Genzyme Corporation's acquisition by Sanofi and strategic positioning

Genzyme is a pharmaceutical company based in Cambridge, MA. In 2011, it was acquired for $20 billion by French pharma company Sanofi (Rooney, 2011). Thus, Genzyme is no longer a publicly-traded company, but it is run as an independent subsidiary. Sanofi made the purchase in part to renew its pipeline of new drug developments after experiencing a slowdown in new drug approvals, which means they haven't been developing drugs at the same rate they were able to in the past. The acquisition therefore increases Sanofi's R&D capabilities (Rooney, 2011). At the time of the acquisition, Genzyme had reported net income in the third quarter of $221.1 million, indicating that the company was quite profitable, and its year-over-year figures were impressive (Rooney, 2011). Since the deal, Sanofi has declared that the acquisition was a success and that the company believed Genzyme had added value to the French firm (Weisman, 2013).

SWOT - Strengths

Genzyme has a number of strengths. The company is profitable, as can be inferred by the fact that it was profitable when it was purchased and Sanofi is pleased with the acquisition. This hints that Genzyme has only become more profitable since the purchase. Sanofi is well-financed, which should benefit Genzyme. Sanofi in FY2012 recorded revenues of €35.9 billion and net income of €4.9 billion (MSN Moneycentral, 2013). The company has ample cash and liquidity on its balance sheet. If Genzyme needs funding for research and development, Sanofi is in a position to deliver that funding, which is an advantage for Genzyme.

Another strength is that Genzyme has a good stable of drugs. A new drug, Lemtrada, has received approval in Europe since the purchase and is expected to win approval from the FDA as well. This drug was one of the focal points of the negotiations between the two companies (Weisman, 2013). Lemtrada treats multiple sclerosis. While Lemtrada has received some approval from the FDA, the regulatory authority does still have some concerns about the drug's effectiveness (Frieden, 2013).

Weaknesses

Although Genzyme is a strong company, it is possible that its position within Sanofi can be seen as a weakness. Not being independent, Genzyme does not have 100% control over its operations, and therefore is subject to the whims and financial capacity of a foreign owner. This can be a detriment to the company, especially if it starts to affect recruitment.

Another weakness at Genzyme has had problems, especially in 2009, with respect to its manufacturing processes. These issues including having one of its plants shut down due to infection with Vesivirus 2117, the second time this virus had struck a Genzyme facility. While it appears that these issues are behind the company, that it happened so recently is definitely a weakness. The plant that was shut down is still not operating at full capacity (DePalma, 2010).

Opportunities

With the new ownership the company has some opportunities. First, having French ownership gives Genzyme better access to the European market. While it always had regulatory access, perhaps its distribution channels were not as effective. Sanofi is in a position to give better worldwide distribution to Genzyme's drugs.

Another key opportunity is with new drug development. This is the lifeblood of any pharmaceutical company Genzyme already had strong drug development capabilities, but the added financial strength and access to development talent that comes with being part of Sanofi should enhance the company's drug development capabilities. Without a new drug pipeline, no pharma company with a development business model can survive, but Genzyme seems poised to take advantage of this opportunity.

Action Steps

There are two main approaches to taking strategic action. One is that the company focuses on its strengths, either to take advantage of opportunities or to ward off threats. The biggest opportunity in this industry is with new drug development, so this is where the company should focus its energy. Taking advantage of its new capabilities and high level and funding support is imperative in order for Genzyme to sustain success in the long run. The company needs to become closely integrated with Sanofi in order to pool research and development resources. So far, this has happened since the merger, creating value for the combined entity. Increased effort to ensure that this success continues is necessary.

Some action steps seek to eliminate weaknesses, in order to fend off threats. The worst threats are those that specifically exploit weaknesses so it is important to manage the weaknesses. Genzyme in particular needs to ensure that its quality control issues are behind it. These issues in part made the company vulnerable to a takeover, but more importantly they make the company vulnerable to regulatory action. By ensuring that quality control investment is increased, and outcomes are improved, the company can remain on the positive side of the regulators to the benefit of long-term sustained growth.

Another type of action that the company can pursue is to try to build strength so that it can fend off a threat. There is a major threat associated with the moves by the U.S. And other Western governments to continually drive down new drug prices. These governments are typically faced with budget issues, in part because they have a large number of retired people relative to young workers, and generous entitlement programs that are not even means-tested. So governments want to drive down drug prices. Combatting this is a challenge, but the company has a lot of money, and it has contacts in both the U.S. And in Europe. As a result, it should be able to put together a stronger lobbying effort in order to deflect some of the attention of government that is currently on drug prices as a means of cutting back health care expenditures. This is especially a problem in the U.S., where drug companies tend to earn very healthy products.

The threat of IP protections is something that has to be taken up with the U.S. And EU governments, who are in a position to push the issue during international and bilateral trade talks. With better lobbying on this issue, the interests of the drug companies like Genzyme can be at the table when general trade issues are discussed. Greater IP protection facilitates opportunity, but a lack of such protections simply implies threat to the company's business.