Genzyme Corporation Business Information, Profile, and History

Company Perspectives

With many established products and services helping patients in more than 80 countries, Genzyme is a leader in the effort to develop and apply the most advanced technologies in the life sciences to address a range of unmet medical needs. The company's products and services are focused on rare inherited disorders, kidney disease, orthopaedics, transplant and immune disease, cancer, and diagnostic testing. Genzyme's commitment to innovation continues today with a substantial research and development program focused on genetic diseases, immune system disorders, heart disease, and cancer.

History of Genzyme Corporation

Genzyme Corporation is a leading biotechnology company that focuses on five business areas: therapeutics, renal, transplant, biosurgery, and diagnostics/genetics. Genzyme's specialty is developing treatments for rare diseases, particularly those related to genetic disorders and organ transplants. The company's most important product is Cerezyme, which is a treatment for Gaucher's disease, an enzyme-deficiency condition. Through Genzyme Molecular Oncology and Genzyme Biosurgery, the company develops gene-based cancer treatment products and manufactures orthopedic medical and surgical products, respectively.

Enzyme Technology in the Early 1980s

In 1981, Henry Blair founded Genzyme to produce products based on enzyme technologies. With the help of venture capital funding, Blair acquired Whatman Biochemicals Ltd., which became Genzyme Biochemicals. In 1982, Blair acquired a British catalog business, Koch-Light Laboratories, a supplier of chemicals to the pharmaceutical industry. The pharmaceutical manufacturing arm of Koch Laboratories in 1986 became Genzyme Pharmaceutical and Fine Chemicals based in Haverill, England.

Despite these developments, Genzyme struggled until 1983, when Dutch-born Henri Termeer left Baxter Travenol (now Baxter International) to become company chairman at Genzyme. Termeer studied economics at the University of Rotterdam and earned an M.B.A. at the University of Virginia before joining Baxter in 1973. After undergoing two years of training in Chicago, Baxter assigned him to run its largest overseas sales organization in Germany. The position gave him valuable experience in managing a major business operation. By the time he joined Genzyme, Termeer was one of Baxter's executive vice-presidents. He was recruited to Genzyme by the venture capital firm Oak Investment Partners, which had substantial investments in the start-up company.

Termeer took a personal risk in moving to Genzyme, sacrificing half his salary and a comfortable lifestyle in southern California for forbidding office space in Boston's notorious "Combat Zone," the city's red light district. The company employed only 11 people.

On assuming the chairmanship, Termeer immediately began a search for investment capital. He formed an advisory board, consisting of a group of eminent MIT scientists to identify promising new areas for product development. While many biotechnology companies worked to develop huge blockbuster drugs, Genzyme crafted a niche strategy focusing on less glamorous products that could be sold readily. This strategy proved to position the company well, even as it developed longer-term products.

Genzyme aggressively pursued its strategy first through developing expertise in engineering and modifying enzymes and carbohydrates. Enzymes are proteins that essentially act as catalysts for many cellular processes, whereas carbohydrates often coat proteins and govern their interactions with other substances or chemicals. The company's expertise in these areas yielded readily marketable products. Genzyme developed and marketed a product called cholesterol oxidase, including an enzyme that worked as the active agent in cholesterol tests.

In 1983, Termeer became president of Genzyme and in 1985 he was named chief executive officer. In 1986, Genzyme became a public company with an initial public offering that raised $28.2 million. In the same year, the company opened a Japanese subsidiary financed by Japanese sales and built a manufacturing facility in Cambridge, Massachusetts, for the production of medical grade hyaluronic acid. Genzyme also raised $10 million to finance the development of Ceredase through a research and development limited partnership. Genzyme divested Koch-Light Laboratories in 1987.

In 1988, the company, with partial funding from the Department of Trade & Industry, opened a pharmaceutical chemical plant in Haverville, United Kingdom, doubling Genzyme's manufacturing capacity. In addition, the company received U.S. Food and Drug Administration approval to market the antibiotic clindamycin phosphate for the treatment of serious hospital infections.

