Genzyme’s Focus on Orphan Drugs

GENZYME’S FOCUS ON ORPHAN DRUGS

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Genzyme’s Focus on Orphan Drugs

1. How does Genzyme’s focus on orphan drugs affect the degree of competition it faces? How does it affect the bargaining power of customers?

Genzyme Corporation faces a lesser degree of competition due to market exclusivity granted to the orphan drugs by the Food and Drug Administration’s (FDA) Orphan Drug Act. Within the first seven years of selling any of their orphan drugs, Genzyme is shielded from competition. The act prevents any other firm from developing a drug that would have similar effects or treatment to the rare disease their drug addresses. Thus, marketing the orphan drug during this period is not affected by competition from new medicines, which allows the firm to recover the cost of development and earn revenue. The drug market is limited to a small population of between 10,000 and 200,000 people globally (Schilling 2005). Competition of drugs for such a small market would not be viable.  Hence, once an orphan drug is introduced to the market, the likelihood of another biotech firm developing a competitor drug for the disease is marginal. As such,

Genzyme enjoys market autonomy for most of the orphan drugs they successfully introduce to the market. These medicines are given a higher hand in a monopolistic competitive market setting. With this dominance, the bargaining power of the customers is undermined. The patients suffering from the rare disorders treated by the orphan drugs experience constant pain and early death. To restrain such circumstances, they resort to the available treatments. The lack of substitute drugs weakens their bargaining power. As a result, the firm has an advantage in pricing its products. Genzyme Corporation have a monopolistic advantage in their business strategy due to the monopolistic nature of their drugs market and a weak bargaining power of their customers.

1. How does focusing on orphan drugs affect the types of resources and capabilities a biotech firm needs to be successful?

Orphan drugs are those providing treatment to rare disorders such as genetically inherited enzyme diseases. Drug development is associated with enormous costs and time, from the inception of research to the marketing stage. More so, the orphan medicinal products require specialized resources and competencies for successful implementation. Therefore, when a biotech firm shifts focus to orphan drugs, they change their resource base and expand their capability to accommodate the specialized technology needed to produce these drugs. The equipment and amenities used for the production of the drugs are also different from others. For instance, Genzyme developed Ceradase from extracting proteins from the human tissue where they used placentas as their source (Paarlberg 2009). Special-skilled personnel are needed for diagnosis and treatment of rare diseases. Thus, a firm requires recruiting professionally qualified people to develop these drugs.  They should also focus on addressing the lack of diagnostic facilities for clinical trials of the drugs.

The market for orphan drugs is limited to small populations worldwide. Before committing to the development of the drugs, biotech firms should ensure there is a ready market for their products. The high cost of production results to high prices for the treatment with these drugs. Affordability to patients can limit the market performance of orphan drugs leading to ineffective manufacturing. Sourcing for research funds to develop orphan drugs is also challenging since many donors have little confidence in the performance of such drugs. Despite the advanced technology required for developing orphan drugs, biotech firms can achieve success by targeted resource and capability development.

1. Does Genzyme’s focus on orphan drugs make sense? Do you think Genzyme has a long-term strategic intent?

Genzyme’s strategic focus on orphan drugs proves to be a sensible business decision from the performance over the years. Since inception, the firm has been successful and have developed a niche market for its products. The drugs that they produce have a return on investment, and the revenue earned also assists them in advanced research and development. Genzyme leaps massively from the Orphan Drug Act which provides market exclusivity for the orphan drugs they develop. This act provided a platform to Genzyme for development at a time when many pharmaceutical firms devalued the market of medicines for rare diseases. Prohibition of entrant drugs to compete with their products creates a monopolistic market for them. However, a change in policy that destabilizes the exclusivity they enjoy would significantly affect their position in the industry. By converting to be a subsidiary of Sanofi, the firm became more financially sustainable and attained increased ability to adapt to market changes (Miski 2016).

Genzyme indicates long-term strategic intents by introducing more orphan drugs to the market. While concentrating on a niche market, the firm has developed several products that address various rare diseases. Despite targeting a smaller market, the corporation ensures flexibility by having several lines of revenue. They have also diversified into other related business that would shield the business from market changes affecting these drugs. While they continue to invest in the orphan drug market, Genzyme is determined to remain competitive in the industry in the long term.

1. Why do you think Genzyme has diversified into other areas of medicine? What are the advantages and disadvantages of this?

Diversification of business is crucial for any firms and more so for Genzyme Corporation. The company enjoys market exclusivity for its products due to the current policy on orphan drugs. Policies change with time. Future policies may repeal the Orphan Drug Act crumbling exclusivity on such drugs. Increased developments of similar drugs targeting a small population would set a stiff competition making survival in such a market setting quite difficult. Owing to the costly processes of developing these products, lack of sufficient revenue would result in business failure for the firm. Diversification establishes an alternative source of income for the enterprise. Therefore, diversifying shields the company from such events. A wide range of products also increases the success rate of the corporation due to the diverse market conditions of the various products. Engaging in diversified business units ensures that Genzyme remains competitive in its strategic focus on orphan drugs because they offer capital for continued research and development (Sharma et. Al. 2010).

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