Keeping Track of Genzyme
Executive Summary
Genzyme is that rare biotech company that is both profitable and diversified. To finance its entrepreneurial businesses without diluting its original shareholders, it has issued separate "tracking" stocks for its various wholly-owned divisions: Tissue Repair, Molecular Oncology, and its General division. The financing strategy brings tax advantages and a way to incentivize managers. But skeptics worry that it adds a complexity that will scare off investors.
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Why Doesn't Pharma Get Smaller?
Pharmas continue to diversify into lower margin businesses because CEOs and boards are betting on different requirements from a new system of health care delivery. They also figure their jobs will be safer. The choices: Is the likeliest avenue to growth through successful R&D, or through positioning appropriate for future health care delivery and payment systems? Bristol-Myers and Amgen have chosen the former - both because each is too small to diversify and because each believes it has a reasonable track record in innovation. Novartis and most other large pharmas want to take both roads at once--and are either dramatically expanding to enable product bundling or to give themselves enough time to prepare for what the health care system demands. Either way, the wild card of health care reform is making business strategy something of a crap shoot for companies both large and small.
Why Doesn't Pharma Get Smaller?
Pharmas continue to diversify into lower margin businesses because CEOs and boards are betting on different requirements from a new system of health care delivery. They also figure their jobs will be safer. The choices: Is the likeliest avenue to growth through successful R&D, or through positioning appropriate for future health care delivery and payment systems? Bristol-Myers and Amgen have chosen the former - both because each is too small to diversify and because each believes it has a reasonable track record in innovation. Novartis and most other large pharmas want to take both roads at once--and are either dramatically expanding to enable product bundling or to give themselves enough time to prepare for what the health care system demands. Either way, the wild card of health care reform is making business strategy something of a crap shoot for companies both large and small.
Genzyme: Why Diversification is Starting to Look Smart
As the blockbuster model comes under threat, Genzyme's highly diversified approach begins to look smart. Plenty of larger companies likely envy Genzyme's specialist expertise, tight customer relationships and long-standing embrace of external R&D. It's up to CEO Henri Termeer to prove that these strengths warrant an independent future for Genzyme.