Essay About Orphan Drug Opportunity And Pharmaceutical Companies

Genzyme Indivudal Paper
Krunal ThakkarDr. Kun LiuMGT 6890 6th October 2015Individual Strategic Analysis: Genzyme was highly attractive to Sanofi because of its success applying a centered focus on rare/inherited diseases and to address loss revenue from a “patent cliff’ Sanofi may be facing. With over $1.8 Billion in Sales, 12,000 employees, and distinguished accomplishments like “National Medal of Technology for Technological Innovation”. Genzyme has proven that a startup biotech/pharmaceutical companies can take the “orphan drug opportunity” approach and be viable, successful, and profitable. Again Orphan Drugs are drugs used for rare/inherited diseases that afflict less than 200,000 people worldwide. Big Pharmaceutical companies had gotten in a habit of only trying to produce “Blockbuster Drugs” which is a drug that served a market of millions of consumers and that would eventually earn $1 billion or more in revenues. This ideology was widespread and understandable, because developing a drug would often take 10 to 14 years with an average of $1.9 billion spent on research, clinical trials, FDA approval, and production. Considering this huge barrier to entry, the Food & Drug Administration established the “Orphan Drug Act” in 1983 to induce the development of drugs for rare diseases, the act provided significant tax breaks on research cost and 7 years of market exclusivity to any company putting an orphan drug out on the market. Now this advantage alone attracted the interest of many pharmaceutical companies like Sanofi, because they were used to receiving the benefits of a patented drug. For example, when a firm secures a patent on a drug that patent only prevents another firm from marketing the same drug, but it does not prevent another firm from marketing a similar drug that achieve similar action/treatment through other means. A firm introducing a patented drug that addresses a medical need, can almost immediately expect competitors to introduce a different/improved version of the drug that could also be patented to compete with the original drug. However, firms in the orphan drugs space will be shielded from any competition for the next 7 years, as a means to recoup the losses incurred over the development process of the drug. Along with other factors like the competitors were slim to none in this market, the severity of the diseases will make it unlikely for the insurance companies to resist reimbursement, gave Genzyme a considerable competitive advantage. In addition pharmaceutical companies often spent millions on large sales forces plus and expansive marketing campaign, whereas firms in the orphan drug space could specifically target a small number of physicians treating that rare disease. Since the percentage of the population with the rare disease is fairly low, the amount of participants that needed to be involved in a clinical trial for an orphan drug is a small number. Despite all these sizable advantages, I believe the pharmaceutical companies did not really get interested in investing on orphan drugs up until the experienced a phenomenon known as a “patent cliff”. Where the patents of a large number of blockbuster drugs were expiring leaving Big Pharma companies looking for new avenues for revenue. I believe Sanofi noticed that Genzyme had been very successful staying independent from large pharmaceutical companies due these listed advantages. They also noticed that Cerezyme the first drug that Genzyme created over $800 million in annual revenue for the firm. Of all the available the 6 biggest biotech companies for Sanofi to takeover Genzyme had the smallest revenue along with no Big Pharma backing, and some manufacturing issues which made it vulnerable for takeover. The $20.1 billion Sanofi spent on Genzyme is a deal considering that Genzyme is already the leading innovator in the biotech/orphan drugs space, a space where Sanofi previously had no exposure.