Unloading A Core Asset
By Rob Wright, Chief Editor, Life Science Leader
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By Rob Wright
The other day I received a phone call from a CEO of a pharmaceutical company. During our conversation this person mentioned they were in the process of unloading a non-core asset. I asked for some more details and learned how companies often develop certain valuable technologies. These technologies may be core to a clinical trial and successfully move a drug toward proof of concept. However, it may not be a fit for the company post commercialization. What do you do, retain or divest? Doing either presents additional questions. If you retain, do you build a business unit around it, or just keep it on the shelf? If you divest, are you out to make a profit, breakeven, or donate it and use it as a write off? What I found interesting wasn’t the fact that the CEO has determined to divest the asset, but how they described the process of unloading it akin to someone getting rid of a family pet, “We want to find it a good home where it can grow.”
Apparently the technology is very good. So why not keep it? Maybe this is a means of diversifying your company. At conferences, I have heard a mixed message from investment gurus. Some advocate focus while others are proponents of diversification. It is hard to argue against diversification when you look at successful and yet very diverse companies (e.g. GE, 3M, Siemens, Hitachi, Bayer). Conversely, the WD-40 Company (NASDAQ: WDFC) has been quite successful with its rather focused approach. The answer to what to do seems to depend on your corporate strategy, vision, mission, culture and values.
Genzyme As A Case Study
Genzyme was one of the world’s oldest and most successful biotechnology companies. In 2010, the company found itself under assault by analysts and investors, clamoring for it to divest non-core businesses. Genzyme specialized in expensive drugs to treat serious, rare genetic disorders for which there are few other options. Yet, during the process of its growth, Genzyme found itself in the business of genetic testing, diagnostic products, and pharmaceutical materials. Today the company is a fully owned subsidiary of Sanofi. Founded in 1981, Genzyme had 21 employees and revenues of $2.2 million in its first year. Prior to being acquired in 2011, the company had more than 10,000 employees and revenues in excess of $4 billion.
Having gone through the process of being with a company during both a merger and an acquisition, I can attest that there are pros and cons to the process. For example, often there are cultural differences between the two organizations. In addition, during the process of merging two companies, management looks to create synergy, which often leads to corporate layoffs. Consider this, in 2009 Sanofi informed its U.S. sales force immediately prior to Thanksgiving to stay home the following Monday and await a phone call to find out if they still had a job. One year later, the company took a different approach. This time they waited until December 2 instead of November 30th. Rather than notify each rep individually, Sanofi managers took a “cattle-call” approach — scheduling members of the sales force to one of two teleconferences — one devoted to those who were being retained and the other, for those being let go. If you are a Genzyme employee, keep this in mind — the best predictor of future performance is past performance. In other words, update your resume.
To Divest: Not Just A Business Decision
Jeff Stibel, CEO of Dun & Bradstreet Credibility Corp, recommends not divesting based purely on a poor economy. His suggestion, only divest non-core assets, not merely those which are underperforming. The divestiture should also be done when it leaves the core business better off. In order to do this, he advocates companies spending time thinking about their core competencies and not making decisions based on external forces. I take exception to his advice and here’s why. Companies are created and run by human beings. People have emotions, feelings, goals, and values. To many entrepreneurs, their company is their baby and the employees their family. History seems to indicate that companies which become overly diversified tend to lose focus and place themselves at risk for acquisition. So, if your goal is not to be acquired and maintain control, in addition to Sibel’s business advice, be sure to evaluate your values before deciding to retain or divest a non-core asset.