Genzyme's Growth Story: Success and Failure Stem from Xia He

Genzyme is a biotech company that began with biological enzymes. Headquartered in Boston, Massachusetts, it was acquired by Sanofi in 2011. Unlike many biotech companies, Genzyme did not gain its reputation through groundbreaking biotech, but instead was a diversified company that started with chemical technologies. Its business spanned treatment drugs, fine chemicals, diagnostic products, and diagnostic services. Despite not having cutting-edge biotechnology, Genzyme developed into a biotech giant, second in market capitalization only to Genentech, Amgen, and Gilead. The business strategies behind this growth are worth pondering and can serve as a reference for many startup biotech companies.

The Birth of Genzyme

Genzyme was founded in 1981 by enzyme biologist Henry Blair from Tufts University, chemist George Whitesides from Harvard University, and venture capitalist Sheridan Snyder, who became the chairman and CEO. Though the name "Genzyme" is a combination of "gene" and "enzyme," the company was initially not a true biotech firm, but a biochemical company researching enzyme hydrolysis and chemical structure modification. Henry Blair, based on his professional research, obtained a research contract from the U.S. National Institutes of Health (NIH) to supply glucocerebrosidase (an enzyme for treating Gaucher's disease) for NIH researchers. Initially, Genzyme provided natural glucocerebrosidase extracted from the placenta, but NIH researchers found that the natural enzyme molecules were too large to pass through cells, rendering them ineffective. Later, NIH decided to chemically modify the structure of the natural glucocerebrosidase and signed a research and development contract with Genzyme. 

With the help of venture capital, Genzyme quickly acquired Whatman Biochemicals and Koch-Light Lab, forming a supply capacity for fine chemicals and active pharmaceutical ingredients. Apart from producing and selling raw materials and fine chemicals, Genzyme also developed a cholesterol oxidase and used this enzyme to develop a diagnostic reagent for cholesterol testing. Despite reaching a valuation of $100 million by 1983, Genzyme's operations were not performing well. Seed investor Oak Investment Partners sent Henri Termeer, a director and president, to strengthen oversight. Though Termeer had an economics background, he had spent ten years at Baxter, a company known as a cradle for biotech entrepreneurs, eventually becoming executive vice president. Baxter was focused on plasma products, and Termeer was familiar with the clinical needs for proteins, clotting factors, and enzymes, as well as the viral risks of extracting source products. His commercial ambition was to use genetic engineering to produce these products. This ambition led him to join the startup. 

When Termeer arrived at Genzyme, the company was a small firm with only 11 employees, and its office was located in Boston's red-light district. To guide the company's long-term development, Termeer focused on shifting its strategy from diagnostic enzymes to therapeutic enzymes. The implementation of the U.S. Orphan Drug Act made this strategy much more feasible. Early on, though Genzyme could earn millions annually from diagnostic enzyme sales, it was not enough to sustain the company. To solve this, Termeer sought financing through various means. As he later recalled, he did everything he could to raise funds and tried new approaches to financing. Due to Termeer's superb financing skills, Genzyme managed to secure continuous funding during the industry's downturn, allowing the company to survive and grow. 

In 1985, Termeer was appointed CEO. His vision for the company was to transform it into a diversified group that could supply various drugs, diagnostic products, medical devices, and specialty chemicals. To identify strategic commercial opportunities, Termeer established an advisory committee consisting of scientists from MIT and Harvard University and consulted several renowned venture capitalists to find effective financing methods. In 1988, Termeer became the chairman of Genzyme, and through his efforts, the previously obscure small company grew into a globally recognized biotech giant.

Becoming a True Biotech Company

Initially, Genzyme was not a biotech company but rather a company focused on enzyme chemical modification, enzyme production, and sales. At the time, the trend was to develop high-potential enzymes or hormones through genetic engineering. However, Termeer did not want to compete with companies like Genentech and Amgen but instead opted for a niche strategy, focusing on developing enzymes for rare diseases. In 1986, Genzyme went public with an initial public offering (IPO), raising $28.2 million. To position Genzyme as a credible "biotech" company, Termeer emphasized in the prospectus that "NIH was conducting clinical trials for Gaucher’s disease and Fabry disease using the enzyme produced through its protein hydrolysis modification technology." However, compared to biotech companies with leading-edge biotechnology, Genzyme's stock was somewhat underwhelming. Genetics Institute and Cytogen Corp also went public the same month as Genzyme, and their market values quickly made the difference clear. To align with true "biotech," industry analysts suggested that Genzyme merge with Integrated Genetics (IG), but IG rejected the proposal. 

