Genzyme Corporation is a global biotechnology company dedicated ...


Dec 3, 2012 (5 years and 7 months ago)




During the past century, advances in biology and medicine have led to a number
of trends which we believe will continue

and increase in rate of development

into the
future. Past developments in vacci
nes, pharmaceuticals, surgical techniques, electronic
medical monitoring and life
saving devices, have led to an increase in the average life
expectancy, from approximately 50 years in 1900 to around 75 years today, and

according to Jon Hendrix, emeritus

professor of biology from Ball State

this trend will
continue, with the current average college student looking forward to as much as 90 years
of life.

Another trend, which counters the health
promoting advances listed above, is the
push for less work
, less worry, and more choices in all aspects of existence

care, food, entertainment, and the like. Of especial concern is the trade we make from
healthy foods and active lifestyles to a more indolent, less nutritious one. Add to this the
al concern that crops grown today supply less mineral and nutrient content (due to
increasing overuse of smaller plots of land to produce larger crops for an increasing
population), and we see a countertrend to the movement of our lifespan. High cholester
levels and heart attacks, cancer caused by environmental pollutions and smoking, and
obesity from lack of physical exertion should be causing (and may be) a shortening of our
potential lifespan.

For the health industry, including those who produce bio
technical products, there
are three parallel areas which must continue to receive attention and focus

an increase
in the general quality of life, the prolonging of the average lifespan, and the addition of
products which counter the ill effects of our le
wise lifestyle.

Economic Environment

There are two areas of focus we must examine to determine the economic
viability of continued biomedical progress

the immediate availability of funds for
research and development, and the long
term outlook
for pr
ofitability of companies in the

biotechnology (biotech)

In the short term, the general economy (both domestically and globally) is
recovering from a brief and shallow recession. Since 2000, unemployment domestically
has increased; corporati
ons have ceased or delayed much of their product development to
shore up the bottom line; and local and state governments have struggled to maintain
budgets in the face of tax shortfalls and continued spending demands. Recently, these
trends have begun th
eir slow reversal

investment on Wall Street is on the rise
(especially for technology stocks), the decrease of the interest rate has begun to reverse,
and the unemployment rate (despite a longer
expected lag) is on the decline. Some
h and development (

assistance is available for those in the biotech
field, despite the recent sagging economy, and more is likely available in the near future;
the current Republican administration has shown a propensity for social and other
atypical of their political affiliation.


As with most technological developments, the tissue

industry (like
any biotech field) doesn’t function in a vacuum. Breakthroughs in other areas can have a
considerable effect on how th
is emerging field continues to evolve. For companies in the

business, we foresee at least two other areas of technological
development which may have a profound impact on Genzyme and its competitors

further development of stem cel
l research, and the rapid progress being made in

Genzyme’s research into tissue e

is at least partially reliant on genetic
stem cell research

and cell therapy
. As genetic studies provide more viable methods for
regenerating dam
aged organ, skin, muscular, bone, cartilage and tendon tissu
Genzyme’s ability to provide an alternative to

products which augment and/or
circumvent most surgical repair procedures will undoubtedly increase. Of even more
, and now in the research


would be the projected ability to develop full
organ and tissue replacements from stem cells harvested either directly from the patient
or from embryos cloned from the patient. These replacement organs would make organ
transplant waiting lists o
bsolete, and would eliminate the tissue rejection problems (and
the industry developed to produce anti
rejection drugs).

Of less certainty, but of equal potential impact to this industry, is the concept of
nanobiology. As robotics and electronics develo
pments create smaller and smaller
machines, it has been proposed that microscopic equipment could guided remotely
through the body, performing surgical repairs with greater precision than current methods
allow, and could make traditional surgical methods (
especially open
heart and other
highly invasive procedures) a rarity. Also, with the potential of creating stronger, lighter
materials through molecular
level construction, it may be possible to develop artificial
tissue replacement materials which offer
greater strength and flexibility while occupying
less space, of particular interest to those requiring bone reconstruction.