In 1989, Termeer acquired Integrated Genetics (IG) of Framingham, Massachusetts, a move that industry observers termed a masterstroke. Termeer's successful negotiations for the company stemmed from a coincidental meeting with IG Chairman Robert Carpenter. Both attended a reunion of Baxter alumni in Chicago, and the two alums accompanied one another on the return flight to Boston. Although mired in financial difficulty, IG possessed superior technology. In 1988, Termeer unsuccessfully bid for IG when its stock hovered at $5 per share. But Carpenter was willing to deal in 1989 after trying to sell out to a large pharmaceutical company. Several weeks after the airplane flight, Carpenter accepted Genzyme's offer for less than $3 a share in Genzyme stock, amounting to $31.5 million. The acquisition considerably strengthened Genzyme's expertise in molecular biology, protein chemistry, carbohydrate engineering, nucleic acid chemistry, and enzymology.

In the same year, Genzyme raised $39.1 million in a public stock offering and another $36.8 million through a research and development limited partnership to develop four hyaluronic acid (HA) based drugs to reduce the formation of postoperative adhesions. The company also formed its Genzyme Diagnostics Division. By the end of 1989, Genzyme reported revenues of $34.1 million.

The Early 1990s: Product Breakthroughs, Corporate Strategies

By far Genzyme's most lucrative, if not controversial, product was the drug Ceredase, approved by the U.S. Food and Drug Administration in 1991. The drug was the first effective treatment for Gaucher's disease, a rare but previously untreatable and potentially fatal genetic disorder. The illness, which afflicted about 20,000 people worldwide in the early 1990s, most commonly strikes Jews of East European descent. The victims of the disease lack a natural enzyme that metabolizes fats, causing lipids, or fatty substances, to mass in the liver, spleen, and bone marrow, resulting in a variety of crippling conditions and years of painful physical deterioration. Genzyme's scientists successfully produced the missing enzyme, which could be infused intravenously and consequently reverse the lipid buildup, allowing patients to live normal and active lives with few side effects.

Although Ceredase won praise as a life-saving treatment, it also drew criticism for being the most expensive drug ever sold, running on average $150,000 per patient a year. As a result, the drug became a vehicle for criticism of high drug prices. In 1992, the Office of Technology Assessment, a nonpartisan Congressional research agency, issued a report accusing Genzyme of pricing the drug so high that patients would have to exhaust their lifetime insurance to buy Ceredase for two or three years. The report noted that the real costs and risks of developing the drug were low because most of the work was done by government researchers. The federal agency stated that the pricing also raised serious questions concerning whether the government should participate in developing drugs with little or no control over their final pricing. Company Chairman and President Henri Termeer said the agency's report was flawed and that the high cost stemmed from the enormous expense of producing the product. To assuage criticism, Genzyme agreed to give Ceredase to patients whose insurance benefits ran out. Nevertheless, others also voiced complaints. Speaking on behalf of the National Organization for Rare Disorders, Abbey S. Meyers, the organization's president, stated in the Wall Street Journal on May 20, 1994 that "we were appalled" at Genzyme's pricing of Ceredase. This criticism was the latest in complaints about the exorbitant cost of biotechnology drugs. In Congressional hearings, patients had complained about the cost of the anemia drug erythropoietin, or EPO, from Amgen Inc., which cost between $4,000 and $6,000 a year, and Genentech Inc.'s human growth hormone at $12,000 to $18,000 a year. But Ceredase's price far surpassed either of these two drugs and quickly drove the issue onto the legislative agenda.

Ceredase was in fact enormously expensive to make, relying on enzyme extraction from placentas from hospitals around the world. The harvesting of the material was done by a unit of the Institut Merieux of Paris. The production of a year's supply for the average patient required approximately 20,000 placentas equaling about 27 tons of material. In 1994, Genzyme supplied Ceredase to 1,100 patients. The drug's high price stemmed also from its applicability to only a small number of patients, placing the primary burden for paying the research costs and a return to investors on those being treated. Genzyme argued, moreover, that Ceredase differed from other drugs in a critical respect that influenced its price. Typically, drug prices were set to be competitive with existing treatments, including surgery and hospitalization, in spite of production costs. But since Ceredase was the only existing treatment for Gaucher's disease, the price reflected the drug's full production and marketing costs.