Ceredase (Alglucerase) was the first drug developed by Genzyme in collaboration with NIH. In 1984, a child of an NIH researcher showed good results after using Ceredase, but later clinical trials involving seven participants failed because the dosage was too low. Since there was no effective treatment for Gaucher's disease at the time, Genzyme and NIH decided to continue researching. In March 1985, the FDA granted Ceredase orphan drug status, and NIH's clinical research continued. In January 1987, new clinical trial data gave Termeer hope. To support the clinical trial development of Ceredase, Termeer raised $10 million through a limited partnership and established a subsidiary dedicated to developing drugs for rare diseases. 

In the latter half of 1987, as the U.S. biotech stock market plummeted, Genzyme adjusted its business by divesting Koch-Light Lab, and founder Henry Blair left the company. Meanwhile, IG was facing financial difficulties, both due to a cyclical downturn in the capital markets and problems with its product development. In 1988, IG's chairman, Robert Carpenter, decided to sell the company. Through Termeer’s persistent efforts, the IG board was persuaded, and the company was acquired for just $31.5 million in stock. In 1989, the merger was completed, and Genzyme officially became a true biotech company.

Genzyme's Diversification

Termeer's ambition was to build a diversified company. In 1989, Genzyme established a diagnostics business, forming four major business areas: drugs (mainly clindamycin), diagnostic products (diagnostic enzymes, etc.), fine chemicals (hyaluronic acid, etc.), and diagnostic services. The total revenue was $34.1 million. From 1987 to 1995, the U.S. biotechnology sector faced an investment trough, and many biotech companies struggled to survive. However, Genzyme, due to its diversified business model, was able to secure continuous financing, likely because the company had stable revenue sources and benefited from Termeer’s clever financing strategy. In 1989, Genzyme secured two important funding rounds—one from an IPO raising $39.1 million, and the other through limited partnerships developing new indications for hyaluronic acid (to prevent post-surgical adhesions), raising $36.8 million. In 1990, Genzyme bundled six medical products under Neozyme I Corp and conducted a separate IPO, raising large amounts of money. In 1991, Genzyme spun off its diagnostics services business into IG Lab and raised $14.1 million through an IPO. In 1992, Termeer repeated this strategy by establishing Neozyme II for an IPO. 

Due to the long-lasting capital winter, many biotech companies faced financial crises and even bankruptcy, which provided Termeer with numerous opportunities to acquire quality assets, rapidly expanding Genzyme’s pipeline and technology reserves. Thanks to Termeer’s financing strategy, Genzyme had ample funds. Furthermore, the FDA approved Ceredase in April 1991, the first drug for treating Gaucher's disease. Though the disease had very few patients, the product generated over $100 million in sales in its first full year on the market. With the support of new products, Genzyme’s sales grew rapidly, and its stock price soared. 

With abundant funds and rising stock prices, Termeer not only invested in constructing new headquarters and factories, but also invested heavily in research and development, expanded international operations, and acquired undervalued assets. From 1992 to 1994, Termeer made several acquisitions to strengthen Genzyme’s fine chemicals, diagnostics, and other divisions. By the mid-1990s, Genzyme had expanded into monoclonal antibodies, cell therapy, gene testing, and gene therapy. 

Although Ceredase's price set a record for the highest-priced drug in the U.S. at $150,000 per patient annually, its profitability was not ideal due to high production costs. The only solution was to reduce costs via genetic engineering. Fortunately, recombinant Ceredase (Cerezyme) was developed and FDA approved it in June 1994. 

In the late 1990s, monoclonal antibody technology had matured, and the U.S. biotech stock market began to recover. However, the diversified Cerezyme was not favored by the capital market. Aside from lacking cutting-edge technology, insufficient research pipeline reserves, and being outside popular therapeutic areas, the company faced two major criticisms: first, it was criticized by the media and public groups for the high pricing of Ceredase; second, Termeer had spent a large amount of financing buying a series of unprofitable companies. Despite entering multiple fields through acquisitions, the company’s revenue heavily relied on Gaucher disease, which had fewer than 20,000 patients. 