Typically, most technological developments are seen as international efforts,
either in tandem or throu
gh multi
national competition. However, current efforts in
tissue replacement (either through natural means or by artificial materials) seem to be
predominantly U.S.
driven, with a few exceptions found typically in Western Europe or
Asia (such as the Univ
ersity of Seoul in South Korea). Research is often university
based or through a cooperative between medical/biology departments and hospitals with
either an educational focus or a sufficient R&D budget. Of particular note in this field
are the Universit
y of Wisconsin at Madison, the University of Illinois at Chicago, and
Johns Hopkins University.

The predominance of U.S.
based institutions in this field may be attributable to
the general economic strength of this country’s capitalistic focus in the medi
cal industry

most major medical developments are made here because the extensive developmental
costs can be recovered through profitable marketing. Future overseas production of
tissue replacement products may be possible, much as most other forms of te
development and mass production eventually found their way to Asia, Europe and
Central America.

This is dependent largely on governmental regulations decreasing, and
education and marketing increasing.


biomedical developments have historically found little footing inside
the United States, however, as federal restrictions placed stringent

if not impossible

barriers to entry for foreign medical products. The domestic pharmaceutical industry, for
ple, has long held a strong (and very lucrative) hold on drug production and sales
here, with virtually no chance for even close neighbor states such as Canada to introduce
new products or compete with comparable ones. Primary reasoning for these restrict
is generally one of public safety

the U.S. Food and Drug Administration (USFDA) and
Congress jointly have established very stringent policies regarding not just the marketing
of consumable medical products, but overseeing their production as well.
Since their
jurisdiction doesn’t permit them to legally mandate foreign entities to follow their
guidelines for research, clinical trials and production, or allow mandatory frequent site
inspections by USFDA personnel, these products often aren’t cleared f
or domestic
release. In addition, many tariffs and importation bans are established for economic

by setting barriers to international trade, domestic firms have a much freer
market in which to develop, and they fight with fervor to maintain the
barriers currently
in place.

Perhaps the strongest deterrent to future developments in the biomedical field

especially for those in the natural tissue replacement arena

is the slew of ethical
concerns this field engenders. Historically (and of lesse
r consequence in this age of rapid
technological development), drastic changes in any field have caused some level of
related concerns, typically driven by a small percentage of the population and
fueled by the hope of litigation income. Some produ
cts, particularly within the
pharmaceutical industry, have been proven to be detrimental to health and are removed
from the marketplace. Others are determined over time to be the victim of
unsubstantiated concerns, such as the ascription of cancer to the
use of portable phones.

Of most concern to those firms seeking profit in tissue replacement is the furor
over stem cell developments. The production of regenerated tissue is reliant upon the use
of undifferentiated stem cells, which are capable of devel
oping into any tissue type.
These stem cells, when reintroduced to the body, can be made to reconstruct damaged
tissue. These stem cells can be obtained through several methods: harvesting directly
from the patient, from the umbilical cord blood at birt
h, from general populace human
embryos, and from aborted embryos cloned from the patient.

Harvesting from the patient appears to be the simplest solution, but
undifferentiated stem cells are extremely difficult

if not impossible

to obtain from a
r post
birth, as virtually all cells by that point have differentiated into the v
types of tissue. Also there is

no ethical concern
given for
the harvesting of umb
blood for its stem cells.


the concern here is one of cost

he procedure


over $2,000 at the time of harvesting, and carries a cost of approximately $100 per year
to store the blood sample in a cell bank. Between these costs and the extreme
unlikelihood that this costly insurance measure will ever be necessary, thi
s method is
typically dismissed by the infant’s parents as illogical.

