Genzyme Corp. may be able to grow replacement cartilage for your knee from a few of your cells, but it hasn't figured out a way to grow money in the lab-yet. For now, it must rely on David J. McLachlan to raise cash from banks and investors.
As chief financial officer of Genzyme, one of the world's five largest biotech firms, Mr. McLachlan leads it and its subsidiaries through the volatile world of biotech finance. His latest feat: securing a $225 million syndicated loan last December from Fleet Financial Corp. and Bank of Boston Corp.
Genzyme also raised $173 million in two equity financings managed by Credit Suisse First Boston.
In a wide-ranging interview, Mr. McLachlan spoke with American Banker about Cambridge, Mass.-based Genzyme's banking relationships and the commercial and investment banking landscape.
How did you select a bank to lead your last syndicated credit?
McLACHLAN: I went to Credit Suisse First Boston first, and they suggested that I would get a better deal with a commercial bank. That's a good relationship with an investment bank.
Didn't they offer the services of their own loan syndication unit?
McLACHLAN: They did, but they suggested it was more likely that our existing commercial bank could be more aggressive because of the relationship. They were honest about it. As I got terms from the commercial bank, I shared them with my investment bank to make sure that they were better than they could do. (First Boston) said that, based on what we needed and what we were looking for, that they thought a commercial bank would provide a better deal.
Was Fleet your first choice among commercial banks?
McLACHLAN: We had a false start. We went almost to the altar with another bank, and at the last minute as they moved it up the approval cycle, they backed out and left us high and dry. I was not a happy puppy.
One of the reasons this New York money-center bank backed away is they didn't know us well enough. By the time they found out more about us through their due diligence, they decided that we were riskier than they wanted a client to be. It didn't bother Fleet. Fleet knew us.
We had gone with this bank because they were quoting rates that were much cheaper than Fleet's. Perhaps we should have understood what banking relationships are all about and recognized that we hadn't done business with this bank before.
I said I would never bank with them again. I have since calmed down and made a courtesy call to that bank and have begun to see if we can rebuild the relationship. It's important that you have fairly broad-based banking relationships..
Do you see commercial banks closing in on investment banks' business?
McLACHLAN: On the lending side, commercial banks are very much like investment banks today. The big difference is, and maybe Chase or some of the New York banks are different, that most commercial banks don't think like an investment bank.
Investment bankers think more like businessmen. They're less risk-averse than a commercial banker is. Some of the commercial banks are trying to change, but they don't have the reputation yet. Unless they're bringing a product that is unique to them, they really don't have a lot more to offer than an investment bank does.
What is most important for Genzyme in an investment bank?
McLACHLAN: Understanding what's going on in the industry and working with us to help build the company. You don't raise capital all the time, and frankly, when it gets time to raise capital your relationship with the bank becomes somewhat adversarial. Even though they represent you, the transaction very often becomes more important than the relationship. You have to be a little careful.
Why did Genzyme select Credit Suisse First Boston for its recent equity issues?
McLACHLAN: They presented to us a methodology for financing the company which was very intriguing, using classes of stock, which has never been done before in the biotech industry. Because of that recommendation, along with the fact that CSFB is a bulge-bracket bank, we felt that we were reaching the stage where we needed broader banking capabilities.
At your request, Nasdaq recently suspended trading of shares of Genzyme's tissue repair division during a Food and Drug Administration hearing. Why take this unusual step?
McLACHLAN: The thinking behind it is that these public hearings are covered by news reporters who generally are ignorant of the specific issue before the FDA panel. We said it doesn't make sense to have the stock reacting to news that's incomplete at best and in some cases erroneous.