Despite these criticisms, Genzyme did not give up on its diversification strategy. In the late 1990s, Termeer acquired several companies, including Peptimmune, Cell Genesys, PharmaGenics, and Deknatel Snowden Pencer. In 1997, the development of Thyrogen (thyrotropin alpha) was nearing completion, and to build an oncology pipeline based on Thyrogen, Termeer acquired PharmaGenics and established the Molecular Oncology department. To strengthen the tissue repair business based on hyaluronic acid, Termeer acquired BioMatrix in 2000, which was integrated into the Biosurgery department. The original pharmaceuticals, diagnostic products, and diagnostic services were unified into the Genzyme General department. In 2000, Genzyme General, Biosurgery, and Molecular Oncology accounted for 83%, 16%, and 1% of revenue, respectively.

In addition to diversification, another important strategy for Genzyme in the late 1990s was to strengthen research and development and foster broad collaborations. Due to its extensive external research and development, although the research investment intensity was much lower than that of technology-driven biotech companies like Genentech, the returns were substantial. In 1998, the drug Renagel, co-developed with GelTex, was approved by the FDA, marking Genzyme’s second cash cow. In addition to the partnership with GelTex, Genzyme also collaborated with BioMarin to develop Aldurazyme, with Mount Sinai School of Medicine to develop Fabrazyme, and with Biogen to develop interferon beta...

Genzyme’s Rapid Development

In the 1990s, Genzyme made significant investments in new technologies, but the returns were not as expected. Despite entering multiple hot areas like cancer, Parkinson's disease, and cardiovascular diseases, the company struggled to establish a competitive advantage. Instead, its revenue increasingly relied on rare diseases. Renagel was one of the most prominent products outside of enzyme therapies. In 2000, to secure exclusive rights to Renagel, Termeer offered $1 billion to acquire GelTex. Unfortunately, the sales of Renagel did not meet Termeer’s promises to investors, and complications with the Fabrazyme launch led to a sharp drop in stock prices in 2002. 

The years around the turn of the century marked a peak in pharmaceutical industry capital restructuring, and with Genzyme's stock price plummeting, the company became an attractive acquisition target. To prevent a takeover, Termeer adopted an aggressive acquisition strategy. To strengthen the dialysis product line, Termeer spent $600 million to acquire Bone Care, gaining sales rights for Hectorol (doxercalciferol). To enhance the oncology pipeline, Termeer acquired SangStat, Ilex Oncology, AnorMED, Bioenvision, and several other companies for a total of $2.53 billion, gaining sales rights for products like Thymoglobulin (rabbit anti-human thymocyte immunoglobulin), Campath (alemtuzumab), Mozobil (plerixafor), and chlorambucil.

Genzyme also acquired Novazyme for $150 million to further strengthen its biosurgery department after the integration of BioMatrix. To enhance its diagnostics business, Termeer acquired Wyntek Diagnostics and IMPATH’s oncology diagnostics business for around $300 million. Additionally, Genzyme purchased the technology company Myosix to enhance its cell therapy capabilities. 

As Genzyme continued to expand through acquisitions, its business divisions grew significantly. In April 2003, Fabrazyme and Aldurazyme received FDA approval. Despite facing setbacks, Genzyme’s long-term investments began to pay off. By 2006, Myozyme also received approval, completing Genzyme's powerful pipeline for rare disease treatments. Meanwhile, Cerezyme set new sales records, reaching annual sales exceeding $1.2 billion. 

Due to strong performance and a clear strategy, this atypical “biotech” company gained recognition from the capital markets. By 2007, its market value ranked fourth globally, only behind Genentech, Amgen, and Gilead, establishing Genzyme as a leading biotech company.