Genzyme's monopoly on Ceredase was protected under the Orphan Drug Act, passed in 1983 to give seven-year exclusive rights to drug companies that produce drugs for rare diseases (those afflicting less than 200,000 people). According to Termeer, the Act attracted the capital investment needed to research and develop the drug. In 1994, Genzyme received FDA approval to market Cerezyme, a genetically engineered replacement for Ceredase. The company also hoped to benefit from Orphan Act designation for various projects concerning cystic fibrosis, Fabry's disease, and severe burns.

By 1991, Genzyme raised nearly $100 million for research and development while retaining control over its equity and production rights, a stark contrast to many young biotechnology firms that had to sacrifice these assets to finance themselves. Nearly half the funds, $47.3 million, came from a public offering of Neozyme I Corp., formed by Genzyme in 1990 to research and develop six healthcare products. In 1992, the company formed Neozyme II to fund other Genzyme projects. The companies operated primarily as paper businesses to finance research and development projects and retain rights to the products. If the projects proved successful, Genzyme could buy back the rights.

In 1991, Genzyme also took IG laboratories (the genetic testing services business) public, raising another $14.1 million. Genzyme reported revenues of $121.7 million, more than double 1990 revenues of $54.8 million. In addition, Genzyme announced that it would build new corporate headquarters and manufacturing facilities in Boston on a 51-acre site along the Charles River. The company looked at sites in more than a dozen states, narrowing its choice to two in Massachusetts, Boston and Cambridge, both with international scientific reputations. These sites were close to Genzyme's current headquarters in Cambridge and close to large clusters of biotechnology companies. Boston's offer of a sizable state-owned parcel that could be quickly developed, plus many inducements, including breaks on city and state taxes and government assistance with site planning, road construction, utility rates, and others, clinched the deal. Regional economists hoped that Genzyme's $110 million facility would be one anchor of a thriving regional biotechnology industry, bringing thousands of new research and manufacturing jobs to raise the city and Massachusetts out of recession. Genzyme also ran a pilot production facility in Framingham, Massachusetts, and operations in The Netherlands, Japan, and England.

Continuing Diversification and Growth into the Mid-1990s

Genzyme's other corporate moves in 1991 included the selling of its interest in GENE-TRAK systems for $10 million and the acquisition of Genecore International's diagnostic enzyme business. The acquisition gave Genzyme worldwide diagnostic sales, production capacity, and inventory, as well as related patent and distribution rights. The company also established Genzyme, B.V., a European subsidiary in Naardan, The Netherlands, to manage the development and regulatory approval of Genzyme's biotherapeutic products.

Genzyme's research achievements for 1991 included beginning clinical development of Thyrogen, a thyroid stimulating human hormone for use in the diagnosis and treatment of thyroid cancer. Genzyme also initiated clinical development of HAL-S synovial fluid replacement, a treatment for tissue damage resulting from arthroscopic surgery. In addition, Genzyme and Tufts University scientists jointly performed breakthrough analysis concerning the role of a key protein responsible for cystic fibrosis, a lung disease. In 1992, the researchers innovated a method to mass-produce this protein for the treatment of the disease by genetically altering mice with a human gene governing production of the protein and then harvesting it from fat globules in the mouse's milk. The discovery marked the first time that animal milk was used to produce proteins of this type.

In 1992, Genzyme developed technology to make purer and stronger pharmaceuticals and to simplify the pharmaceutical preparation process. Genzyme won FDA orphan drug designation for several treatments, covering Cystic Fibrosis Transmembrane Conductance Regulation (r-CFTR), Cystic Fibrosis Gene Therapy (CFGT), Thyrogen Cancer Agent, and Vianain Enzymatic Debridement Agent for treating severe burn patients. In 1994, the company received FDA approval to sell Cerezyme, the genetically engineered replacement for Ceredase.

