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Troubled Genzyme gets backing of major shareholder

World News | January 08, 2010


Kevin Grogan

Genzyme Corp has received the support of a major shareholder amid rumours that billionaire investor Carl Icahn may be looking to get a presence on the board.

The company has had a tough time since June when its Allston Landing, Boston facility was temporarily shut down after a bioreactor was contaminated with a virus, particularly affecting production of Cerezyme (imiglucerase) for Gaucher disease, Fabrazyme (agalsidase beta) for Fabry disease. Then, in November, the US Food and Drug Administration warned of the potential for foreign particle contamination in all lots of the two aforementioned therapies plus Myozyme (alglucosidase alpha) for Pompe disease, Aldurazyme (laronidase) for mucopolysaccharidosis type I and Thyrogen (thyrotropin alpha) for thyroid cancer.

At the time, the agency noted that the particles, containing stainless steel fragments, non-latex rubber from the vial stopper, and “fibre-like material from the manufacturing process” could potentially cause serious adverse events. This week, Genzyme signed a deal with Hospira which will see the latter perform contract manufacturing services as it overcomes its own production problems.

Against this backdrop, investors have been concerned about how Genzyme is developing. One shareholder, Relational Investors (which owns 4% of the company’s common stock), requested representation on Genzyme’s board of directors last month.

However Relational has now agreed to defer that request and “support the board’s nominees and proposals in 2010”. Genzyme will appoint Ralph Whitworth, co-founder of the institutional investor , to the board if representation is requested in November 2010.

Mr Whitworth said that “while these are difficult and challenging times for Genzyme, we are confident its management is making significant improvements to drive short- and long-term value for shareholders”. He added that the board “remains open to ideas and are materially improving” its manufacturing operation, “compensation programme, capital allocation discipline and board composition”.

Henri Termeer, Genzyme’s chief executive, said the agreement “is a strong vote of confidence from one of our largest shareholders in the company’s progress and future direction” and the board’s “aggressive actions to strengthen the company overall and return Genzyme to its historical path of sustainable growth and shareholder value creation”.

Meantime, Reuters has cited a source “familiar with the situation”, as saying that Mr Icahn, who bought 1.5 million Genzyme shares last year, may increase his stake and launch a proxy battle. Last year, he managed to place two directors on the board of Biogen Idec and it has been suggested he may try to do the same at Genzyme.

Genzyme’s shares are at a five-year low, causing dissatisfaction among investors but Phil Nadeau, an analyst at Cowen & Co, told Reuters that Mr Termeer “as much as anyone, has created Genzyme. Shareholders and board members are likely to keep that in mind should a proxy fight occur”.

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