Genzyme’s Bottleneck

From 2000 to 2007, Genzyme experienced rapid growth, with total revenue increasing more than fourfold in just seven years. However, after 2007, Genzyme ceased large-scale acquisitions, purchasing only the commercial rights to the multiple sclerosis drug alemtuzumab from Bayer. In 2010, Termeer sold the genetic diagnostics business for $925 million, and the remaining operations were restructured into five major divisions: Personalized Genetic Health, Renal and Endocrinology, Biosurgery, Hematology and Oncology, and Multiple Sclerosis. 

The Personalized Genetic Health division focused on rare genetic diseases, with products such as Cerezyme, Fabrazyme, Myozyme, Aldurazyme, and Elaprase (distributed by Shire in the Pacific Rim). These products had only a few thousand to a few tens of thousands of potential patients globally, with the treatment market heavily reliant on high prices. Any competitive products entering the market would cause a rapid decline in sales. This scenario became reality, as the combined sales of the five enzymes in 2010 were only $1.65 billion, a decline of over $600 million from 2008. Renal and Endocrinology, the second-largest revenue source, saw sales of $1.07 billion in 2010, but this business also faced limited growth with only a 6% increase. Hematology and Oncology and Biosurgery, which had been heavily invested in, achieved strong sales of $680 million and $580 million, respectively, in 2010, but their development potential was limited. The Multiple Sclerosis division was nearly nonexistent, with no sales generated in 2010.

Despite a diverse set of business units, Genzyme's revenue and profits were heavily dependent on rare diseases. However, this area was now facing a pipeline crisis, with only a few projects in late-stage development, such as Eliglustat and mipomersen, the latter being an immature product. What further frustrated investors was that Genzyme's production had encountered issues. In 2009, the Boston plant was forced to shut down due to virus contamination, leading to many patients being unable to receive treatment or being given reduced dosages. This resulted in severe dissatisfaction among patients, and during this period, Shire's Vpriv (velaglucerase alpha) was approved by the FDA. Although Genzyme resumed production after paying a $175 million fine, the loss of patients led to a sharp decline in both revenue and stock prices, significantly damaging the company's reputation. As a result, Termeer faced numerous investor lawsuits, and there was intense infighting within the board, with some questioning his ability to lead the company out of the crisis, while others believed Genzyme should sell off its non-rare disease businesses.

On one hand, Genzyme lacked strong technical reserves, and its core business had reached a bottleneck; on the other hand, the board's internal conflicts caused Termeer to lose control over the company. Selling the company at an opportune moment seemed like the best option. In 2010, Sanofi-Aventis sent an acquisition proposal to Genzyme, and in early 2011, the deal was finalized at a price of $20.1 billion.

Conclusion and Discussion

Genzyme is one of the few diversified biotech companies. Its diversification helped it survive the industry's downturn, but it also led to a bottleneck. In the late 1980s and early 1990s, U.S. biotech companies were collectively undervalued. The commercial opportunities in genetic engineering were diminishing, and technologies like monoclonal antibodies and antisense oligonucleotides were far from commercialization. Coupled with the large number of biotech companies emerging, the industry began to enter a phase of competition and decline. The biotech stock market plummeted, and companies struggled to raise capital, but Genzyme succeeded in financing repeatedly due to its stable income. In the late 1990s, to avoid being acquired, Genzyme increased its diversification efforts, but over time, this long-term strategy prevented the company from building a technological advantage. The failure to create dominant business units was a key reason for the bottleneck that Genzyme later faced.

Genzyme is a typical example of a biotech company that did not rely on leading-edge biotechnology. Similar companies include Gilead and Celgene. Through efficient financing and broad collaborations, Genzyme not only survived the capital winter but also found a “way out.” As Termeer stated in his memoir, for scientists without financing experience or a business background, starting a company is highly challenging. Without understanding capital operations, having clear financing goals, knowing financing structures, or lacking excellent negotiation skills, the financing process can be very difficult or passive. Therefore, for a biotech startup that will incur long-term losses, technology is essential, but financing is the key factor in determining whether it will succeed.

Termeer led Genzyme for 26 years, making him one of the longest-serving professional managers in a single biotech company. He played a crucial role in Genzyme’s early success, but his leadership strategy in later years did not benefit the company’s further development. As an economist, his business capabilities were strong, but his understanding of technological innovation and drug quality risks was inadequate, which ultimately led to the company's bottleneck. This is the main reason why investors believed he could not lead the company out of the crisis.