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Case summary Genzyme, including answers to questions asked during tutorial....

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CASE STUDY: GENZYME’S CSR DILEMMA: HOW TO PLAY ITS HAND HUMANITARIAN ASSISTANCE FOR NEGLECTED DISEASES (HAND) INITIATIVE -

One of the world’s largest biotechnology companies Founded in Boston Treating rare and inherited diseases – orphan disease (rare) Since 1981, the company has grown from a small start-up company to a diversified corporation Owns over 100 unique patents National Medal of Technology (Genzyme Corporation) – 2005

STRATEGY  From modest beginning as a supplier of enzymes, fine chemicals and reagents to research labs and pharmaceutical companies, Genzyme had grown to become a leader in biotechnology with revenues of almost $4billion in 2007  It had done so by identifying with its patients needs, targeting a focused technology capability, and developing a set of values that clearly defined its role as a corporation within society  From its earliest days, Genzyme had focused on orphaned diseases (those with too small a population of sufferers to attract drug development attention), a strategy reflected in its portfolio of drugs 

Gaucher’s disease o A rare, inherited disorder that causes too much of a substance called glucoserebroside to build up in the spleen, liver, lungs, bones and sometimes the brain. The build-up prevents these organs from working properly o Has no cure. Treatment options include medicine and enzyme replacement therapy, which is usually very effective. There is no good treatment for the type which causes brain damage

Genzyme’s birth and development  Henri Blair - Start-up – supplying raw materials to research labs and large pharmaceuticals; operating from a small pilot plant and office in Boston’s Chinatown  Within a year set up a plant in the UK; HB relocated to UK – profitable in a few months  HB obtained a contract from NIH to manufacture and supply GGCR used in research to cure Gaucher disease

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1983 – Henri Termeer (ex-Baxter International [pharmaceutical company] joined as President 1985 – application for Ceredase enzyme was made under the “Orphan Drug Act” 1983 US Orphan Drug Act o Recognises that such drug companies would actuallyincur a financial loss in developiung drugs for rare conditions o Offers incentives to induce companies to develop drugs for the small markets of individuals with rare disorders o A guaranteed 7 year monopoly – not long (usually 20 years)  Induces G to move into diversification o Reduces bureaucracy and waivers approval application fees and annual FDA product fees  Such waivers reduce the approval period  Within 5 years – not 10-12years  Capitalise in the market more quickly 1985 – Termeer become CEO 1986 – G was listed as a ‘limited research partnership’ raising $10mil 1989 – merged with Integrated Genetics (IG) biotech firm Further public listing between ’89 and ’90 raised around $125M CEREDASE finally approved for marketing in the US in 1991 – raised another $143M 1992 – Cerezyme – extracted from Chinese hamster ovaries received government approval

The ‘Universal provision’ philosophy for Gaucher treatment  Genzyme’s humanitatiran commitment o First responsibility to treat patients – not to maximise returns  Wherever they are and whatever their financial circumstances o ‘Universal global pricing’ – only two prices – commercial price or free anywhere in the world – absolutely transparent position  What is the motivation? o Take it at face value?

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o Public relations exercise? o To deflect government attention on the high cost of therapy? INNOVATION IS SIGNIFICANT TO MAINTAIN PROFIT MARGINS TEERMEER’S ROLE Set of strategic principles o Recognise the risk o Diversified portfolio of targeted products

o Funding investment  

Implemented control and more professional management Commitments to meeting patienmt’s needs – emphaises the ‘centrality of the patient’ – patient focus