This leaves the harvesting of undifferentiated stem cells from human embryos.
This requires the production and destruction of post
fertilization, pre
fetus stage human
blastulas. The

debate over whether or not this cluster of cells

at all stages of fetal

should or should not be accorded the same rights and p
rotections as a
womb human

continues to be fought globally, and especially here in the United
States. As of

2000, 1.4 million abortions are performed in the U.S. annually and,
although the number has

during the past decade, this issue creates the hottest
contention of any issue. On the surface, this is simply a disagreement about the stage of
ment when a cluster of cells should be considered

or truly becomes

the rights of the fetus and its family, and the rights of the woman who bears it. Agreed,
the laboratory
based fertilization of eggs (and their extra
womb development) removes
e physical impact on the mother from the equation, but this issue goes deeper than the
surface issue. Each case involving unborn humans is seen by the opposing side as one
which either strengthens or weakens the overall position of their opp
onent. We app
ear to
have gone

beyond the concern for destroying life, beyond the concern for a woman’s
health, beyond the belief (or lack of) in God. Yes, many still take a stand on this issue
based on personal beliefs. But issues of faith cannot be effectively debat
ed through
logical discussion, and the political underpinnings of this issue are too powerful
to permit civil discourse.

Even if stem cell harvesting were

t a seemingly impassibl
e issue, it still leaves a

issues developed from the pro
cess are still subject to rejection by the host. In
order to avoid the risk or rejection, human cloning must be involved, creating an embryo
genetically the same as the donor/future host. At this stage of societal discussion, the
concept of cloning draws

upon images of horror stories and comedy films, all of which
paint cloning as a terrible Pandora’s box not to be opened. Whether or not some form of
cloning is possible (either scientifically or legally/morally) in the future is unknown; that
it’s not a
viable option today goes without saying.



Research into the field of tissue replacement yielded over
120 companies
either directly or indirectly,

compete with Genzyme in this industry
. A few of
competitors are described in brief below.

FibroGen, Inc
, a privately
held company founded in 1994, has developed “the only
commercially viable method known to produce human collagen and human gelatin in
recombinant systems” (developed from ge
netics materials obtained from multiple
species; much of their product is derived from a combination of animal and human
DNA). FibroGen also has research and development programs focusing on treatments
for skin
related maladies such as fibrosis, excessive

scarring, general tissue regeneration,
and fibroproliferative disorders (those which proliferate, or spread, through the body’s
tissues to other areas and systems) including angiogenesis (the development of new blood
vessels in cancerous growth to evolve
a latent tumor into a malignant one) and squamous
cell carcinoma (a form of skin and oral cancer).

LifeCell Corporation

was formed in 1986

Houston, Texas. LifeCell's first
commercialization was as an equipment manufacturing company to deliver the fi
preservation technology to the research community. LifeCell is developing
(artificial) vascular grafts

as an
alternative to

obtained from elsewhere in

the patient
’s body and

blood vessels in coronary bypass procedures.


clinical product, AlloDerm®, was brought to market in 1994
; this product, derived from
donated tissue matter, provides a natural material for grafting without the additional pain
of auto
grafting or the fear of rejection of artificial material

Articular Engineering, LLC

is an Illinois based biotech company focused on the
development of tissue engineered products designed to advance the current treatment
options for articular cartilage
(covering the interior of the knee)
and intervertebral disc

(the discs between spinal vertebra)

Much of the product portfolio is based
upon the patented "
hondrocyte" or "
" technology.

company was established in 1999 by a group of orthopedic surgeons and researchers

with Rush
St. Luke's Medical Center in Chicago.


imed ‘
founder of the biotechnology industry

was founded in

Today, Genentech is
13 protein
based products on the market for serious or
threatening me
dical conditions and 20 projects in the pipeline.
Their primary focus is
in pharmaceutical development (much
the same
as Genzyme), where their past successes







primarily lie

ore recently, they

ve begun to dev
op products in the tissue


Industry Economics


As an industry, biotechnology has enormous financial potential, but carries with it
the extreme burden of high research and development costs,
which are primarily caused
by the restriction
s placed on it by fede
ral product safety mandates. Often, this creates a
company history of multiple financial failures before one major success propels the
company into the black. In the movie “Rounders”, Matt Damon’s character gives advice
to poker players that applies here
: “Win one big hand an hour.” The pharmaceutical
industry is generally a good example of this mindset, with proceeds from one product
playing a major part in its portfolio
. Eli
y, for
, recently reported success
with the newly
released Cialis

that it accounted for ¼ of all corporate intake for March

Specifically, the tissue

field has a less
tried record, so projection of
financial success may be more difficult. True, companies such as Genzyme and Fibrogen
have a proven

