Wednesday, April 24, 2013

Genzyme - The company exclusively for Orphan Drugs

Genzyme is a company based in Boston, is part of a larger pharmaceutical company Sanofi-Aventis. The growth of Genzyme is very unique compared to the tradition growth of pharmaceutical companies and was a result of focused strategies and targeting niche patient populations. The Orphan Disease Act  (ODA) was passed on 1983 and gave regulatory advantages for the development of orphan drugs. Orphan disease are disease that affect less the 200,000 people in USA. Unlike cancer or diabetes, these types of diseases happen rarely and there is a lack of therapeutics focused for these diseases. Genzyme pursued the orphan disease market and developed speciality therapeutics for their customers.  Genzyme currently makes $3.8 billion in revenue with over 25 products in the market.

Genzyme was established in 1981 and took advantage of ODA by focusing their business model around orphan drug therapies. This regulatory policy gave the differentiating factor for Genzyme from the other players in the industry because it was the first company to have many focused markets with a product for each segment. The traditional pharma business model is to target large patient populations, so Genzyme's strategy to focus on niche disease populations was very different. Due to the small patient population gathering patients for clinical trials therefore the FDA allowed trials of smaller sample sizes to be used for the drug approval. The ODA puts the orphan drug on a fast track and provides many incentives such as tax benefits and increased subsidiaries. But, the ODA approved drugs are more closely monitored and can be taken off the market by FDA rapidly. The insurance sector are complied to cover the therapy costs because of the lack of drugs for certain indication or either the drug is first in class. This allowed Genzyme to put premium prices on their therapies and increased their revenue at a rapid rate even with a small customer population and limited number of marketed drugs.

At the time, Genzyme's business model was very revolutionary and as a niche company there were many risks this organization had to face.  Their business strategy targets small fragmented markets and accumulating a profitable customer base was going to be difficult. There are many rare diseases, and the developing a product portfolio that can serve the various market segments was not possible. Taken into consideration the trade-off between profitability and volume, Genzyme had to select their target markets wisely. But with the regulatory advantages of ODA, Genzyme was able to maintain a healthy revenue stream with small pockets of customers. The first drug Genzyme launched is called Ceredase which treated Gaucher's disease. Gaucher's disease happens in at rate of one in 100,000 people, but affects a specific population of Jewish people at a rate of 5%. Developing Ceredase increased the barrier of entry for the Gaucher's disease market because this product was the first in class and locked down the insurance coverage too. It would be unprofitable for a new drug to enter this market because  with Genzyme as the market leader, there will be a lack of demand since most of the patient are Ceredase users and it is not the worth the cost to develop and market. This hybrid strategy of Genzyme gave them product and market differentiation with high entry barriers. Though this strategy limits the total market share of Genzyme, it allows them to be the market leaders in each of their targeted segment.

Genzyme invested heavily in platform technologies, which aided them to develop a strong product portfolio for orphan diseases. Platform technologies can be used to develop different drugs with one technological approach by manipulating the applications. From one platform technology, Genzyme produced different drugs for Gaucher's disease, Pompe's disease and many other indications. Genzyme also expanded their portfolio by acquiring many focused platform-technology based companies. These acquisitions focused on companies that were developing drugs for unaddressed indications and bolstered their market presence in niche markets.

This case demonstrates focused strategy used by Genzyme to conquer the orphan disease markets. As a pioneer in this business tactic, Genzyme has expanded beyond orphan disease and are active in six different markets. The ODA has been develop many orphan drugs and are helping many patients with severe and rare conditions. Genzyme's radical business model has made it one of the major players in different pharmaceutical market and in 2010 was acquired by Sanofi Aventis for $20 billion.

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