Reference no: EM133212066

Genzyme is one of the most recognized and profitable companies in the high-growth biotechnology industry. Unlike traditional drug development, biotechnology uses tools to create synthetic or artificial proteins that look similar to human proteins.* This approach has yielded drugs that successfully treat diseases such as anemia, diabetes, and rheumatoid arthritis.

Because of the cost constraints and incredible odds involved in the FDA approval process, most companies focus their drug discovery efforts on diseases that contain large patient populations. Thus, a rare disease that affects only a few thousand people is often too small to offer the ability to recover the substantial investment required to develop, manufacture, and sell a new drug therapy.* As a result, most manufacturers seek to develop "blockbuster drugs" that have the potential to generate above $1 billion in annual revenues. Based on these data, it is easy to understand why big pharmaceutical companies leave many market segments untouched. Instead of evaluating the total market size of patients, Genzyme decided to focus on particularly severe disease states where no remedies existed. Genzyme managers believed that particularly severe diseases that lacked any effective treatment might allow the company to charge a high price per patient for an effective therapy, particularly if the cost was less than the medical and social costs of caring for untreated patients.

Genzyme ultimately decided to pursue the orphan drug segment, typically defined by those diseases occurring in fewer than 200,000 patients worldwide (see Table 5.1). Producers of orphan drugs are provided protection under The Orphan Drug Act of 1983. According to the act, public funds are used to subsidize orphan drug development through a variety of benefits such as a 7-year period of market exclusivity, the ability to apply for federal grant funding to defray costs of qualified clinical testing expenses and a 50% tax credit for certain clinical research expenses incurred in connection with product development.* Through the Orphan Drug Act, Genzyme recoups some of its development costs while simultaneously enjoying market exclusivity on developed drugs. This exclusivity has allowed the firm to enjoy tremendous profitability.

Question 1: Describe how Genzyme was able to creates a niche in the biotechnology industry.

Question 2: How did the external environment support a focused differentiation strategy?

Question 3: Why is a firm's ability to innovate important when implementing a focused strategy?