Should Genzyme pare away at its business? That's what a key investor is saying. Ralph Whitworth, chief of Relational Investors and Genzyme-director-in-waiting, told Bloomberg that he thinks the company's renal business should be sold off. That way, Genzyme could focus more tightly on its treatments for genetic disease.
Renagel and Renvela, Genzyme's two key renal drugs, generated some $677 million in 2008 sales. Meanwhile, the genetic-disease treatments accounted for half the company's revenue with $2.23 billion. Because of manufacturing problems--which caused shortages of Cerezyme, its treatment for Gaucher disease, and Fabrazyme, its Fabry disease drug--Q4 sales dropped by 7.7 percent year-over-year to $1.08 billion. Revenue for the full year also fell, by 2.2 percent to $4.5 billion.
Does Whitworth believe that the manufacturing problems might not have arisen if Genzyme had been single-mindedly pursuing its genetic-disease business? If so, that wasn't his primary concern. It's the fact that the genetic-disease drugs deliver a return on invested capital of 25.8 percent (2008). The renal drugs don't deliver nearly so well. "We want to bring discipline to the financial side," Whitworth told Bloomberg. "The discipline increases the likelihood that money's well-spent."
Last week, Genzyme made a deal with Relational to help secure its hold on management-appointed board seats. Perhaps anticipating a proxy fight with activist investor Carl Icahn, Genzyme agreed to appoint Whitworth to its board at Relational's request--but Relational agreed not to ask until November or later, and in the meantime to support management's board nominees. And now, Genzyme is considering tying executive pay to sales growth in certain medicines, to address Relational's concerns about the company. Lots going on, so stay tuned.