Describe, from a regulatory standpoint, the rise and fall of a biotech firm. It can be any firm, but preferably a US firm. In your description, give a brief history, describe the main product(s) and what ultimately led to the firms demise.© BrainMass Inc. brainmass.com October 25, 2018, 6:52 am ad1c9bdddf
The Rise and Fall of Genzyme:
Genzyme was a biotech company founded in 1986. It went onto become the third largest biotech company in the world until it was acquired in 2011 by Sanofi. Genzyme as a company had focused on six areas of medicine:
1. lysosomal storage diseases,
2. renal disease,
4. transplant and immune diseases,
6. genetics and diagnostics
The acquisition of Genzyme was bought on by a drop in sales resulting from quality control troubles at some of its facilities. Before we describe these quality control failures, we would like to present a history of Genzyme:
1981 - The company was founded by Sheridan Snyder and scientist Henry Blair. The initial focus was on enzyme deficiency disorders and orphan drugs. After one year of operations, Genzyme had $2.2 million in revenue. Genzyme struggled until 1983, when Henri Termeer became company chairman at Genzyme. Termeer steered the company towards a new pathway. Under Termeer, Genzyme crafted a niche strategy focusing on less glamorous products that could be sold readily.
1986 - After expanding their research and development activities, the company executives decided to go public. By switching from private to public ownership, Genzyme was able to raise some capital to further fund their work. The initial public offering was 2.8 million shares at approximately $10 per share. This raised over 28 million dollars for the company to further expand their research and development.
1992-1994 - During this period, Genzyme developed Cerezyme. The drug was eventually approved by the FDA in 1994. Cerezyme is an orphan drug for the treatment of Gaucher's disease. Gaucher's disease is a genetic disease in which a fatty substance (lipid) accumulates in cells and certain organs. Gaucher's disease is the most common of the lysosomal storage diseases and became one of the flagship products at Genzyme.
1994-1996 - Genzyme diversified their portfolio of drug products and even went on to work on surgical-based treatments. Genzyme through acquisition of another company called BioSurface Technology developed Carticel, which is a cartilage repair technique also known as autologus cell implantation. Carticel was licensed by FDA in 1996.
2001-2003 - Another flagship product, ...
This solution is approximately 1200 words (about 6 double-spaced pages) including six references. The solution describes a biotech company Genzyme and how it was eventually taken over by Sanofi. The solution provides a brief history of the company and then looks at the circumstances involved with Genzyme failing to meet certain regulations.
Corporate Finance: Capital Structure, Modigliani-Miller Proposition, NPV, Working Capital, Accelerated Depreciation, corporate bankruptcies, LBO, currencies
1) You're trying to figure out why the chairman of the Board of Directors fired you as CEO of a small corporation. You never missed an interest payment and the firm had a cash ratio of 2, the highest of any firm in their peer group. Because of this financial safety net, the firm's debt was considered very safe by industry standards. Why were you fired? Be specific.
2) Acme Widgets Inc. has steady earnings (EBIT), and is an average firm in most ways in the widget industry. The one exception is it has the highest debt-equity ratio of any firm in its industry. It has regularly sold most of its bonds over the last 40 years to Ajax Holdings, a large institutional investor (like a pension fund or an insurance company). Given the lessons of Modigliani-Miller Proposition #1, explain Acme's unique capital structure?
3) You work for Campbell's Soup. Your boss has asked you to calculate the NPV of a new line of chewing gum which will have some of the firm's popular flavors (e.g. Chicken Noodle Gum). You estimate the annual revenues for this project will be $500,000, cost of goods sold will be $200,000, new equipment will cost $800,000 and will be depreciated completely over the project's life (four years, straight line). The project will also need $100,000 in working capital (immediately), which will be recouped in the final year. The building adjacent to your existing factory will be rented for this project at an annual cost of $50,000. You accumulated $10,000 in overtime pay figuring all of this stuff out. The firm's current cost of capital is 10% and their D/E = 2. A potentially relevant publicly traded chewing gum company's financial information is:
ßstock = 1.5 ßdebt = 0.5 rf = 4%
E(rmkt) = 12% Tax Rate = 50% D/E = 2.0
What is this project's NPV?
4) A pizza shop owner is asking for a loan from the bank where you work as a loan officer. She tells you that she's been in business for five years and this is the best year she's ever had. She says that half of her business comes from deliveries. She indicates that she's been frugal to a fault and muses that she decided not to change the store's original logo because she would have to repaint the old delivery vans. She shows you several accounting ratios from this year's financial statements to support her loan application and she focuses on her TIE of 2 and her Debt/Total Assets of 0.5. Based on what she has told you, what two pieces of additional information would you like before you proceed? Note: This information should pertain to the two ratios she focused on (individually) and your reasons for wanting this information should be related to her description of her business.
5) ABC Inc. is a nonprofit and thus pays no corporate taxes. XYZ Inc. is a for-profit firm whose current corporate tax rate is 40%. They are in the same business. In setting up operations, ABC chose to use fewer fixed assets (plant and equipment). As a result of that, they have higher expenditures on working capital (in a sense, substituting inventories for machines). Why did XYZ choose more fixed assets and lower working capital expenditures?
Both of these companies are considering getting a new copier. Which of them is more likely to lease it? Why?
6) The stock of BFD Inc. is selling for $5/share. Its assets have a book value of $12 and it has liabilities of $5 (both per share). What is BFD's market to book ratio? Show how you could break up this company and make a profit? What important assumption underlies this potential profit?
7) Your boss at Stanley Tools is disappointed. The firm has decided to branch out into some new industries and he wanted the firm to enter the potato chip industry. Unfortunately, the careful analysis that you provided him ended up showing a negative NPV. He asks you to consider the following changes in order to make the project work:
a. Accelerated Depreciation (you used straight line)
b. Leasing the manufacturing equipment
c. Eliminating Accounts Receivable and Inventory to save working capital costs
d. Switching to the Stanley's current (lower) WACC
Of the four, which one is least likely to increase this project's NPV? Explain.
Of the four, which one should you reject as an inappropriate use of good finance principles?
Of the four, which one would be best using good business and finance principles? Explain.
8) In Slobovia, an obscure European country, dividends and interest are given the same tax treatment: they are both deductible at the corporate level and both taxed as income at the investor's level. All else the same, where would you expect more corporate bankruptcies, in Slobovia or in the US? Explain.
9) Your firm has had steady earnings for many years but it has resisted paying dividends. It typically uses its earnings to finance the replacement of its worn out assets, thus saving the cost of borrowing for that purpose. Your firm's. stock price has not risen much in recent years. A Drucker-educated consultant tells the CEO to start paying a modest dividend out of earning. "The borrowing costs you will incur by occasionally having to raise money with debt will be outweighed by a subtle benefit." What subtle benefit is the consultant referring to?
10) United Cut and Scab is a large, profitable consumer products company. After being taken over in an LBO, they cease their common practice of merging with small, R&D-oriented biotech firms. Why?
11) Over the past year, the dollar has depreciated by about 10% against the Euro. A year ago you took out a home equity loan in the US at an interest rate of 8% and you invested the money in a German mutual fund that paid a 5% Euro return. What net return did you earn on all of these transactions over the year?
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