Case Analysis: Genzyme’s CSR Dilemma: How to Play its HAND.
Considered a leader in the biotechnology industry, Genzyme has come a long way since its inception as a supplier of basic chemicals and reagents in 1981. As a leader in the development of orphan drugs, Genzyme realized revenues of almost $4B in 2007. Greater than 30% of its revenue in 2007 is attributed to the sales of drugs that target orphan diseases, such as Cerezyme, a novel Genzyme drug used to treat Gaucher disease. Due to the lack of previous research on orphan diseases, the development of drugs in this area is costly, requiring Genzyme to charge outrageous sums of money for treatment. For example, Cerezyme costs $50-200K per year per patient, an amount of money that is often well beyond the reach of patients suffering from Gaucher. To bridge the gap between the cost of Cerezyme and the patient’s ability to pay, Genzyme has to rely on government agencies to shoulder the cost for its citizens. Understanding that government subsidies are crucial to realizing any profit with their orphan disease drugs, Genzyme has developed strong relationships with NGO’s and government health-care agencies to create a culture of caring at Genzyme that they leverage to convince governments around the world to pay for patient medication. With such a large piece of their revenue being generated by these drugs, Genzyme has vested interest in ensuring this extremely profitable side of their business is positioned strongly in the global market. Thus, Genzyme has been able to generate revenue by increasing the willingness of their customers, mainly government agencies, to pay. Jim Gerahty, senior VP at Genzyme realizes that in the long term, government agencies are not comfortable engaging with Genzyme on a basis of cold commerce alone. For example, in Brazil, which accounts for 10% of its Cerezyme revenue ($108M), of which the government subsidized 92% of the cost ($100M), lobbyists are insisting that this money would be better spent finding a cure for TB. This lobbyist pressure is threatening to derail Genzyme operations in South America. To ensure government buy-in and ensuing subsidization of Cerezyme medication, Genzyme must maintain and enhance their image as a corporation that cares about patients first and profits second. To ensure this image of Genzyme continues, Mr. Gerahty has initiated the HAND program which is looking at developing drugs for neglected diseases as defined by the WHO on their list of neglected tropical diseases. The HAND initiative is a CSR program that does not seek profit from any drugs developed within the program. In addition, all intellectual property resulting from this program is fully available to all partners and government agencies involved. Under the HAND initiative, there are currently 3 disease of interest: Malaria, Chagas/Sleeping sickness, and Tuberculosis.
In trying to make the HAND initiative a success, Genzyme has bitten off more than it can chew. It is stretched thin on resources, has developed too many partnerships, and is invested in too many projects. To make the HAND initiative a success, the folks at Genzyme must determine 3 things:
(1) Using the VRIO framework, determine if the HAND initiative is a valuable resource that can be exploited as a competitive resource by the company. (2) Using Porter’s framework for aligning CSR initiatives with company strategy, determine which projects under the HAND umbrella they should be highly involved in and which projects they should divest from. (3) How to optimize Genzymes organizational structure both internally and with external partners to maximize the efficiency, output and overall value of the HAND program.
As an internal framework to determine the competitive potential of a resource, VRIO analysis was used to map the competitive advantage of Genzyme’s HAND initiative.
Genzymes HAND initiative provides value in...
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