How does Genzyme’s focus on orphan drugs affect the degree of competition it faces? How does it affect the bargaining power of customers?
The orphan drugs market represents a relatively low share of the global pharmaceutical industry. This is primarily caused by the fact that, when the branch of the industry was developing, most of the companies disregarded the option to focus on orphan drugs, considering it unprofitable and inefficient. The few companies that did move into the market, such as Genzyme, now occupy the entire niche and, therefore, face a lot less competition than the companies working with more popular drugs and conditions.
Furthermore, the FDA Orphan Drug Act provides for seven years of market exclusivity, which means that the number of companies providing each type of orphan drugs is very limited. This decreases the overall choice of the drugs available, thus impairing the customers’ bargaining power.
How does focusing on orphan drugs affect the types of resources and capabilities a biotech firm needs to be successful?
Firstly, focusing on rare diseases affects the financial side of drug development and production. According to the FDA (2017), orphan drug companies qualify for various grants and vouchers that can be used to pay for some of the costs associated with these processes. Furthermore, a focus on orphan drugs also decreases the need for marketing resources, as most drugs are marketed directly to physicians that examine and treat orphan diseases. However, the rarity of diseases is also associated with their complexity and long-term nature, which means that a company has to have extensive technical and laboratory facilities, as well as the resources to provide for their on-going work in the long term.
Does Genzyme’s focus on orphan drugs make sense? Do you think Genzyme has a long-term strategic intent?
I believe that targeting people with orphan diseases solely was an excellent strategic decision. As evident from the case study, by moving into the rare diseases market, the company decreased the competition and increased its effectiveness. Moreover, as these diseases are not widespread, it is unlikely that the studies for their prevention will be funded, which means that the interest in Genzyme’s products will remain relatively stable in the future.
Why do you think Genzyme has diversified into other areas of medicine? What are the advantages and disadvantages of this?
In my opinion, Genzyme’s decision to diversify into other areas of the market was motivated by the desire to ensure the company’s efficiency and profitability. Focusing on enzyme diseases solely would not allow the company to grow its profits as the target customer population would remain at the same size. Moreover, there would be a threat to new competitors entering the same market niche, which could decrease the company’s revenues, thus affecting the development of new drugs. By diversifying its business, Genzyme was able to target a wider pool of customers and ensure its stability, as well as to grow its revenues over the years.
Nevertheless, there are still some disadvantages to the diversification of business. For instance, diversification requires increased expenses on developing new product lines and enhancing the company’s production capability (Xaxx 2017). Furthermore, moving into a new market requires substantial expertise, which is often time- and resource-consuming (Xaxx 2017). Finally, diversified companies experience a threat of overextension, where the company’s focus becomes too broad and affects the quality of products, thus making it an easy target for the competitors (Xaxx 2017).
What recommendations would you offer Genzyme for the future?
The main goal for the company at the moment should be to preserve its good competitive position in the market. New businesses are moving into the orphan drugs industry, and some of them are supported by large pharmaceutical corporations, which poses a threat of increased competition in the market. Genzyme should attempt to introduce products for the diseases that are not yet provided for, thus earning protection from competition under the FDA Orphan Drug Act and increasing its revenues.
FDA 2017, ‘Developing products for rare diseases & conditions’, U.S. Food and Drug Administration. Web.
Xaxx, J 2017, ‘The disadvantages of diversified business’, Chron Small Business. Web.