By the early 1990s, Genzyme had become a large and thriving diversified company, in contrast to many biotechnology firms plagued by clinical failures, cuts in research, layoffs, and funding troubles. In 1994, Repligen Inc. of Cambridge, Massachusetts, announced layoffs of one-third of its staff after failing to find financial backing. Synergen Inc.'s stock plunged on news that its leading drug failed in clinical trials, compelling the Boulder, Colorado firm to cut more than half of its payroll. Glycomed Inc. of Alameda, California, eliminated 30 percent of its workforce to conserve cash. Cambridge Biotech Corp. of Worcester, Massachusetts, a once-leading biotech firm, filed for Chapter 11 protection. Signaling the industry's poor health, Oppenheimer Global Bio-Tech Fund, a specialty mutual fund for stock investors, announced that it was shifting investment strategy to focus on "emerging growth" stocks. With these reversals, investor confidence plummeted, causing financing to dry up and research projects to be dropped, and leaving many smaller firms vulnerable if their flagship drugs failed to pay off. To raise cash, several companies licensed their main products at minimal sale prices. Other companies canceled plans to add manufacturing capacity and sold facilities and leased them back. The main culprit for the industry's woes was a string of clinical failures, as some biotech firms prematurely initiated clinical studies to gain the broadest possible market exposure for their products. Still, in 1994 more than 100 biotechnology products were either in final Phase III clinical tests or awaiting FDA marketing approval.

Genzyme and other large biotechnology companies capitalized on the industry fallout by buying financially troubled firms and products at low prices. Genzyme aggressively began acquiring companies in the late 1980s as part of a broad strategy to minimize risk. Aside from the acquisitions of Integrated Genetics and Gencore International in 1992, Genzyme acquired Medix Biotech, Inc., a producer and supplier of monoclonal and polyclonal antibodies, immunoassay components, and immunodiagnostic services. In the same year, the company's U.K. subsidiary, Genzyme Limited, bought Enzymatix Limited of Cambridge, United Kingdom, which was integrated into Genzyme's Pharmaceutical and Fine Chemicals division. Genzyme also acquired Vivigen, a genetics testing laboratory in Santa Fe, New Mexico.

In 1993, Genzyme acquired both Virotech of Russelsheim, Germany, a producer and distributor of in-vitro diagnostic kits, and Omni Res srl of Milan, Italy, a producer and seller of immunobiological products. Acquisitions in 1994 included a Swiss pharmaceutical concern, Sygena Ltd.; BioSurface Technology Inc., a developer of wound healing products; and TSI Inc., a former high-flying drug testing company that expanded too rapidly and posted major financial losses. The TSI acquisition was made by Genzyme Transgenics Corp., created by Genzyme in 1993 to promote and develop technology combining recombinant microbiology and experimental embryology to produce specialized proteins from animal milk. The TSI purchase made Genzyme Transgenics (73 percent owned by Genzyme) the largest player in the emerging biotechnology market called "pharming," where genetically altered farm animals were used to produce pharmaceuticals.

Genzyme's diversification moves generally received praise, but they also raised speculation that the company would face difficulty integrating the various operations. Moreover, despite the company's numerous acquisitions, its major revenue producer was still just one product, Ceredase/Cerezyme. Beyond this product, Genzyme's line of future drugs contained no blockbuster moneymakers, a strategy originally crafted by Termeer to minimize risk. Unlike many of its competitors, Genzyme had yet to experience any major disappointments in clinical trials on near-term drug development projects.

In 1995, Genzyme's next project, a range of hyaluronic acid (HA) products, also looked promising. Hyaluronic acid contains a polysaccharide found in a variety of human tissues that can be used to prevent postoperative adhesions following abdominal, gynecological, cardiac, and orthopedic surgery. Noting that hyaluronic acid could be used by virtually all surgeons, Genzyme predicted that the market for the drug would be about $1.3 billion, four times that for Ceredase. Unlike the Ceredase market, however, Genzyme faced several competitors for hyaluronic acid, including major pharmaceutical companies. Other products also were being developed to serve the same purpose. In addition, concerns arose that the product was unlikely to be universally effective in preventing postoperative adhesions, and thus the marketing of the drug would be split with competing products. Nevertheless, Termeer expressed confidence in the drug and said that Genzyme would beat competitors to the market by at least five years.