track record in other areas of biotechnology, so there i
s an expectation that
they will not

invest too heavily in any area which is

t l
ikely to produce income and will
t pay off well. Regrettably, our analysis of this field does reveal one major stum
block to success

overcoming the ethical objections to genetic manipulation. As stated
above, the opposition to this technology is so deeply rooted in personally held moral
beliefs that a reasoned discourse on the subject is unlikely to yield posit
ive change.
Perhaps the only solution is one our class read in the case articles presented in our study
of genetically modified foods

by producing products which can be seen as wholesome,
and making success stories more personal, the objections may be o
vercome in some of
the public’s minds. Until this point, achieving profitability may be difficult.

R&D Budget

Unlike many other industries, one of the hallmarks of biotechnology is a healthy
internal research and development program.
are oft
en paid

than other firms,

due to the fact


biotech firm

typically funnel a

percentage of
profits back into the new product development process. The industry as a whole sees
nvestment at and average of

or more of income.


not all firms in this area are
committed to t
his level of future investment.

he range of percentages varies from less
than 5% (assumed to be companies which prefer to ride the success of past products with
little worry about further development) to
more than 60% for those firms which commit
to a full R&D pipeline.



Growth Rate

The societal trends discussed earlier lead to a clear picture of where this industry
needs to go

rocedures which lend themselves to a more indolent lifestyle are going to

succeed. Also, procedures with a higher success rate which are less invasive, speed up
recovery time, produce less discomfort, lessen the odds of malpractice claims, and
provide a general value worth the costs (especially if the overall costs are lower f
insurance companies than current options) are apt to do well in the general market. As
most companies in the tissue

field have products which meet many of these
requirements, the opportunity for profits are excellent.

Sources of Capital

As with most technology firms, the biotech company in need of development
funds has two primary sources to approach

public and private sources. Public sources
are almost exclusively federal departments with Congressionally
granted funds (“grants”)
rked for developments in particular areas. The U.S. Food and Drug Administration
and the National Institute of Health are two


of such funding information.

rivate sources are more diverse.

hese include the public issuance of stock
(limited own
ership in a corporation), the selling of bonds (loans with a specified interest
rate and termination date), and
especially for startup and underdeveloped firms

involvement of venture capital
ists. For the newer companie
s who lack technical know
technology parks can meet needs such as
corporate experience and/or a location to
conduct research

and produce the product

Rate of Innovation

According to numerous published

articles, the rate of developmental turn in the

field is s
imilar to that experienced by many other biotech fields
. This

due to the extremely stringent procedures enacted by the U.S. federal government,
taking a product from theory through laboratory testing, various clinical trials,
and federal

approval and (
for those firms ill equipped to take the product to market) selling/leasing to
a manufacturing firm can take between 5 and 15 years. However, these firms do

t wait
for one success before working on
the next generation of products.

ultiple iterations o
a product line can simultaneously be found (much as with major software products) in
various stages of development.

Driving Forces

There are two forces which typically drive technological innovation
arket pull
where the needs and desires of the ma
rket create a vacuum, drawing individuals and
firms into develop
ing products to meet the demand.


technology push
, where
new innovations are

t meeting any current demand, and must be accompanied by
efforts to educate the market before the demand

for the product can be realized.

Products created by the biotech industry are, by and large, in response to market
pull forces. Products to cure cancer, counteract toxins, and replace damaged tissue are all
needs which the biotech industry has rushed i
n to fill. Like other market pull products,
the marketing efforts to promote tissue

products w
t require instruction
on how

the product can change society.

hey will simply need to show how their
product improves on the current process o
r eliminates the need for more costly, painful or
less effective procedures.

Competitive Forces

Threat of New Entry

The tissue engineering industry is still in its relative infancy, and competing
products are in existence

but still very much individua
l in nature and still in a continual
state of development and improvement.
Challenges include:
atents in the biotech
field being

extremely guarded,
2) difficulty in
obtaining capital,
cation and the
learning curve being
costly and time
g, and
regulations in the field can
strangle newcomers. Although the number of firms producing related products is many,
the range of product types and uses are extremely varied, and newcomers have too many
barriers to make entry into the field a frequ
ent (or even likely) event.

