463

30th January 2016

Case 5, Genzyme and Relational Investors: Science and Business Collide

Genzyme Corporation is an American biotechnology company, it is based in Cambridge, Massachusetts. The company was started by Sheridan Snyder and George M. Whitesides in 1981. It is the world’s third-largest biotechnology company, there ae more than 11,000 employees, it has a presence in around 65 countries, it includes 17 manufacturing facilities and 9 genetic-testing laboratories. Genzyme Company products are sold in 90 countries. Genzyme generated $4.2 billion in revenues with more than 28 products in the market in 2008. Net income is 421 million in 2008. In the February, 2011, Genzyme was taken over by Sanofi Aventis with $74 per share, the amount of $20.1 billion. This is the world’s second largest mergers and acquisitions in the history of biological industry. The main goal was to create targeted drugs to completely cure these diseases, despite the statistically small populations that were afflicted. The goal of Termeer’s diversification strategy was to “create solutions for curing more common diseases and to broaden the groups of patients who benefited.” (p.80).

The cost of R&D is very high, and the process is lengthy, so Genzyme needs to get new products to market. The new products should pass the FDA clinical testing. The problem comes next.

1. There are only about 5% to 10% of drugs that reached the testing stage ultimately received approval for marketing.

2. A low level of final approvals, new products took more than eight years to get through the clinical development and regulatory process.

3. Research and development of new products and pass the FDA test need a lot of money, the cost of test is extremely high.

The second issue, Genzyme had to create significant shareholder value. Large cash flows into lower return investments, it will cause the share price to decline.

In my opinion, to solve this two issues, The CEO of Termeer need to try to decrease to low return investment, thus reducing the cash flow. He can use these money to support the development of new products, increase FDA adoption rate. If Termeer distribute the newly found cash flow as part of a share repurchase program, he need lots of money to repurchase, it will increase the company’s debt, it is not wise.

Discussion Question:

1. Is this possible before the product pass clinical test, other company already produce the similar medical?
2. How would it affect if company start pay dividend?
3. Which way company could do to have high production?

Supporting analysis:

1. What is the business model for Genzyme? What does Termeer want for his company going forward?

Business model: Fulfill needs of a global market. Sustainable price. Therapy must be effective and must address an unmet medical need.

Termeer’s goal: To create targeted drugs to completely cure these diseases, despite the statistically small populations that were afflicted.

The goal of Termeer’s diversification strategy was to create solutions for curing more common diseases and to broaden the groups of patients who benefited.

1. What is the business model for Relational Investors?

High rate of return and dividend or Incentive cost on returns.