Genzyme's diversification also included a move into gene therapy. Although its leading product, Ceredase, and its genetically engineered successor, Cerezyme, proved highly effective, the company began working with scientists at the University of Pittsburgh and at IntroGene B.V., a biotech firm in Rijswijk, The Netherlands, to develop a gene therapeutic treatment to replace the drugs. The new therapy, if successful, would correct the enduring genetic defects responsible for Gaucher's disease. In addition, in 1995 Genzyme planned to spend $400 million to research and develop gene therapy to treat cystic fibrosis, the most common fatal hereditary disease in the United States. These moves stemmed in part from attempts to avoid obsolescence as the revolutionary developments in gene therapy, still mostly in the exploratory stage, threatened to bypass biotechnology developments.

By the mid-1990s, Genzyme continued to be well positioned to capitalize on emerging technologies and to minimize risk if several of its products failed. The company arose in 1981 to become one of the top five biotechnology companies in terms of sales. Nevertheless, the biotechnology field remained highly competitive, with numerous rivals in the United States and elsewhere, many of which had greater resources than Genzyme. With large pharmaceutical and biotechnology companies as competitors, the prospect loomed that these companies would develop more effective products and marketing strategies. Indeed, Genzyme's competitive pressures were most acute in the therapeutics field. Although no alternatives existed for Ceredase and Cerezyme, another company was attempting to make an alternative product using an enzyme in insect cells. Genzyme's hyaluronic acid products for postoperative adhesions faced competition from both HA-based and non-HA-based products. The company anticipated that the chief competitive factor would be the measure of acceptance by surgeons depending on product performance and price. Several academic and commercial enterprises were engaged in developing therapies to treat either the symptoms or the cause of cystic fibrosis. A number of groups were developing gene therapy approaches to the disease and received government approval to conduct limited human trials. Other organizations were investigating pharmacological and biological agents that would alleviate the symptoms of the disease. A leading biotech firm, Genentech Inc., had already received FDA marketing approval for its product, Pulmozyme. With these competitive elements, any one of these groups could develop gene therapy products or drug therapies before Genzyme, or obtain patent protection that would effectively bar the company from commercializing its technology. Nevertheless, Genzyme's aggressive strategy had paid off in the past and appeared to position the company well for future developments.

Resurgence of the Biotechnology Industry in the Late 1990s

In the second half of the decade Genzyme devoted increased attention to developing gene therapy programs for a wider range of diseases. In addition to continuing its search for better cystic fibrosis treatments, pledging an additional $400 million to its cystic fibrosis research programs in 1995, the company began exploring alternative genetic treatments for lysosomal storage disorders, notably Gaucher disease and Fabry disease. These alternative treatments were aimed at creating genetic material that would enable patients suffering from these disorders to generate deficient enzymes naturally. During this period the company also developed new therapies for Pompe disease (another lysosomal storage disorder), renal disease, and hypothyroidism in recovering cancer patients. Renagel, a kidney therapy designed to control blood phosphate levels in hemodialysis patients, was launched in 1999, and within one year was being used by more than 30,000 patients.

In the mid-1990s the company also deepened its involvement in cancer research. In 1995 Genzyme Transgenics was the first company to develop a monoclonal antibody in the milk of a transgenic goat. Through this process, which spliced human genetic material into the DNA of milk-producing mammals, researchers were able to produce recombinant human proteins for use in a range of disease therapies. Genzyme took further steps toward expanding its cancer research capabilities in 1996, when it reached an agreement with Imperial Cancer Research Technology Ltd. in the United Kingdom to establish a joint venture dedicated to researching cancer gene therapies. In 1997, the company created a new division devoted to studying cancer vaccines on the molecular level.

In the mid-1990s Genzyme undertook a radical corporate restructuring. The plan called for the eventual partitioning of the company's diverse interests into separate divisions, each of which would have its own "tracking stock." The move effectively established separate companies within the corporation. The realignment began in 1994 with the purchase of BioSurface Technology Inc., which Genzyme converted into a new division, Genzyme Tissue Repair. This new division brought together Genzyme's four existing tissue repair research projects and was launched with eight products in various stages of development and an initial investment of $26 million. At the same time, Genzyme's other research programs were brought together within a larger division, called Genzyme General.