Power of Buyers

The three primary buyers for products in this industry are research firms/groups,
physicians, and insurance companies (who must approve the use of new technologies
which replace traditional procedures). Of th
ese three, the latter two are the most
powerful forces.

Surgeons and other physicians must be convinced that the ease of using the
product, the improvement of patient health, and the lessening of malpractice concerns are
all benefits of the product in qu
estion. Once this has been established, these buyers are
the primary determining factor in product demand. Medical insurance companies,
however, control a portion of the buying process, with those products that require
financial approval (those that augm
ent or replace surgical procedures, for example) must
pass the provider’s guidelines for financial value and medical reliability.

Threat of Substitution

This is a concern for pr
oducers of related products. T
issue engineering
consist of
selecting the use of patient’s own tissues,
the use of products
developed from other tissue matter, or
the introduction of artificial tissue, there are at
least three general options to pursue and multiple variations on each of these. Unless a
acturer can make a convincing argument for selecting their product above the
multitude of others, they may get lost in the crowd.

Firm Analysis

Patient Demand

Across the world, millions of injuries occur every year. As a result,

surgeons re
pair and replace tendons, ligaments, cartilage, and joints in order for the
patient to return to a normal life

and active in as many activities as possible before the
injury occurred. Billions of dollars are spent by patients and insurance companies alik
because of injuries that occur at work, sports
related, or as a result of an accident.

technology and medical research have improved over the past decade, cost and recovery
time have decreased. But, there are still numerous complications and thousan
ds of
patients who suffer setbacks and permanent disability due to the nature of the injury.
Current me
dical practices still have

limitations and certain patients do not respond to
these “traditional” orthopedic practices of arthroscopic or surgical repai
r procedures.

However, as biotechnology advances (like it has always done in the past, and will
continue to do in the future), new medical practices
and remedies
have been born.
engineering is one example.


Tissue engineering, broadly def
ined, covers a large fraction of the problems that
medical science encounters. It includes 1) inducing the patient's own body to regenerate
damaged tissue; 2) replacing the patients' cells or organs with living tissue from other
sources, or 3) implanting p
rosthetic devices, such as an artificial heart, which functionally
replace living organs or tissues.

Science and medicine have been studying and
researching tissue engineering and rege
neration for several years.

The Company

Genzyme Corporation
a global biotechnology company dedicated to
making a major positive impact on the lives of people with

has a
long history of successes and accomplishments for treating numerous diseases and
infections, and therapies for specific medic
al conditions

since 1986. GC’s major focus
includes a portfolio of more than 25 products and services is focused on genetic disease,
renal disease, orthopedics, transplant and immune diseases, and includes an industry
leading array of genetic and diagnost
ic products and services. Genzyme emphasizes
innovation with research and development programs in approaching solutions to cancer,
cardiovascular disease, and other areas of unmet medical need. Headquartered in
Cambridge, Massachusetts, GC has more than
5,600 employees around the world serving
patients in more than 80 countries
. G
C was

founded by Henry
Blair and Sherry Snyder in
June, 1981.

GC has captured a significant portion of the orthopedic
by capitalizing
where its competitors have failed to

provide a remedy.


(autologous cultured


chondrocytes), marketed in the United States and Europe by Genzyme Biosurgery,
employs a commercial process to culture a patient's own (autologous) cartilage cells,
known as chondrocytes, for use in the r
epair of symptomatic cartilage defects of the
femoral condyle (medial, lateral, or trochlear) caused by acute or repetitive trauma in
patients who have had an inadequate response to a prior arthroscopic or other surgical
repair procedure.

mplantation is
a tissue engineering method developed by GC for
biological repair of damaged knees.



he procedure starts when a trained orthopedic surgeon provides Genzyme
Biosurgery with a biopsy of healthy knee cartilage, about the size
of a raisin, from the
patient during an arthroscopic procedure. Technicians at the company's FDA licensed cell
processing facility in Cambridge, Mass., use proprietary methods to grow millions of new
cells for that patient.