 THE BUSINESS MODEL  Small resource contrained company brings a high cost therapy to market targeting a very small patient population by o Grass roots, bottom upp, patient oriented o Highly personal and individually tailored – physician/patient relationships o Develop critical mass by provision of education and supporting the sufferers of the disease o Develop the expertise of healthcare providers and make them opinion leaders on G disease o The Gaucher initiative, the embedded corporate value of putting patients first was translated into a “two price policy” for the drug o Mobilising the patient and physician group to put pressure on 

insurance companies to reimburse cost of treatment Beyond Orphan Disease to Neglected Diseases (diversification) o 2005 – Termeer began testing the idea of finding solutions for more common neglected diseases:  Malaria  Chagas Disease/Sleeping Sickness  Tuberculosis o 2006 – formed a Steering Committee o Formally launched the HAND initiative

HAND CRITERIA  Project selection criteria o Important unmet medical need, ideally recognised as public health priority o Medically effective product profile, ideally inexpensive o Evidence based scientific rationale, ideally with a well-defined pathway and development plan o Ability to make a significant impact for patients, ideally using unique capabilities o Credible academic and medical partners, ideally with a well organised framework

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o Ability to afford the next phase of development, ideally with long term funding HAND program is part of the diversification away from the orphan treatment that G was heavily relying upon (in relation to profit), however had only 7 years of guaranteed monopoly.

1. As Jim Geraghty, what recommendations would you make to Henri Temeer? Which neglected diseases should HAND commit to? - TB – highest number of patients threatened by the disease - Sustainable shareholder return - Value of HAND program – strategic responsibility – value creation: SUSTAINABLE - POSSIBLE JUSTIFICATIONS: o More than 4 bil people affected in 22 high burden countires – more people in a wider range of countires than the other diseases o In addition, 25 mil are affected each year – again a greater need and urgency than any other disease o Further, little research has been done since drugs developed in

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1960s and a new form XDR-TB drug resistant forms of TB have emrged. In contrst huge amount of research has been done on malaria which some claim is no longer a nelgleted disease o Will build internal capabilities within the corporation Chagas o While not as impressive as the other diseases, the numbers affected by Chagas and the mortality rate are very significant, and justify the search for better treatment o G already has a drug on its shelves that could be effective in treating Chagas – stable research partner Fiocruz o Importantly, this research will help develop relationships in Brazil – vital to the company’s commercial interests in that country. In the short term, it will help G in the negotiations to keep Cerezyme product on the list of ‘exceptional drugs’ in this key market

SELECTION CRITERIA Total number of people for whom the disease poses a threat Regions affected

MALARIA 3.3 Billion

CHAGAS/SLEEPING SICKNESS 160 mil

TB .4bil

Americas, Asia, and Africa

Mexico, Central and South America and

22 High burden counries include

36 COuntires in sub- India, Pakistan, Sharaan Afirca China, Indonesia, Nigeria and Bangladesh State of current research

Resources/impact Genzyme skills in the area

Quality of Partners

Commercial Benefit

Plasmodium falciparum research driven by global labs like Broad; Limited R&D on plasmodium vivax Medicinal chemistry, compound screening, optimization Two sets of stable partnerships – Broad/Harvard (Boston) and ICGRB (India) May help Indian Gaucher reimbursement discussions. Could have medium term positive effects on Indian commercial discussions

Medicinal chemistry, screening and optimization. G has at ma

Medicial chemistry, component screening, optimization

Likely to help renewal of exceptional drug listing in Brazil in 2010/2011. Could have positive medium term effect on commercial discussions in Brazil

Could help in establishing market positions in China, Russia and Mexico – where malaria and Chagas are not public health concerns. Longerterm positive impact ion these markets possibly

2. Following from question 1, if you were Henri Termeer, how would you decide? Construct a criteria to base your decision on. 3. How appropriate is Genzyme’s HAND initiative? How well are they managing it? G’s CSR Dilemma

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HAND program was explicitly established as a CSR initaitve and its priority should be decided from the altruistic perspective of meeting the greatest need It would be hypocritical for G to make decisions regarding the diseases to be funded based on commercial criteria However, in the longer term if the company is not economically viable, it may not be able tof und such programs as HAND So what would you fund? TB, Chagas or Malaria...