The strategy behind Genzyme Tissue Repair involved the integration of three of Genzyme's specialties--enzymes and recombinant proteins, biomaterials, and cell culture techniques--to develop new approaches to skin grafts and cartilage restoration. Proceeding from advances made in Sweden over the previous seven years, Genzyme Tissue Repair began research on a new method of growing cartilage cells in 1995, and by 1997 its Carticel therapy was demonstrating success with patients suffering from damaged knees. At the same time the division also developed a skin graft product, Epicel, for use with burn victims.

In the wake of the successful integration of Genzyme Tissue Repair into the Genzyme Corporation, the company created a third division, Genzyme Molecular Oncology, in 1997, to study the potential uses of microbiological solutions in the development of a cancer vaccine. The Genzyme Surgical Products Division followed in 1999, with a mission to develop medical instruments and biomaterials for cardiovascular therapies and general surgical uses. In 2000 the company announced its plan to acquire Biomatrix, Inc., which eventually would become its fifth division, Genzyme Biosurgery. This diversification resulted in steady growth, culminating in record net earnings of more than $142 million for 1999.

Diversification in the 21st Century

Genzyme's progress during the first years of the 21st century was highlighted by its diversification away from orphan drug development. The concentration on rare diseases, Termeer's strategic focus during his first 20 years at the helm, proved to be worthwhile, enabling Genzyme to establish monopolies in small, underserved markets, but new avenues of growth were needed. To meet the company's financial targets and to please analysts, Termeer began developing a broader portfolio of products, assuming a more diversified stance largely through acquisition. In August 2003, he acquired Fremont, California-based SangStat Medical Corp., a developer of drugs designed to treat the immune system. The $600 million acquisition, which gave Genzyme, among other products, an anti-organ rejection drug named Thymoglobulin, was followed several months later by a $1 billion acquisition. In February 2004, Genzyme agreed to acquire San Antonio, Texas-based Ilex Oncology Inc., a purchase that underscored Termeer's commitment to diversifying beyond orphan drug development. The most significant gain in the acquisition was Ilex's Campath, a cancer drug approved for the treatment of certain types of leukemia, but the purchased also added other promising treatments in the oncology field, such as clofarabine, a drug designed to combat certain cancers and tumors. "Our objective here is to build a sustainable and competitive commercial oncology business," a Genzyme senior executive explained in a February 27, 2004 interview with the Boston Globe. "We've been active in the development stage, but we feel it's important to acquire some revenue and a commercial presence in the space."

New markets and new assets provided substantial financial growth to Genzyme, fulfilling the objective of Termeer's diversification program. Between 2000 and 2004, the company's revenue volume nearly tripled, jumping from $752 million to $2.2 billion. Operating profit increased robustly as well, swelling from $143 million to $252 million. Looking ahead, Termeer planned to continue expanding Genzyme's product portfolio through acquisitions, building the company's core competency in orphan-drug development by adding capabilities in more mainstream treatments. In mid-2005, Termeer took another step in this direction, acquiring Bone Care International Inc. for approximately $600 million. The addition of Bone Care, which possessed a treatment called Hectorol for the treatment of chronic kidney disease, diversified Genzyme's renal care business, accelerating its commercial entry into earlier stages of chronic kidney disease. As Termeer pressed forward with his diversification and expansion program, further additions to the company's operations were anticipated.

Principal Subsidiaries

Genzyme Transgenics Corporation; IG Laboratories, Inc. (69%).

Principal Divisions

Genzyme Biosurgery; Genzyme General; Genzyme Molecular Oncology.

Principal Competitors

Abbott Laboratories; Chiron Corporation; Genentech, Inc.; Johnson & Johnson.

Chronology

• 1981 Henry Blair founds Genzyme.
• 1983 Henri Termeer becomes Genzyme chairman.
• 1988 Genzyme opens pharmaceutical chemical facility in the United Kingdom.
• 1991 Ceredase gains FDA approval.
• 1994 Genzyme receives FDA approval to market Cerezyme; Genzyme Tissue Repair Division is formed.
• 1997 Genzyme acquires PharmaGenics, Inc. to create Genzyme Molecular Oncology.
• 1999 Genzyme Surgical Products is formed.
• 2004 Genzyme acquires Ilex Oncology Inc.
• 2005 Genzyme acquires Bone Care International Inc.