He can afford to be brash. Genzyme earned $19.6 million on sales of $122 million last year-and analysts expect sales to double this year. Along with superstar Amgen, Genzyme is one of the few generally profitable companies in the 1,200-firm industry. (One-time expenses from acquisitions, though, will push it into the red for much of this year.) And while a market rumor concerning competitors for Genzyme’s upcoming products drove shares down by nearly 5 percent last Thursday, the company i.s clearly rocketing ahead. It will sell an estimated $100 million worth of its most famous drug, Ceredase, in 1992-its first full year of sales. The drug’s target, Gaucher’s disease, is a genetic affliction which affects some 20,000 people worldwide and causes a potentially crippling buildup of fats in the spleen, liver and bones. ‘There’s plenty of risk ahead, yet Genzyme execs confidently expect to introduce a significant new product every year throughout this decade. That could help Genzyme break out of the biotech corral, says Stelios Papadopoulos, an investment banker at Paine Webber, eventually becoming “the first big diversified health-products company from the biotechnology industry.”
Most biotech firms have bright scientists. What sets Genzyme apart is business savvy. It’s been that way since 1983, when the original 10-member team plotted the company’s future from restaurant tables in Boston’s Chinatown. For five months they systematically sorted through the projects all the other scientists they knew were working on. Their goal: picking the likeliest cash cows. “It was very pragmatic,” says CEO Henri Termeer, who was wooed from pharmacy giant Baxter Travenol. “We bet on the businesses, not the technology.” Genzyme’s picks weren’t exotic. It bought or built businesses in diagnostics, genetic testing and in chemicals used by pharmaceutical companies. Genzyme now has the fastest screening for Down syndrome using amniocentesis–two days instead of the usual week or two. Profits from such ventures helped the company weather the 10-year development time of Ceredase.
Once the company started making money, Genzyme’s business plan helped it control its destiny-unlike other struggling biotech firms that bow to outside investors or licensees. Along with the early products, Termeer raised $132 million in the stock market with two paper companies, Neozyme I and II. The new companies fund Genzyme research projects and own the rights to them; if the project pans out Genzyme can buy the rights back. The plan lets investors cut risk by betting on just a few projects instead of the whole slate.
Genzyme doesn’t just know business. It cannily uses the law to protect its investment. The federal “orphan drug” law gives companies that develop drugs for some rare diseases a seven-year monopoly on drug sales, which justifies making the investment in small markets. Ceredase was Genzyme’s first orphan drug, but the company has certified five others. Critics say that Genzyme plays the legal system all too well-that the company is using its legal monopoly for profiteering. Treatment of Gaucher’s can cost as much as $200,000 each year. Genzyme says its Ceredase profits are low by industry standards-and has tried to blunt the criticism by offering to give the drug to patients without insurance. And the company is quick to point out that most Gaucher’s sufferers use much less Ceredase after they begin responding to treatment.
Genzyme has now grown to 1,400 employees–but can the company keep it up? Some analysts express doubts. Jeffrey Casdin of Oppenheimer, once a fan, now thinks it has already reached the sickest Gaucher’s patients-and earned its fattest profits. There maybe other hot products on the way, including a treatment for cystic fibrosis and a new Down screening that doesn’t require amniocentesis. But products in the pipeline are just that-and good times can turn to bad with the flick of a regulator’s pen. When the FDA refused to approve the first drug from Centocor on the eve of its release earlier this year, the stock plunged. Now Centocor is scrambling to retest its drug to gain FDA approval (and the stock price is rising again). In an industry where there are no sure things, little wonder that investors still like a less unsure thing like Genzyme.
Medical ills and the company’s treatments:
The only drug so far is Ceredase. Sold since 1991. A genetically engineered form expected to be approved for sale in 1993. Estimated market: $200 million.
Fetal Cell Separation–a prenatal blood test that doesn’t require amniocentesis-could reach patients in 1993; a $500 million business.
Two therapeutic approaches-replacing proteins or restoring a missing or faulty gene-are at least five years away, but this could be a $600 million market.
Hyaluronic-acid products may reduce scar tissue after surgery. In trial; an $800 million market.
New test measures LDL or “bad” cholesterol. Year-end launch. Expected 1995 market: $100 million.