The cells are then de
livered in a vial to the surgeon who implants them into the
defect in a surgical repair procedure. During surgery, the physician carefully removes
damaged tissue and prepares the defect for the introduction of the cultured cells. A small
piece of the perio
steum, the tissue covering a bone, is taken from the patient's lower leg
and sutured over the defect like a patch to hold the cells in place. The cultured cells are
then implanted under the periosteum in the defect where they can fill the defect with a
able cartilage.

Despite the medical industry not fully embracing this new technology and major
medical universities still behind in educating medical students with this surgical
Carticel® implants will probably eclipse the 10,000 patient mark
by the end
of 2004,
since Genzyme began marketing the product in 1995. There are 136 million
people covered by insurance plans that pay for Carticel® (autologous cultured
chondrocytes) as a matter of policy in the United States.

Similar to pharmaceutical

interaction that causes no positive or negative effect in the patient; certain
surgery or other surgical repair
have turned to GC to repair what traditional
surgeries have failed to provide a solution.

Company Overview

GC has
progressed into a mature stable company
continuing to advance in

with more than 25 marketed products and services

omplex problems demand
complex solutions. Complex solutions demand the proper resources, technology, and
finances to bring

to eventually bring to market these solutions so as to be used b
y those
who most need them. GC’s ability to

turn dollars into more dollars and new products has
proven strong in the past decade.


2003 Annual Report


GC has more than doubled its revenues (reported) in the pa
st four years, from
$635 million in 1999 to a record setting $1.5 billion in 2003. Although GC’s ability to
generate revenue and new products is important, return on investment (ROI) is also
important from an investor perspective. GC has only returned, o
n average, 1
2% over the
past four years. The majority of the company’s profits are being directed

inward toward
product research and development (R&D)

and global expansion

Thus, GC shows a

weakness in
attracting certain investors who deman
d a higher return for their
dollar. For conservative investors

who are looking for consistent low return on their
Genzyme would be a weak option. The company’s ability to give
shareholders a good return on their investment, at least in the p
ast several years, is very
low. In researching several of Genzyme’s competitors, these companies have shown a
greater ROI with a very good chance for this to increase more.

Global Presence

Genzyme Corporation is well
established in the majority of count
ries in the
European Union, Japan, and the Pacific Rim, as well as the metropolis areas of Latin
Successful product introduction as well as intentional marketing and education
has broadened Genzyme’s recommendation and usage among doctors in thes
e countries.
GC has recently expanded its presence globally into the countries of Southeast Asia,
Central and Eastern Europe, and Central America. GC’s largest market (outside the
U.S.) e
ists in France
. This expansion is highly anticipated to impact f
uture sales and
market share of Genzyme in the next 3
5 years on a conservative basis.

executives are positioning the company to be a significant player in immune diseases and
cancer, two medical areas that offer numerous opportunities to help la
rge groups of
patients with serious unmet needs. Capitalizing on these opportunities in the next 2
years, as well as increased market share with several of its current products

Research and Development

's international team of over 400 s
cientists is continually working to identify
new opportunities to meet the health care challenges of the future.

In addition to the
search taking place in its

laboratories, the company also supports vital
research conducted by leading academ
ic and independent medical science centers, and
works collaboratively with its development partners to bring innovative therapies to

Despite showing a poor ROI, GC
Laboratories, located in Massachusetts
has a
established track record of hir
ing employees from excellent academic institutions
and smaller companies from around the world. The well
trained and diverse staff as well
as the diversity of knowledge and experience on the Board of Directors will continue to
help GC advance its knowledg
e and technology in the biotech field.


& Conclusion


Corporation is a consistent and important player in the
biotechnology industry with the potential within the next 5
10 years to increase its
and market share
more. The company currently
has a variety of products
and future products in the clinical trial stage that will increase its revenues and its ability
to do more R&D into new products. In hopes of future success, the company is
reinvesting its earnings in
to global expansion instead of higher ROI for its shareholders,
which might make a small or large difference right now depending on current sales of its
products. A definite company to watch in the next few years for potential investment as
it expands its

presence products and market share worldwide.